Bank Employee’s Exit Option Scheme fails to Meet VRS Criteria: Kerala High Court dismisses Appeal for Section 10(10C) Income Tax Exemption [Read Order]

Kerala High Court dismisses Bank Employee’s Appeal for Section 10(10C) Income Tax ExemptionIn a recent judgment, the Kerala High Court dismissed the appeal of a retired bank employee who had sought income tax exemption under Section 10(10C) of the Income Tax Act, ruling that the Exit Option Scheme (EOS) under which she retired did not qualify as a Voluntary Retirement Scheme (VRS) in terms of Rule 2BA of the Income Tax Rules.

The appellant, N.G. Gangadevi, a former employee of the State Bank of Travancore (SBT), received ₹10.25 lakh under the EOS in the financial year 2006–07, relevant to assessment year 2007–08. While filing her return of income, she initially claimed a ₹5 lakh exemption under Section 10(10C), which was allowed in the assessment processed under Section 143(1). However, upon later scrutiny, the Assessing Officer found that the EOS did not conform to the statutory conditions prescribed for a VRS under Rule 2BA and reopened the case under Section 147 of the Act. The subsequent disallowance of the exemption led to a differential tax demand.

The assessee’s appeals before the Commissioner (Appeals) and the Income Tax Appellate Tribunal (ITAT), Cochin Bench, were dismissed. She then approached the High Co urt, raising multiple questions of law regarding the validity of the disallowance and the eligibility of the EOS for tax exemption.

The Kerala High Court Division Bench comprising Justice Dr. A.K. Jayasankaran Nambiar and Justice P.M. Manoj, after examining the scheme in detail, found that the EOS deviated substantially from the criteria laid down in Rule 2BA. Key deviations included its applicability only to a limited set of officers (those demotivated by lack of promotions), restrictive eligibility criteria (only those aged 45–58 and superseded by juniors), non-conforming ex gratia computation, absence of a clause prohibiting re-employment within the same banking group, and lack of stipulations ensuring workforce reduction or vacancy non-replacement.

The Court concluded that the EOS could not be treated as a valid VRS for the purpose of claiming Section 10(10C) relief. It observed that the findings of the lower authorities were based on facts and were neither perverse nor unsupported by evidence.

It was observed by the bench that, “Even before us in this appeal, there is nothing produced that would suggest that the concurrent findings of fact by the authorities below were perverse or based on no evidence whatsoever. Under such circumstances, we find that there is no substantial question of law that arises for consideration in this appeal since the findings of all the authorities have been essentially on the facts that obtained in the instant case. We therefore see no reason to interfere with the impugned order of the Appellate Tribunal.”

Accordingly, it was held that no substantial question of law arose for consideration and dismissed the appeal.

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