1. This is an appeal filed by the assessee against the order of the learned CIT(A), Bilaspur dt. 28th July, 2005 for the asst. yr. 2003-04 on the following effective grounds : (1) That the AO has erred in allowing exemption under Section 10(10C) at Rs. 1,40,679 instead of Rs. 5,00,000 which is unjustified.
(2) That the AO has erred in not allowing the relief under Section 89(1) on account of VRS amount despite the fact VRS receivable has been taxed as salary income.
(3) That the AO has erred in taxing the income on accrual/receivable basis i.e., income from VRS at Rs. 7,03,395 but not allowing the claim of exemption under Section 10(10C) at Rs. 5,00,000 which is arbitrary and unjustified.
2. The facts, in brief, leading to the dispute are that the employer of the assessee has determined voluntary retirement benefit at Rs. 7,03,395 and out of it, a sum of Rs. 1,40,679, i.e., one-fifth of the VRS amount was received in the previous year relevant to the asst. yr.
2003-04. The balance amount was received in four instalments in next financial year. The AO granted exemption under Section 10(10C) to the extent of Rs. 1,40,679 actually received during the year. The learned CIT(A), in appeal, upheld the action of the AO. Aggrieved by the order of the learned CIT(A), the assessee has filed the present appeal before the Tribunal.
3. Before us, the learned Authorised Representative for the assessee vehemently argued that the learned CIT(A) erred in upholding the action of the AO. He invited our attention to the Circular No. 7 of 2003, dt.
5th Sept., 2003 [(2003) 184 CTR (St) 33] (copy is filed on record) wherein the Explanatory Notes have been given in respect of some provisions of Finance Act, 2003. While explaining the provision in respect of exemption of amount received under VRS compensation allowable even if it is receivable or received in instalments. He submitted that in this circular, it has been explained that any amount not exceeding Rs. 5 lakhs (even if received in instalments) by an employee on his voluntary retirement will not be included in computing total income of such employee. In view of the above circular, he submitted that the lower authorities were not justified in rejecting the claim of the assessee.
4. The learned Departmental Representative, on the other hand, strongly relied on the orders of the Revenue authorities.
5. We have considered the facts of the case, rival contentions and carefully gone through the circular cited by the learned Authorised Representative of the assessee. While explaining the provisions in respect of exemption of amount received under VRS compensation allowable even if it is receivable or received in instalments, in the circular, it has been clarified as under : Under the existing provisions contained in Clause (IOC) of Section 10, any amount received by an employee of a public sector company or any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society or a University, or Indian Institute of Technology, or State or Central Government or an institution having national/State level importance, or an institute of management, notified by the Central Government, etc. at the time of 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, a scheme of voluntary separation, to the extent such amount does not exceed five lakh rupees, is not included in computing the total income of such employee. However, some of the employees availing VRS were facing problems in case the amount was given to them in instalments, over a number of years.
To solve this problem, Clause (10G) of Section 10 has been amended by the Finance Act, 2003 to provide that any amount not exceeding five lakh rupees received or receivable (i.e., even if received in instalments) by an employee on his voluntary retirement or termination of his service will not be included in computing the total income of such employee. Other conditions, as well as the overall limit shall, however, remain unchanged.
In view of the above clarification, we are of the considered opinion that the Revenue authorities erred in denying the claim of exemption to the assessee. The claim of the assessee is in accordance with law and the Revenue authorities should have allowed the same. We direct the AO to allow the claim of the assessee of exemption under Section 10(10C) to the extent of Rs. 5 lakhs as claimed by the assessee.