R.M.LODHA, J. - (1.) THE AAC allowed deduction of ex gratia payment amounting to Rs. 48,575 received under the Voluntary Retirement Scheme (VRS) under Section 89(1) over and above the exemption provided in Section 10(10C) of the IT Act, 1961.
(2.) THE Revenue took exception to the order of the AAC by filing an appeal before the Tribunal, Jaipur Bench, Jaipur. The Tribunal noticed the decisions of the Madras High Court in the cases of G.N. Badami v. CIT : [1999]240ITR263(Mad) and P. Arunachalam v. CIT : [2000]241ITR827(Mad) and the decision given by the Jaipur Bench of the Tribunal wherein it was held that the amount received under the VRS constitutes compensation for 'termination of service' for the purposes of Section 17(3) and that the conditions laid down under Section 89(1) are satisfied and the assessee is entitled to relief on the amount received under the VRS as reduced by exemption under Section 10(1OC) of the Act. In the case of CIT v. J. Visalakshi : [1994]206ITR531(Mad) , the question under consideration before the Madras High Court was:whether the ex gratia compensation of Rs. 63,230 received by the assessee consequent on his resignation from the employment is entitled to the relief under Section 89(1) of the IT Act. The Madras High Court considered Sections 89(1) and 17(3) of the IT Act and held thus:.The question as to whether the assessee is entitled to the relief under Section 89(1) would depend upon the interpretation to be placed on the words 'termination of his employment', occurring in Sub -secyion 3(f) of Section 17 of the Act. It is necessary to bear in mind that termination of service can take place either by resignation or by dismissal or by compulsory retirement or on attaining superannuation. That being so, we are of the view that there is no justification to confine the meaning of the word 'termination' only to the case of either voluntary retirement or superannuation, as per the stand taken by the Department. It must be borne in mind that Section 89(1) r/w Section 17(3) of the Act are beneficial clauses intended to grant certain benefits to employees or persons in service. Therefore, while placing interpretation on such clauses, the object with which such clauses are provided in the Act must be borne in mind, the object being to grant certain benefit to the person whose service is terminated. Therefore, if the meaning of the word termination' is confined to cases of voluntary retirement or superannuation only, the object of the clause will not be fully achieved and it would amount to restricting the scope of the beneficial clause. Hence, we are of the view that the Tribunal is justified in holding that the ex gratia compensation of Rs. 63,230, received by the assessee consequent on his resignation, is entitled to the relief under Section 89(1) of the Act.
(3.) THE view in the case of J. Visalakshi (supra) has been followed by the Madras High Court in the case of CIT v. M. Raman : [2000]245ITR856(Mad) . This is what the Madras High Court said: The assessee has taken voluntary retirement from the service and received an amount of compensation at the time of his voluntary retirement. The question that arises is whether the compensation received by the assessee at the time of voluntary retirement would fall within the provisions of Section 17(3)(i) of the IT Act, 1961, that is, whether it can be regarded as salary and the assessee would be entitled to the relief provided under Section 89 of the IT Act, 1961. This Court in the case of CIT v. J. Visalakshi : [1994]206ITR531(Mad) held that if an employee receives at the time of resignation, the amount could be regarded as salary and the assessee would be entitled to the relief provided under Section 89 of the IT Act, 1961. The said principle rendered by this Court in the case of resignation would equally apply to the case of voluntary retirement of an employee from service. Accordingly, the Tribunal was right in holding that the amount received by the employee at the time of voluntary retirement of service would be regarded as salary, and the relief under Section 89 of the IT Act, 1961, would be admissible in respect of the amount received by the assessee from his employer at the time of voluntary retirement.;