TMI Blog2008 (7) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ee under "Optional Early Retirement Scheme of Reserve Bank of India" is eligible for exemption under section 10(10C) of the Income Tax Act? (b) Whether on the facts and in the circumstance of the case and in law, the Hon'ble Tribunal Mumbai was justified in interpreting rule 2BA in favour of assessee against the established norms of interpretation the rules? (c) Whether on the facts and in the circumstances of the case and in law, the Tribunal has justified in allowing relief to the assessee under section 89(1) of the Act in respect of sum received under the VRS over and above a sum of Rs.5,00,000 which is not prescribed under section 89 (1) of the Income-tax Act nor under any of the prescribed categories as per Rule 2BA of Income Tax Rules, 1962. (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing relief to the assessee under section 89(1) of the Act when employer has not determined the amount of ex gratia and financial years to which it pertained." 2. Appeal admitted on the question of law as formulated above. 3. On behalf of Revenue it is sought to be submitted that the employees who had taken benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under a Central, State or Provincial Act; or .... on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in the case of a public sector company referred to in sub-clause (i), a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees." 6. Rules have been framed and we are concerned with Rule 2BA. The relevant portion of the Rule reads as under:- "2BA......at the time of his voluntary retirement or voluntary separation shall be exempt under clause (10C) of Section 10 only if the scheme of voluntary retirement framed by the aforesaid company or authority or Co-operative Society or University or Institute, as the case may be: (i) it applies to an employee who has completed 10 years of service or completed 40 years of age; (ii) it applies to all employees (by whatever name called) including workers and executives of a company or of an authority or of a co-operative society, as the case may be, excepting directors of a company or of a co-operative society; (iii) the scheme of voluntary retirement or voluntary separation has been drawn to result in overall reduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filled up. In so far as the objection that the retired employees of the company shall not be employed by the said company or any of its group concern it held that there was no evidence or material to show that there is any obligation on the part of the R.B.I. to employ the retired employees in any other company or concerns under the same management. For the reasons aforesaid the Tribunal was pleased to hold that they do not agree with the stand of Assessing Officer and the Commissioner of Income-tax that the conditions of the guidelines prescribed under Rule 2BA are not complied with in the O.E.R.S. of the R.B.I. For the aforesaid reasons they allowed the Appeals. 10. Before answering the issue we may refer to some of the material which have been brought to our attention by the parties under the scheme as announced by Administrative Circular No.1 dated August 11, 2003 was applicable only those employees were eligible who have completed 25 years of full time regular service in the bank and have also completed 50 years of age as on 1 st August, 2003. The ex gratia payment was equal to pay plus D.A. for the number of years of actual service rendered at 60 days for each completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te grounds. Year 2006: Sr.No. Cadre Total Vacancies filled. Vacancies filled by General SC ST OBC 1. Officers 140 68 33 15 1 24 2. Class III 8 2 8 Nil Nil Nil 3. Subordinate Staff 212 3 103 34 23 52 360 179 67 38 76 1. Includes 7 Part time BMOs. (6 Gen. 1 ST). 2. Out of 8 appointments, 7 were made on compassionate grounds. 3. Out of 212 appointments, 24 were made on compassionate grounds. Upto 30-6-2007 : Sr.No. Cadre Total Vacancies filled. Vacancies filled by General SC ST OBC 1. Officers 28 1 10 1 2 1 9 7 2. Class III 7 2 3 3 1 Nil 3. Subordinate Staff 71 3 49 10 0 12 106 62 15 10 19 1. Includes 2 Part time BMOs (1 Gen. 1 SC). 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was over staffing. While answering the issue the Court observed as under (page 24): - "There is a definite purpose for its enactment. One of the purposes is streamlining the public sector to cure it of one of its ailments of over staffing which is realised from experience of almost four decades of its functioning. In view of the role attributed to the public sector in the sphere of national economy, improvement in the functioning thereof must be achieved in all possible ways. A measure adopted to cure it of one of its ailments is undoubtedly a forward step towards promoting the national economy. The provision is an incentive to the unwanted personnel to seek voluntary retirement thereby enabling the public sector to achieve the true object indicated. The personnel seeking voluntary retirement no doubt get a tax benefit but then that is an incentive for seeking voluntary retirement and at any rate that is an effect of the provision or its fall-out and not its true object. It is similar to the incentive given to the tax-payers to invest in the public sector bonds by non-inclusion of the interest earned thereon in the taxpayer's total income which promotes the true object of ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , will have to be read bearing in mind the object of Section 10(10C) itself. Under the Rules a scheme framed must be in accordance with the requirements as set out therein. The scheme, therefore, must either expressly or impliedly comply with the requirements. Merely because the scheme may not expressly set out that the posts will not be filled in cannot result in the scheme not being a scheme falling under Section 10(10C) read with Rule 2BA of the Rules, bearing in mind the procedural nature of the Rules. It will have to be read in harmonious construction with the substantive provisions of the Act so as not to render it ultra vires the provisions of the substantive provisions of the Act. 18. Applying the tests we find firstly that it satisfies the first test namely 10 years of service and 40 years of age. In the instant case it is 25 years of service and 50 years of age. Secondly it applies to all employees. This meets the second requirement. The third requirement is that the Scheme has been drawn to result in overall reduction in the existing strength of the employees. This has not been expressly stated in the scheme. However, we have noted the object behind the Section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by the employee. Even in the note put up by the Department for introduction of the scheme for consideration of the Governor it was made clear that if any income tax is payable that will be paid by the employee and it was further made clear that the payment is subject to provisions of Section 10(10C) of the Income Tax Act. The letter, therefore, by R.B.I. by itself would not be determinative as to whether the income is liable to tax. One has to see the scheme framed in terms of Section 10(10C) and whether it satisfies the guidelines in terms of Rule 2BA of the Rules. In Commissioner of Income-tax vs. Hero Cycles Pvt. Ltd. [1997] 228 ITR 463 the Supreme Court has observed as under (page 469):- "Moreover, it is well-settled that circulars can bind the Income-tax Officer but will not bind the appellate Authority or the Tribunal or the Court or even the assessee." 21. This view has been reiterated by the Apex Court in UCO Bank vs. Commissioner of Income-tax, [1999] 237 ITR 889 as also in Commissioner of Sales Tax vs. Indra Industries, [2001] 248 ITR 338(SC). The Court, therefore, is not precluded to consider the issue irrespective of the Central Board of Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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