Man’s VRS Rs 65.21 lakh payout taxed as salary; ITAT Pune says it is capital receipt
The man had been employed in Aurangabad. During FY 2018-19, his employer shut down its Aurangabad plant and introduced a financial scheme for its employees. The man opted for voluntary retirement under the scheme and received a total payment of Rs 65,21,105. The amount consisted of ex-gratia/severance pay, early bid and group participation incentives, and payment towards the notice period.
In a case involving voluntary retirement, a man received a compensation of Rs 65.21 lakh from his employer. He initially reported this payment as advance salary in his income tax return, mistakenly seeking tax relief under Section 89 of the Income Tax Act. Consequently, the Income Tax Department rejected his claim of relief. The matter was then taken up by the CIT(A)/NFAC, which deemed the payment to be taxable as "Income from Other Sources" under Section 56(2)(xi), as it was received in connection with the termination of employment.
The dispute reached the Pune Income Tax Appellate Tribunal (ITAT), where the man argued that the amount was a capital receipt resulting from his voluntary retirement and should not be taxable. He referred to earlier decisions of the Pune Tribunal where similar payments had been treated as capital receipts and thus, not chargeable to tax.
Additionally, the man argued that Section 56(2)(xi) would only apply if compensation or other payments were received in connection with termination or modification of employment terms. The scheme indicated that cessation of employment under it would be considered resignation, not retrenchment or termination by the company. The ITAT accepted these arguments, noting that the payment was not received due to termination of employment but as a result of voluntary retirement.
The ITAT concluded that Section 56(2)(xi) was not applicable to the payment, as it was not received in relation to termination of employment. The tribunal also emphasized the consistency in decisions made by lower authorities, which had ruled in favor of similarly placed employees receiving similar payments under the same scheme.
The Pune ITAT found that the previous decisions had not followed the applicable precedents and had not maintained consistency despite identical factual circumstances. With this ruling, the man's appeal was accepted in his favor, and he was relieved from the tax liability on the Rs 65.21 lakh payment.
Written by urgent.news from Times of India's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
