TMI Blog2007 (4) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee being profits in lieu of salary as contemplated u/s 17(3) of the Act, the assessee would be entitled to the relief u/s 89 of the Act. It is pertinent to note that the definition of the words profits 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 to in clauses (10), (l0A), (l0B), (11), (12), (13) or (13A) of section 10 would be profits in lieu of salary . Since the payment received under the voluntary retirement covered u/s 10(10C) of the Act does not find place in the excluded category specified in section 17(3) (ii), it is evident that the amount received on voluntary retirement would be profits in lieu of salary as contemplated u/s 17(3) of the Act and consequently entitled to relief u/s 89 of the Act. Thus, the decision of the Tribunal in holding that the assessee is entitled to the exemption u/s 10(10C) of the Act and also rebate u/s 89 of the Act in respect of the amount received in excess of Rs. 5,00,000 on account of voluntary retirement, cannot be faulted. In the result, the question of law set out here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1) of the Act. Later on, the Assessing Officer issued notice under section 148 of the Act and passed an order under section 143(3) read with section 147 of the Act disallowing the rebate under section 89(1) of the Act. The Assessing Officer held that the voluntary retirement cannot be treated as termination of employment and the amount received under the voluntary retirement scheme ( VRS for short) is ex gratia payment and not compensation for termination of employment. As section 10(10C) of the Act specifically provides for total exemption of the amount received on voluntary retirement up to Rs. 5,00,000 the Assessing Officer held that the assessee is not entitled to claim relief under section 89(1) over and above the exemption available under section 10(10C) of the Act. Accordingly, the Assessing Officer disallowed relief under section 89(1) of the Act. 7. On appeal filed by the assessee, the Commissioner of Income-tax (Appeals) held that section 10(10C) speaks about total exemption from Income-tax from the compensation received on voluntary retirement up to Rs. 5,00,000. As the amount in excess of Rs. 5,00,000 is taxed in the hands of the assessee as profits in lieu of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10(10C) in any other assessment year. Accordingly, Mr. Parchure submitted that the Commissioner of Income-tax (Appeals) as well as the Tribunal were in error in holding that in addition to the exemption under section 10(10C) of the Act, the assessee is entitled to the relief under section 89(1) of the Act. 9. Mr. Mani, learned counsel appearing on behalf of the assessee submitted that in the present case, after granting exemption of Rs. 5,00,000, the balance amount has been taxed under the head Salary and, therefore, once it is accepted by the Revenue that the amount received is liable to be taxed under the head Salary , it is not open to the Revenue to contend that the amount received is not salary and deny the benefit of rebate under section 89 of the Act. Mr. Mani submitted that in view of the consistent view taken by various High Courts in respect of the amount received on voluntary retirement, the decision of the Tribunal that the assessee is entitled to exemption under section 10(10C) as well as the benefits of section 89(1) of the Act cannot be faulted. In this connection, Mr. Mani relied upon the decisions in the case of CIT v. G. V. Venugopal reported in [2005] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder shall be allowed to him in relation to any other assessment year ; 11. Section 89(1) of the Act as it stood prior to the Finance Act, 2002, reads as follows : S. 89 Relief when salary, etc., is paid in arrears or in advance. (1) Where, by reason of any portion of an assessee\qs salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed. 12. Section 89 as substituted by the Finance Act, 2002 with retrospective effect from 1st April, 1996 reads thus : 89. Relief when salary, etc., is paid in arrears or in advance. Where as assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der any voluntary retirement scheme in any other assessment year, the exemption under section 10(10C) will not be available. Thus, the second proviso to section 10(10C) merely states that the exemption thereunder will be available only once. The second proviso to section 10(10C) 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 of relief under section 89(1) cannot be accepted. 16. The Madras High Court in the case of G. V. Venugopal [2005] 273 ITR 307 while construing the word thereunder in the second proviso to section 10(10C), observed thus (page 312) : 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 view draws support from the Central Board of Direct Taxes Circular No. 657 dated August 30, 1993 (see [1993] 204 ITR (St.) 106 ). In paragraph 16 to 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes. This can never be considered as a deduction or exemption like that of section 10(10C). 17. Thus, on a plain reading of the second proviso to section 10(10C) of the Act, it is clear that the restriction therein is only with reference to the grant of exemption under section 10(10C) and the said proviso does not bar relief if available under section 89 of the Act. 18. The question, therefore, to be considered is, whether the assessee is entitled to deduction under section 89 of the Act. 19. As noted earlier, section 89 of the Act has been substituted by the Finance Act, 2002 with retrospective effect from 1st April, 1996. The said amendment does not affect the merits of the appeals which are before us. 20. Section 89 of the Act inter alia provides that where in any financial year, the assessee receives an amount in the nature of salary or receives payment which is a profit in lieu of salary, then the Assessing Officer, on an application, shall grant such reliefs as may be prescribed. Rules 21A, 21AA and 21B of the Income-tax Rules, 1962, provide for the mechanism for granting relief under section 89 of the Act. 21. The words profits in lieu of salary are defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific inclusion and exclusion in the meaning of the word 'income' and 'salary', it is rightly submitted that payment received by the assessee has no connection with the profits of the employer. The word 'profits' is used only to convey any 'advantage' or 'gain' by receipt of any payment by the employee. Webster's Comprehensive Dictionary gives the meaning of the word 'profit', inter alia, to mean advantage or benefit. It states : 'Profit-Synonyms : advantage, avail, benefit, emolument, expediency, gain, good, improvement, proceeds, receipts, return, returns, service, utility, value . . . Advantage is that which gives one a vantage ground, either for coping with competitors or with difficulties, needs, or demands ; as, to have the advantage of a good education ; it is frequently used to what one has beyond another or secures at the expense of another ; as, to have the advantage in argument, or to take advantage in a bargain.' Applying the aforesaid general meaning of the word 'profits' and considering the dictionary meaning given to it under section 17(1)(iv) and (3)(ii), it can be said that 'advantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isting the court as amicus curiae, 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. In other words, as per section 17(3) of the Act, any amount paid at or in connection with the termination of employment would be profits in lieu of salary . Whether the termination of employment took place on account of the voluntary decision of the employee or not is wholly irrelevant. In the present case, on the assessee opting for voluntary retirement, his services were terminated and the amount has been paid as per the voluntary retirement scheme at the time of terminating the service of the assessee. Therefore, the amount received by the assessee being profits in lieu of salary as contemplated under section 17(3) of the Act, the assessee would be entitled to the relief under section 89 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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