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Proliferation of appeal cases
December, 02nd 2006

Courts and tribunals are flooded with appeal cases. Yet, no attempt is being made to ease the situation by taking policy decisions to settle issues where there is unanimity of view among the appellate bodies. One such issue relates to grant of relief under Section 89(1) of the I-T Act, 1961, with regard to any amount exceeding Rs 5 lakh received as compensation for voluntary retirement.

Payments received under the voluntary retirement scheme (VRS) are exempt up to Rs 5 lakh under Section 10(10C). An unsettled issue in this context is whether relief under Section 89(1) is admissible for the amounts that exceed the exemption limit of Rs 5 lakh.

All decisions pronounced on the issue thus far have been in favour of the view that such relief is admissible. Yet, the Central Bureau of Direct Taxes (CBDT) is allowing filing of appeals without examining the issue on merits and on the basis of such decisions.

Favourable rulings

The following are some of the rulings where favourable decisions were taken:

In CIT vs M. Raman (2000 245 ITR 856 Madras), it was decided that in addition to the exemption under Section 10(10C), tax relief under Section 89 can be claimed by a person who opts for VRS, as the sum received under VRS is also in the nature of compensation received by the assessee from his employer in connection with the termination of his employment.

A similar view was expressed by the Madras High Court in CIT vs J. Visalakshi (1994 206 ITR 531 Madras). According to the High Court, Section 89(1) read with Section 17(3) are beneficial clauses and, hence, the benefit available under Section 89(1) cannot be denied to a taxpayer.

These decisions were recently followed in CIT vs G. V. Venugopal (2 (I) ITCL 18 Madras).

In CIT & Anr. vs V. P. Surendra Prabhu (2006 8 (I) ITCL 3 Karnataka), it was held that the payment received from an employer under VRS is exempt from tax to the extent prescribed under Section 10(10C) and the amount over and above the prescribed limit is taxable as profit in lieu of salary under Section 17(3), and, as such, the assessee was entitled to relief under Section 89(1).

Benches of the Income-Tax Appellate Tribunal (ITAT) have taken similar decisions in a number of cases, which include: ITO vs Dilip Shirodkar (2005 93 ITD 41 Panajee Tribunal); and S. S. Jain vs ITO (2005 4 (II) ITCL 29 Chd. Tribunal). There are few other decisions on similar lines.

Appeals pile up

The Madras High Court has consistently followed the view in J. Visalakshi. However, despite the Madras and Karnataka High Courts having held that relief is admissible under Section 89(1) over and above the exemption limit, the CBDT is persisting with the view that such relief is not allowable and is permitting unhindered filing of appeals, in the process increasing their numbers substantially, and despite the fact that revenue implications are not likely to be substantial.

The CBDT needs to issue instructions that such decisions be accepted and that appeals should not be filed against such orders. Alternatively, if it feels strongly about its view, it should amend the law to prevent unnecessary wastage of time, money and energy at various levels.

T. N. Pandey
(The author is a former Chairman of the CBDT.)

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