The Mumbai Bench of Income Tax Appellate Tribunal has held that the assessee can avail relief on terminal compensation since compensation received by the assessee as salary received in advance.
The appellant, Suryaji Shriram Patekar is an ex-worker of M/s Century Textiles and Industries Limited. The Company shut down due to heavy losses. Some workers including the appellant not opted for the VRS scheme. The Labour Commissioner and Municipal Corporation imposed certain conditions on the company to safeguard the interest of the 275 workers who had not opted for the voluntary retirement scheme. Subsequently, individual employees and the company entered into the supplementary agreement and the company agreed to compute the total compensation payable by the company till they attain 63 years of age accordingly in the case of the assessee it was determined to be at Rs.58,59,880/-. The company after considering that these are one-time lumpsum ex-gratia amounts payable to the employee and settled the same after deducting the TDS as per the provision u/s. 192 of the Act.
The AO made an assessment under section 143(3) assessing a total income at Rs. 58,59,880/-. The A.O. allowed relief u/s 89 (1) only to the tune of Rs. 2,97,711/- under Rule 21A (1)(c) by treating the amount received as compensation for termination of service and by spreading over the amount received over a period of last three years.
On appeal, CIT (A) confirmed the assessment. Aggrieved, the assessee filed appeal before ITAT.
The appellant submitted that the company has paid a one-time lump-sum ex-gratia amount to its ex-workers, in lieu of payment till completion of his 63 years of his age. Since the one-time lump sum ex-gratia amount is deemed ‘salary’ paid to an ex-employee in advance within the meaning of provisions of the Income Tax Act, 1961, accordingly the company has deducted tax at source in accordance with the provisions of section 192 of the Income Tax Act, 1961.
The Tribunal observed that the assessee refused to agree with the voluntary retirement scheme offered by the company and under protest assessee and similar employees managed to get compensation through Labour Commissioner and as per the directions of the Labour Commissioner, as agreed by the company, the assessee was awarded the compensation for the remaining period of service till the age of 63 years. The basis of compensation calculated by the company and the company also treated the one-time compensation as a salary paid in advance and deducted the TDS on the same, clearly indicates that the compensation received by the assessee is only salary received in advance not as termination compensation even though this was paid in lumpsum as ex-gratia in one go.
The Coram of Mr M. Balaganesh, Accountant Member and Mr Rahul Chaudhary, Judicial Member, by relying on the co-ordinate Bench decision of the same Tribunal in the case of Rajesh Shantaram Chavan vs. ACIT has held that “Compensation received by the assessee as only salary received in advance. Therefore, we direct the Assessing Officer to allow the claim of the assessee u/s. 89 read with Rule 21A of I.T. Rules. Accordingly, the appeal filed by the assessee is allowed”
Mr Ashish Thakurdesai and Mr Avanish Tiwari represent the appellant and revenue respectively.
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