1. These are group of 222 appeals. The names of the appellants and respondents are respectively mentioned. All these appeals arise out of the orders of the CIT(A) for the impugned years under appeal.
2. Admittedly, all these appeals involve identical issues and so we have grouped them together and dispose of by this consolidated order for the sake of convenience. It may be stated that the facts and circumstances in each of the case are more or less identical and it has been agreed by both the sides that we may take up one appeal for consideration and accordingly dispose of all other appeals. The representatives for the assessees were different advocates and chartered accountants; in some cases none appeared. Shri V.H. Patil was the Authorized Representative for some of the assessees. He was the one who argued for most of the assessees and it may be stated that the other Authorized Representatives have only followed his lines of argument. Shri B.R. Kamat, the learned Departmental Representative fairly admitted that the facts and circumstances in all these appeals are identical.
3. Shri V.H. Patil, the senior counsel, addressed us on the facts of Shri Patric F. Britto (ITA No. 4493/Mum/2006 for asst. yr. 2004-05).
The assessee in this case is an individual and was an employee of Reserve Bank of India (RBI). RBI had formulated a scheme in the name and style of "Optional Early Retirement Scheme" (OERS) for the employees who have completed twenty-five years of service and who have also completed the age of fifty years. It may be stated that the OERS was to benefit the employees who opt for retirement from the RBI and to such retiring employees the RBI was to pay ex gratia amount. Shri Petric F. Britto opted to take voluntary retirement. For the said exercise of option by the assessee, RBI paid him a sum of Rs. 9,69,924 in addition to other retirement benefits like leave encashment, gratuity etc. The assessee claimed such receipts as being exempt under Section 10(10C) of the Act upto a sum of Rs. 5,00,000, which is the limit provided thereunder. In respect of the ex gratia in excess of Rs. 5 lakhs, the assessee claimed relief under Section 89 of the Act.
4. The AO was of the view that the payment received by the assessee under the OERS does not qualify for any exemption under Section 10(10C) of the Act and further was of the view that the assessee was not entitled for any sort of relief under Section 89 of the IT Act. It may be stated that the view of the AO was based on the clarification issued by the RBI that ex gratia payment paid under the OERS is not an income exempt under Section 10(10C) of the Act r/w Rule 2BA of the IT Rules, 1962. The ex gratia payment made under OERS is not held to be arrears of salary and, therefore, relief under Section 89 of the Act as claimed was also denied. In the light of this clarification given by the RBI, the claim of the assessee for exemption under Section 10(10C) and relief under Section 89 of the Act was rejected by the AO.5. The assessee disputed the findings of the AO before the CIT(A). The main argument before the CIT(A) was that the assessee was entitled for exemption under Section 10(10C) of the Act as has been allowed by the IT Department to the employees of other public sector banks which introduced Voluntary Retirement Scheme (VRS) for the benefit of the employees. Reliance was placed on to the decision of the Calcutta High Court in the case of Sail DSP VR Employees Association 1998 v. Union of India and Ors. . Without prejudice to the claim of exemption under Section 10(10C) of the Act the assessee has also claimed for relief under Section 89 of the Act on the total amount of ex gratia payment received by the assessee. The learned CIT(A) while disposing of this case has relied upon the clarification issued by the RBI vide its letter No. 3079/Pension 5(iii)A/2004-05 dt. 9th March, 2005. For the sake of clarity we extract the following para of the said letter: Further we enclose a copy of the extract containing the salient features of the Optional Early Retirement Scheme (OERS). It may be observed therefrom that the income-tax shall be deducted at source on the entire amount payable as ex gratia. Besides, the ex gratia amount will be payable in one lump sum subject to the recovery of income-tax, which is to be borne entirely by the employee. It has also been observed from the clarifications received on the scheme of Central Office that since the OERS will not comply with Rule 2BA of the IT Rules, 1962, and accordingly the amount received by the employees under the OERS would not be eligible for exemption under Section 10(10C) of the Act.
From the above the learned CIT(A) was of the view that the RBI had admitted that it had not complied with Rule 2BA of the IT Rules because it was not confirmed whether the vacancies caused by the retirement of the employees will ever be filled in the future. Accordingly, it was concluded that the said OERS does not confirm to the provisions of Rule 2BA of the IT Rules and, therefore the employees opting under the above scheme do not qualify for exemption under Section 10(10C) of the IT Act. In this case the learned CIT(A) was also of the view that apart from denial of exemption under Section 10(10C) of the Act, the relief under Section 89 of the Act is also not available to the assessee in respect of such receipts on the basis of reasonings adopted by the AO.6. It may be pointed out in some other appeals captioned above, the appellate authorities have held that the assessees are not entitled to relief under Section 10(10C) but are entitled for relief under Section 89 of the Act, against which the Department has filed cross-appeals. In sum and substance the issues that are before the Tribunal in all these appeals are as under: (a) Whether the assessee is entitled to exemption under the provisions of Section 10(10C) of the Act in respect of receipts received by the employees who opted for OERS (b) Whether the assessee is entitled to relief under Section 89 of the IT Act in respect of such receipts The answers to these questions will result in the disposal of all these appeals. We have proceeded to dispose of these issues in the following manner.
7. We have exclusively heard Shri V.H. Patil the counsel for the assessee and Shri B.R. Kamat for the Revenue. The learned Counsel for the assessee stated that the exemption cannot be decided on the basis of certain clarifications issued by the RBI, which had framed scheme.
The exemption should be decided on the basis of the compliance of the conditions laid down under the provisions of Section 10(10C) of the Act as also the compliance of the guidelines laid down in Rule 2BA of the IT Rules, 1962. He further pointed out that OERS itself was introduced by RBI to reduce the existing manpower. He also pointed out that due to massive computerisation the bank required less number of personnel. The only way to reduce the excess manpower was to introduce certain scheme and in fact by introduction of the said OERS the manpower employed by the bank has considerably gone down. The assessee has filed a chart at p. 34 of the paper book to show the reduction of employees: As a result of the OERS a record number of employees opted for the retirement and thus there was a great reduction in the manpower employed to do the same or even the increased load of work over the years. Our attention was also drawn to pp. 31, 32 and 33 of the paper book, wherein the RBI has discussed the Human Resource Development and Organizational matters as a result of the OERS for a brief period. The learned Counsel further contended that the RBI had deducted tax at source only on the opinion of the chartered accountants M/s C.C.Chokshi & Co., which opinion again came up for consideration before the Calcutta High Court in Writ Petn. No. 4957 of 2004, wherein prima facie their Lordships have considered it to be doubtful. The learned Counsel pleaded that the OERS framed by the RBI is in conformity with the guidelines given in Rule 2BA of the IT Rules, 1962. He also placed before us the copy of the entire OERS in the paper book. He further pleaded that similar scheme known as VRS framed by Bank of Baroda; Voluntary Separation Scheme of the UTI Mutual Fund came up for consideration before CIT(A)-XIV, Calcutta, CIT(A)-XXX, New Delhi, and CIT(A)-III, Jaipur. In all their orders, copies of which are on the paper book, the CIT(A)s have accepted the retirement scheme and allowed exemption under Section 10(10C) as well as relief under Section 89 of the Act.
The learned Counsel has also placed for our consideration the copy of the Administrative Circular issued by the RBI, copy of opinion of M/s C.C. Chokshi & Co., copy of the extracts of the annual report of the RBI and the copy of the Calcutta High Court decision in the Writ Petn.
No. 4957 of 2004 as also the copies of the retirement schemes framed by the Bank of Baroda and UTI Mutual Fund.
7A. The learned Departmental Representative, on the other hand, strongly supported the findings of the AO and the learned CIT(A) in the light of the discussions therein. The learned Departmental Representative heavily relied on the opinion of C.C. Chokshi & Co. on the OERS issued by the RBI in support of the Department's stand that the scheme does not comply with the conditions laid down in Section 10(10C) as also the mandatory guidelines spelt out in Rule 2BA of the IT Rules, 1962.
8. We have carefully considered the rival contentions and perused the scheme framed by the RBI, the opinion expressed by the firm of chartered accountants, voluntary retirement schemes of the Bank of Baroda, UTI Mutual Fund, the decision of the Calcutta High Court in the writ petition as also the copies of other documents placed in the paper book. According to the scheme the eligible employees were those who have completed 25 years of full time regular service in the bank and have also completed 50 years of age. The provisions of Section 10(10C) read as under: (iii) an authority established under a Central, State or Provincial Act; or (vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under Section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (vii) an Indian Institute of Technology within the meaning of Clause (g) of Section 3 of the Institutes of Technology Act, 1961 (59 of 1961); or (viic) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf, 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: Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in Sub-clauses (vii) and (viii), as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed: Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year.
As per the aforesaid section an amount of Rs. 5 lakhs received or receivable by an employee will not form part of the total income. The first proviso of Rule 2BA requires the scheme for such payments should be framed in accordance with certain guidelines as regards the economic viability as may be prescribed. Rule 2BA of the IT Rules prescribes the above criteria in the following guidelines: (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 the existing strength of the employees; (iv) the vacancy caused by the voluntary retirement or voluntary separation is not to be filled up; (v) the retiring employee of a company shall not be employed in another company or concern belonging to the same management; (vi) the amount receivable on account of voluntary retirement or voluntary separation of the employee does not exceed the amount equivalent to three months' salary for each completed year of service or salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation.
Now the question that is to be examined is whether the disputed receipts satisfy the conditions laid down in Section 10(10C) as also the guidelines laid down in Rule 2BA. The doubt that is in the mind of the AO is that the present scheme does not satisfy the requirement of the above guidelines. We may mention that the scheme is applicable only to the employees who have completed 25 years of continuous service in the bank and also completed 50 years of age. What all the guidelines of Rule 2BA want is that the employee should have completed 10 years of service or completed 40 years of age. In our view it cannot be said that the above condition is not satisfied. What the rule requires is a minimum. It is too narrow and against the legislative intention if the scheme was to be not applied to the benefit of the employees who have completed more than 10 years of service or more than 40 years of age, which is exactly the case before us.
9. The other objection of the AO is that the scheme of retirement drawn did not result in overall reduction of the existing strength of employees. The object of the entire scheme in our opinion is plain and simple--the reduction of the employees. Now we may examine the satisfaction of the above guidelines on the basis of the clarity we have obtained from the annual report of the RBI placed at pp. 31 to 33 of the paper book, wherein it has been stated that there has been significant reduction in the staff strength with the introduction of the OERS. The reduction in the number of employees in different categories has already been extracted above. The scheme of OERS read with its objectives thereunder clearly shows that OERS has been framed only for reduction of the staff. In order to reduce the manpower employed due to technological upgradation undertaken by the RBI towards streamlining the work in general and focusing the core functions themselves became necessary due to emphasis of computerisation of the bank in all its operations. The other objection is the vacancy caused by the OERS is not to be filled up. Although in so many words the bank has not spelt anything about the filling up of the vacancy resulting by the OERS, the very object behind the scheme is to reduce the staff strength and considerably reduce the operational cost of the banks. The records produced before us do not show that the vacancy as a result of OERS has been filled by the bank. As the bank itself in its annual report states that there has been considerable reduction in staff strength as the result of the options exercised under the OERS, we do not accept the contention of the Department that the relief to the employees be denied on the ground that the bank has not given any undertaking that the vacancy will not be filled up and it is also not the specific requirement of the guidelines.
10. The next objection taken by the Revenue is that the retiring employees of the company shall not be employed by the said company or any of its group concerns. We have read the entire scheme and do not find any obligation on the part of the RBI, the employer, to show any alternative opportunities to the persons who have opted under the OERS.In other words, no evidence or material has been brought before us to show that there has been an obligation on the part of the RBI to employ the retiring employees in any other company or concerns under the same management.
11. We, therefore, on the basis of the scheme and the actual facts that are brought out by the bank itself, do not agree with the stand of the AO or the CIT(A) that the conditions or the guidelines prescribed under Rule 2BA are not complied in the OERS of the RBI. Any statement that it will not fill up the vacancies caused as a result of OERS would have resulted in opposition by the employees themselves as it will be a repressive measure against the labour. It will be of interest to observe the findings of the Hon'ble Calcutta High Court in the case of Sail DSP Employees Association 1998 v. Union of India and Ors. supra) where it has opined that Section 10(10C) of the IT Act, 1961 uses the expression "any amount received by an employee... at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement. If a plain literal interpretation of statutory provision produces a manifestly absurd and unjust result, which the legislature could not have intended, the Court is supposed to modify the language used by the legislature, even to do some violence to it so as to achieve the obvious intention of the legislature and produce a rational construction. An expression used in the statute is not always to be interpreted literally or grammatically. Sometimes it has to be interpreted having regard to the context in which the expression is used and having regard to the object and purpose for which the same is enacted. Section 10(10C) was inserted in order to make voluntary retirement attractive so as to reduce human complements for securing economic viability of certain companies. This object was elaborated by various Departmental circulars and explanatory statements issued from time to time. Similarly, Rule 2BA of the IT Rules, 1962, which was inserted by the IT (Sixteenth Amendment) Rules, 1992, was amended from time to time. All these go to show that this was intended to make voluntary retirement more attractive and beneficial to the employee opting for voluntary retirement. Therefore, this has to be interpreted in a manner beneficial to the optee for voluntary retirement, if there is any ambiguity, Rule 2BA prescribes the limit. Initially it was one and one-half months' salary for each completed year of service since amended to three months' salary for each completed year of service or the salary for the months remaining after voluntary retirement till retirement. This clearly indicates that it is only the compensation part payable on account of cessation of employment, which is the amount intended in Section 10(10C), inasmuch as, on the date an employee opts for voluntary retirement, he is already entitled to the accumulation of the provident fund in his account governed by the Provident Funds Act and the scheme, gratuity payable under the Payment of Gratuity Act, encashment of leave pay under the Leave Rules and pension payable under the Pension Rules, if there be any. These are all terminal benefits to which an employee is entitled even without the scheme. This entitlement cannot be taken away under any scheme. Therefore, if these amounts are also payable under the scheme, they would not be a component of the compensation for voluntary retirement and are not an amount receivable on account of voluntary retirement. Therefore, the terminal benefits cannot be brought within the scope and ambit of the expression "amount received" used in Section 10(10C).
Sums paid on voluntary retirement to the extent of Rs. 5 lakhs are exempted from being charged to tax by reason of Section 10(10C). Even if the payment is stretched over a period of years, the same could not become chargeable to tax in any subsequent assessment year.
What is not otherwise taxable cannot become taxable because of admission of the assessee. Nor can there be any waiver of the right otherwise admissible to the assessee in law. The chargeability is not dependent on the admission of, or waiver, by the assessee.
Chargeability is dependent on the charging section, which needs to be strictly construed.
It may not be out of place to mention that the Calcutta High Court while dealing with the Writ Petn. No. 4957/W/2004 in its operative para has expressed the following view: Prima facie, it appears that money received on account of voluntary retirement upto the sum of Rs. 5 lakhs was not taxable. The RBI, it appears, was conscious of the legal position and that is why it went in for advice in the matter. The correctness of the advice rendered to them, however, appears to be doubtful. This Court, however, does not pass any opinion with regard thereto.
This will answer whether the opinion expressed by the chartered accountant on the issue will make the sums in question taxable. Neither the opinion of the chartered accountants nor the views of the RBI will finally determine the fate of exemption that is claimed under Section 10(10C) but the satisfaction of the conditions or guidelines laid down by the IT Rules, 1962. A plain reading of section and guidelines of Rule 2BA shows that the scheme in question leaves no doubt in our minds that the sums in question are clearly exempt under Section 10(10C) of the Act upto the extent of Rs. 5 lakhs. On the excess receipts the assessee is entitled to relief under Section 89 of the Act. The provisions of Section 89 of the Act read as under: Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, if 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 lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to Clause (iia) of Section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the AO shall, on an application made to him in this behalf, grant such relief as may be prescribed.
The sums in question are clearly the part of salary in the form of profits in lieu of salary as defined in Section 17(3) of the Act. These are amounts of compensation received by the employee from the employer in connection with the terms of employment and, therefore, the assessees in question are clearly entitled for relief under Section 89 in accordance with law in respect of the payments that are included in the total income. Further a similar view has been expressed in the decision of the Hon'ble Madras High Court in the case of CIT v. G.V.Venugopal and the decision of the Hon'ble Karnataka High Court in CIT v. P. Surendra Prabhu . The orders of the CIT(A) in granting relief under Section 89 cannot be therefore found fault with. Certain orders wherein they have denied relief under Section 89 also deserve to be reversed on the same reasoning.
(a) that the assessees in question are entitled for relief under Section 10(10C) of the IT Act in respect of the sums received under the OERS upto a sum of Rs. 5 lakhs.
(b) the assessees are also entitled to relief under Section 89 of the Act in respect of the sums which are in excess of the exemption granted.
12. In the result, the appeals filed by the assessees are treated as allowed and those filed by the Department are dismissed on the lines discussed above.