Voluntary retirement - Double benefits under Ss 10 and 89 - Proviso to Sec 10 does not bar availment of benefits under other Sections; Once Revenue treats the sum beyond Rs 5 lakh as salary, can it really deny the rebate u/s 89? : Bombay HC

Can 'voluntary retirement' be clubbed with termination of employment? Is a beneficiary of voluntary retirement scheme entitled to the twin benefits under Sec 10(10C) and Sec 89(1) of the Income Tax Act? These were the ticklish questions referred to the Bombay High court in a bunch of 66 appeals, taken up together for disposal.

The assessee had filed his return of Rs 10.28 lakh. He had claimed exemption for Rs 5 lakh u/s 10(10C) and paid tax after availing rebate u/s 89(1) on the balance amount. The return was processed u/s 143(1) and a notice was later issued u/s 147, disallowing the rebate u/s 89(1). The question the AO raised was that the voluntary retirement cannot be treated as termination of employment and the amount received was ex-gratia payment and not compensation for termination of employment.

The CIT (A) took the stand that since the sum beyond Rs 5 lakh exempted u/s 10(10C) is taxed as 'profits in lieu of salary' u/s 17(3), rebate u/s 89(1) cannot be denied. The Tribunal agreed with the CIT (A).

The revenue argued that in view of the second proviso to Section 10(10C), once exemption under Section 10(10C) is availed, the assessee is not entitled to relief under Section 89 in respect of the amount received in excess of Rs.5,00,000/-.

Having heard the arguments the High Court observed that there is no dispute about the exemption of Rs five lakh u/s 10(10C). The only dispute is about the allowability of rebate u/s 89(1). So the question it framed was : Whether Section 10(10C) bars the assessee from availing the benefits under Section 89(1) of the Act ? If not, whether the assessee is entitled to the relief under Section 89(1) of the Act in respect of the amount received on voluntary retirement ?

The High Court underlined that

++ the second proviso to Section 10(10C) contemplates is that the total exemption up to Rs.5,00,000/- from the amount received on voluntary retirement will be available only once and even if the assessee receives amount under any voluntary retirement scheme in any other assessment year, the exemption under Section 10(10C) will not be available. It does not place any embargo on the amount received by the assessee in excess of Rs.5,00,000/-. Therefore, the argument of the revenue that Section 10(10C) bars the assessee from availing relief under Section 89(1) cannot be accepted.

++ The use of the word `thereunder' in the above proviso means that once exemption is allowed, again no exemption `thereunder', i.e. under section 10(10C) shall be allowed in relation to any other assessment year. The word `thereunder' referred to in this proviso cannot mean any section other than section 10(10C).

++ This means the appellant is entitled for relief under section 89(1). Further, there is no specific or express provisions laid down in the Act that when exemption is allowed under section 10(10C), relief under section 89(1) is not allowable.

++ A reference can be made to other provisions of the Act where double benefits have been curtailed by the statute wherever the statute has specifically so intended. For example, where a deduction has been allowed under section 80CCC, a rebate with reference to such amount cannot be allowed under section 88. In respect of the amount received under voluntary retirement scheme there is no such specific curtailment of benefits regarding exemption under section 10(10C) and relief under section 89(1).

++ Basically relief contemplated under section 89(1) is aimed to mitigate hardship that may be caused on account of high incidence of tax due to progressive increase in tax rates. This can never be considered as a deduction or exemption like that of section 10(10C);

++ Because of the inclusive meaning given to the phrase ''profits in lieu of salary'' would include ''any payment'' due to or received by an assessee from an employer, even though it has no connection with the profits of the employer. It is true that the Legislature might have avoided giving an inclusive meaning to the word ''salary'' by stating that any payment received by the employee from an employer would be considered to be salary except the payments which are excluded by section 17(3)(ii).

The High Court further noted that in this case the Revenue has assessee the sum beyond Rs five lakh as 'income from salary'. And having assessed it so, is it open to the Revenue to contend that the said amount is not salary for the purpose of relief u/s 89?

The court further supported the view of the Amicus Curiae that even if the assessee has opted for retirement voluntarily, there has to be termination by the employer and, therefore, while terminating service any amount paid on account of voluntary retirement would be ''profits in lieu of salary'' covered under Section 17(3) of the Act. The amount paid on termination of service due to voluntary retirement may be ex-gratia payment, but it would be `profits in lieu of salary' as contemplated under Section 17(3) of the Act.

The definition of the words ''profit in lieu of salary'' in Section 17(3) of the Act, is an inclusive definition and as per Section 17(3)(ii), any payment received by the assessee from an employer except the payments referred in clauses 10, 10A, 10B, 11, 12, 13 or 13A of Section 10 would be `profits in lieu of salary', the Bench added.

Final shot : The assessee is entitled to the twin benefits u/s 10(10C) and u/s 89(1) on the sum received for voluntary retirement under a scheme framed as per the CBDT guidelines.