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Ranjeet Singh Khurana, C/o. Rattan Lal and Associates, CA Versus CIT, Delhi-XV, New Delhi

2016 (9) TMI 1148 - ITAT DELHI

Revision u/s 263 - Voluntary retirement compensation - disallowance of claim of deduction allowed under sec. 10(10C) - “profit in lieu of salary” - Held that:- As decided in CIT vs. Sharda Sinha [2015 (12) TMI 1290 - DELHI HIGH COURT] wherein held that the sum paid to the assessee was “to compensate for the abrupt loss of source of income” and that the termination of contract had fatally injured the appellant’s only source of income for the last 20 years. The mere fact that the assessee was free .....

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d thus prejudicial to the interest of Revenue as well. We thus while setting aside order in question passed under sec. 263 of the Act restore the assessment order granting the above relief on the receipt of ₹ 5 lacs as compensation. The grounds involving the issue of validity of revisional order passed under section 263 of the Act are accordingly allowed in favour of assessee - ITA No. 2628/Del/2011 - Dated:- 16-8-2016 - SHRI I.C. SUDHIR AND SHRI L.P. SAHU For The Assessee : Shri Kapil .....

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ned CIT-XV, New Delhi under sec. 263 is uncalled for and the order passed u/s. 263 deserved to be cancelled. 2. That the Learned CIT-XV, New Delhi has wrongly and illegally directed the Assessing Officer to make addition of ₹ 5,00,000 in the income of the assessee by not allowing exemption of ₹ 5,00,000 under sec. 10(10C) of the Income-tax Act, 1961 which was righty allowed by the Assessing Officer in his order dated 16.10.2008 passed under sec. 143(3) of the Income-tax Act, 1961. 2. .....

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ent. The assessment was framed under sec. 143(3) of the Income-tax Act, 1961 and the returned income was accepted. The Learned CIT invoking the provisions of sec. 263 of the Act issued notice there under and being not satisfied with the cause shown by the assessee held the assessment order as erroneous and prejudicial to the interest of Revenue. The Learned CIT set aside the assessment order with the direction to the Assessing Officer to revise the order by disallowing the claim of deduction amo .....

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tions including implementing of government pay scales and other rules regarding provident fund, gratuity, leave travel concession etc. After completing one year probation on the post, the assessee was issued a fresh appointment letter on 01.09.2000 designated the assessee and head of account (Head Clerk) and this post exists in government school. In January 2005, the assessee was transferred to another branch of Cambridge Preparatory School, New Rohtak Road, New Delhi. As per the assessee, the s .....

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was settled and the management offered voluntary retirement compensation of ₹ 5 lacs to the assessee. If the assessee would not have sought early voluntary retirement, he would have retired in the year 2025. The post of the assessee as head clerk was recognized by the Directorate of education as a permanent post. The management agreed that the assessee should be compensated with early voluntary retirement and Rs. 5 lacs in lieu thereof was paid as a settled amount to the assessee. This se .....

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nt of compensation, the assessee was told that the TDS had to be deducted by them as per rules and the assessee should apply for a refund as the amount was under a mutually agreed VRS settlement. 4.1 The Learned AR submitted further that the assessee had submitted all the necessary information and documents whatever asked by the Assessing Officer during the course of assessment proceedings for the assessment year 2007-08. Being fully satisfied about the facts of the case, the Assessing Officer f .....

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sion of the assessment order. It is not the case of the Learned CIT that assessee had concealed any material facts of the case from the Assessing Officer during the assessment proceedings. The claim of the assessee as exempted income of the compensation received on compulsory retirement was duly accepted by the Assessing Officer while passing the assessment order under sec. 143(3) within the provisions of sec. 10(10C) of the Income-tax Act. The Learned AR submitted that section 10(10C) of the Ac .....

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e optee for voluntarily retirement. The Learned AR contended that when there is specific decision and the common interpretation is that the act has to prevail over the rule Rules are procedural which can be amended or which require be amended on allowing reasonable opportunity. 4.2 The Learned AR further contended that if two views are possible while interacting the provisions, a view which is favourable to the assessee has to be adopted. He submitted that the Hon'ble Calcutta High Court in .....

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ITR (2003) - order dated 22.12.2015 (Delhi High Court). 5. The Learned CIT(DR) on the other hand placed reliance on the revisional order in question. He submitted that the decisions cited by the Learned AR having distinguishable facts are not helpful to the assessee. He submitted that the assessee was not eligible for claiming exemption under sec. 10(10C) of the Act as he was not fulfilling all the conditions laid down under Rule 2BA of the Income-tax Rules. 6. After having gone through the abov .....

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1961? . 6.1 In the above case before the Hon'ble Gujarat High Court, the Assessing Officer noted that assessee had received an amount of ₹ 3,51,308 being ex gratia compensation on premature cessation of his services. In the foot note of the return of income, the assessee has stated that since neither the terms of employment nor the service rules of the company provide for making ex gratia payment, this claim as capital receipt is not liable to tax as the same is not paid as retrenchme .....

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elevant para Nos. 10 to 13 of the decision of the Hon'ble Gujarat High Court in the above stated case of Arun Bhai R. Naik vs. ITO (supra) are being reproduced hereunder: 10. This court is in agreement with the view adopted by the Calcutta High Court and the Delhi High Court in the above decisions The question that arises in the aforesaid legal backdrop is whether the payment received by the appellant - assessee from his employer was a voluntary payment given by the employer or was it in the .....

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as in force from time to time in lieu of such notice. Against the order of termination, the assessee preferred an appeal to the higher authority in the company, but did not succeed. He, therefore, approached this court by way of a writ petition under Article 226 of the Constitution of India being Special Civil Application No.5039/1984 challenging the discharge. The said petition came to be allowed by the learned Single Judge holding that (1) the employer was a State within the meaning of Article .....

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above and disposed the appeal in terms of the agreement. It is pursuant to the above agreement that the amount in question came to be paid to the appellant. 11. Thus, the assessee s services came to be terminated by the order dated 6th May, 1984 under rule 44 of the relevant Service Rules after giving three months pay. Therefore, insofar as the obligation of the employer to pay any amount to the assessee in relation to the termination of his services, the same came to an end in view of the disch .....

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services of the assessee came to be terminated in terms of the rules, and the amount in question was paid only in terms of the settlement, without there being any obligation on the part of the employer to pay any further amount to the assessee in terms of the service rules. The employer, voluntarily at its discretion, agreed to pay the amount in question to the assessee with a view to bring an end to the litigation. There was no obligation cast upon the employer to make such payment and, theref .....

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d to the services of the appellant. In the opinion of this court, the manner of computation of the amount payable to the assessee in terms of the settlement, would not change the character of the payment, inasmuch as, the same being voluntary in nature and without any obligation on the part of the employer, would not amount to compensation in terms of section 17(3)(i) of the Act. The Tribunal was, therefore, not justified in holding that the amount of ₹ 3,51,308/- received by the appellant .....

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t, a reference of the decision of Hon ble jurisdictional High Court of Delhi in the case of CIT vs. Deepak Verma (2011) - 339 ITR 475 (Del.) has also come. The Hon'ble Gujarat High Court has been pleased to note the observation of Hon'ble Delhi High Court in the above cited case on the word compensation . The Hon'ble Delhi High Court has been pleased to observe that the word compensation is not defined under the Income-tax Act, 1961. Therefore, one has to take into consideration the .....

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legal beautify or legal obligation, whether on sympathetic reasons or otherwise, such payment is not to be treated as profit in lieu of salary under clause (i). 6.2 The ratio laid down by the Hon'ble Delhi High Court in the case of CIT vs. Sarda Sinha (supra) is also helpful to the assessee in the present case. In that case, before the Hon'ble High Court, the question raised was whether the ITAT was correct in law in holding that the compensation of ₹ 53,82,000 received by the ass .....

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