High Court Of Madras
CIT vs. G.V. Venugopal
Section 10(10C), 17(3), 89
Asst. Year 2001-02
Markandey Katju, C.J. & Mrs. Prabha Sridevan, J.
Tax Case (Appeal) No. 983 of 2004
6th December, 2004
Counsel Appeared
Narayanasamy for Mrs. Pushya Sitaraman, for the Appellant
JUDGMENT
Markandey Katju, C.J. :
This appeal is filed under s. 260A of the IT Act (in short ‘the Act’) against the order of the Tribunal, Madras ‘C’ Bench. Heard the learned counsel for the parties. The substantial question of law arising in this appeal is as follows:
“Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is eligible to claim simultaneous benefit under s. 10(10C) as well as s. 89(1) in respect of the compensation received under the voluntary retirement scheme?”
The AO disallowed the relief under s. 89(1) of the Act in addition to the exemption allowed under s. 10(10C) of the Act. However, the CIT(A) held in favour of the assessee, and the Tribunal also has confirmed the order of CIT(A). Hence, this appeal.
4. The facts in this appeal are that for the asst. yr. 2001-2002, the assessee, G.V. Venugopal, filed return of income on 5th July, 2001 declaring the total income of Rs. 3,33,280. The AO held that the assessee has made inadmissible claim for relief under s. 89(1) on the amount received from the employer in excess of Rs. 5,00,000 in lieu of the assessee’s voluntary retirement/separation from the employment.
5. The assessee had been an employee of State Bank of India and had opted for voluntary retirement and was paid Rs. 5,85,072 by the employer under the special scheme of VRS framed in accordance with the guidelines described under r. 21A of IT Rules (In short ‘the rules’). This amount received by the assessee, under the special VRS package was in addition to the regular retirement benefits such as gratuity, leave encashment salary, etc. The assessee claimed exemption of income of Rs. 5 lakhs from the said VRS amount under s. 10(10C) of the Act and offered balance amount of tax as income from the salary. At the same time, the assessee also claimed relief of Rs. 8,883 under s. 89(1) on this amount by spreading the same in three preceding assessment years as provided in r. 21A of the Rules.
6. The question in this appeal is as to whether the assessee was entitled to relief under s. 89(1)?
7. Sec. 89(1) reads as follows :
“Where an assessee is in receipt of a sum in nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months, or a payment which under the provisions of cl. (3) or s. 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 cl. (iia) of s. 57, being paid in arrears, due to which his total income is assessed at a rate higher than 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.”
8. Sec. 10 of the IT Act states :
“In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (10C) any amount received (or receivable) by an employee of— (i) a public sector company; or (ii) any other company; or (iii) an authority established under a Central, State or Provincial Act; or (iv) a local (authority;) or (v) a co-operative society; 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 s. 3 of the University Grants Commission Act, 1956 (3 of 1956); or (vii) an Indian Institute of Technology within the meaning of cl. (g) of s. 3 of the Institutes of Technology Act, 1961 (59 of 1961); or (viia) any State Government; or (viib) the Central Government; 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-cl. (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-cls. (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.”
9. The AO held that:
“Thus, s. 10(10C) gives a one-time relief of maximum of Rs. 5 lakhs out of retirement benefit but it is restricted to one year only. Now the assessee is trying to claim further relief out of retirement benefit not only over and above Rs. 5 lakhs, but spread over earlier three assessment years also. Hence, the proviso of s. 10(10C) is clearly violated if the assessee’s version is accepted”.
10. In appeal the CIT(A) was of the view that AO was not justified in disallowing the relief under s. 89(1) in addition to exemption allowed under s. 10(10C). The CIT(A) held as under : “5.1 The next question is whether the appellant is simultaneously entitled to exemption under s. 10 (10C) as well as relief under s. 89(1) in respect of VRS payment. The AO has followed clarification issued by the CBDT to the Chief CIT-III, Bangalore, vide letter dt. 23rd April, 2001, which is reproduced as under : ‘I am directed to say that amount up to Rs. 5 lakhs received under VRS is exempt as per the provisions of s. 10(10C)(iii) and after allowing this exemption the balance amount of Rs. 5 lakhs is not eligible for relief under s. 89(1) as per the proviso provided under s. 10(10C) which says …… no exemption thereunder shall be allowed to him in relation to any other assessment year. Thus, distributing the amount of compensation in more than one assessment years is not permissible as per the existing provisions’. 5.2
In the above clarification, reference has been made to proviso to s. 10(10C) which says that no exemption “thereunder” shall be allowed to the assessee in relation to any other assessment year. This proviso is reproduced as under: ‘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.
The use of word “thereunder” in the above proviso means that once exemption is allowed, again no exemption “thereunder”, i.e., under s. 10(10C) shall be allowed in relation to any other assessment year. The word “thereunder” referred to in this proviso cannot mean any section other than s. 10 (10C). This view draws support from CBDT Circular No. 657, dt. 31st Aug., 1993. In paras 16 to 16.3 of this circular, while explaining the scope and effects of the amendment introduced by the Finance Act, 1993, in s. 10(10C), it has been stated as under :
‘Extending the tax exemption on payments under voluntary retirement schemes to employees of certain authorities. 16.1 The guidelines prescribed by the Board, specify that the amount receivable on account of voluntary retirement of an employee should not exceed five hundred thousand rupees. The intention was to restrict the benefit of income-tax exemption under s. 10(10C) to the aforesaid amount to the case of an employee. The Finance Act incorporates the aforesaid intention in the law itself by providing that the amount exempt under s. 10(10C) shall not exceed five lakh rupees. 16.2 The guidelines prescribed by the Board for framing the schemes of voluntary retirement further specify that the employee should not have availed of the benefit of any other voluntary retirement scheme in the past. It may be difficult for the employers to comply with this requirement where the employees do not disclose the fact of their having availed of such benefit in the past. It has, therefore, been provided that where exemption has been allowed to an employee under s. 10(10C) for any assessment year, no exemption shall be allowed to him “thereunder” in relation to any other assessment year’. 5.3 Thus, “thereunder” does not mean any section other than 10(10C). This means the appellant is entitled for relief under s. 89(1). Further, there is no specific or express provisions laid down in the Act that when exemption is allowed under s. 10(10C), relief under s. 89(1) is not allowable. In this connection, reference can be made to other provisions of the Act where twin or double benefits have been curtailed by the statute wherever the statute has specifically so intended. For example, where a deduction has been allowed under s. 80CCC, a rebate with reference to such amount cannot be allowed under s. 88. In respect of amount received under voluntary retirement scheme there is no such specific curtailment of benefits regarding exemption under s. 10(10C) and relief under s. 89(1). Basically relief contemplated under s. 89(1) is aimed to mitigate hardship that may be caused on account of high incidence of tax due to progressive increase in tax rates. This can never be considered as a deduction or exemption like that of s. 10(10C).
6. The AO has relied on the letter of CBDT addressed to the Chief CIT, Karnataka and Goa. However, this is not a circular which can be said to be binding on the AO. In any case, this is not binding on appellate authorities. Reliance is placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Hero Cycles (P) Ltd. & Ors. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC). In view of this, I hold that the above circular is not applicable to the case of the assessee”. The appeal of the Department to the Tribunal was dismissed and hence, this appeal under s. 260A of the Act. Before dealing with the submissions of the learned counsel for the Department, we would like to mention that there are two well-settled principles in tax law: (i) There is no equity in tax, and the principle of strict or literal construction applies in interpreting tax statutes. Hence, on the plain language of the statute, if the assessee is entitled to two benefits, he has to be granted both these benefits. (ii) If there are two reasonable interpretations of taxing statutes, the one in favour of the assessee has to be accepted.
13. The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt, J. in his classic statement (Cape Brandy Syndicate vs. IRC (1921) 1 KB 64) : “In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” In A.V. Fernadex vs. State of Kerala AIR 1957 SC 657, the Supreme Court of India stated the principles as follows: If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. Hence, in taxing statutes the language cannot be strained (State of Punjab vs. Jullunder Vegetable Syndicate AIR 1955 SC 1295). If the words of a taxing statute fail, so must the tax. The Courts cannot, except rarely and in clear cases, help the draftsman by a favourable construction (ITO vs. Nadar AIR 1968 SC 623, AIR 1960 SC 1016). However, a fair and reasonable construction must be given [CWT vs. Kripashankar AIR 1971 SC 2363 : (1971) 81 ITR 763 (SC)]. In Innamuri Gopalan vs. State of AP 1964 SCR (2) 888, the exemption was denied to the assessee on the ground that the intention of the notification was to avoid double taxation, and as this was not a case of double taxation, no exemption could be granted. The Supreme Court held that on the plain language of the notification, the assessee was entitled to exemption, and since the intention was not reflected in plain words, it could not be taken into consideration.
It is the first principle of interpretation that a statute should be read in its ordinary, natural and grammatical sense. As observed by the Supreme Court of India: “In construing a statutory provision the first and foremost rule of construction is the literary construction. All that the Court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision the legislative intent is clear, the Court need not call into aid the other rules of construction of statutes. The other rules of construction are called into aid only when the legislative intent is not clear”. This principle is applied with particular emphasis while interpreting taxing statute vide ITO vs. Nadar AIR 1968 SC 623, and the fundamental principle of interpreting taxing statutes is the principle of strict construction. In this respect taxing statutes are to be interpreted differently from beneficial legislation (e.g., labour laws) [S.K. Verma vs. Industrial Tribunal AIR 1961 SC 422] or the Constitution (State Trading Corporation vs. CTO AIR 1963 SC 1811), where the principle of liberal interpretation applies. In CIT vs. G. Hyatt AIR 1971 SC 725, the question was whether under s. 17(3) of the IT Act, 1961, the interest on the assessee’s own contribution to an unrecognised provident fund could be treated as salary. The Supreme Court of India held that the language of s. 17(3) was plain and unambiguous, and hence the said amount was not salary but income from other sources and taxable under s. 56. In Polester & Co. Ltd. vs. Addl. CST AIR 1978 SC 897, the question was whether sales outside Delhi would also be included in taxable income. The Supreme Court held that the section used the word ‘resale’ simpliciter, and hence it referred to all resales and could not be limited to resales within Delhi alone. Thus, the Supreme Court went by the plain language of the statute, and did not speculate on the intention of the legislature.
In Hemraj Gordhandas vs. H.H. Dave, Asstt. Collector 1978 (2) ELT 350, the Supreme Court of India considered the language of a notification under the Central Excise Tariff and held that all that was required for claiming an exemption was that the cotton fabric must be produced on power looms owned by the co-operative society. There was no further requirement in the language of the notification that the cotton fabric must be produced by the society for itself. The Supreme Court refused to go into the question of the intention behind the exemption since the language of the notification was clear. In Assessing Authority vs. East India Cotton Mfg. Co. Ltd. (1981) 48 STC 239 (SC), the concessional rate under the Punjab Sales Tax Act, was payable if certain raw materials were used in the manufacture of goods for sale. The contention of the assessee was that the word used in the Act was ‘for sale’ and not ‘for sale by him’ and hence the goods sold by a third party were also covered by the provision. This contention was accepted by the Supreme Court which followed the literal rule of interpretation. In CWT vs. Ellis Bridge Gymkhana (1997) 143 CTR (SC) 138 : AIR 1998 SC 120, the Supreme Court held thatthe word ‘individual’ in the charging section could not be stretched to include an AOP. The Court held that the charging section had to be construed strictly, and if a person could not be brought within the ambit of the charging section by clear words, he could not be taxed at all. Where a product is equally covered by clear wording of the amended item, reference to the past history of the unamended item is irrelevant (Reliance Silicon vs. CCE 1997 1 SCC 215). A liberal interpretation of a taxing provision cannot be adopted on the plea that this would advance the purported object of the Act by encouraging the establishment of industrial undertakings in backward areas (CIT vs. N.C. Budharaja (1993) 114 CTR (SC) 420 : AIR 1993 SC 2529). In Steel Authority of India vs. CCE AIR 1996 SC 2544, the question was whether raw naphtha intended for use in the manufacture of fertilisers was exempted although it was not actually used. It was held that the exemption notification only required proof that the raw naphtha was intended for use in the manufacture of fertiliser, and there was no further requirement that it was actually so used. Hence, if it was purchased with the intention to be used for the manufacture of fertiliser, it was exempt, even though it could not be used for some reason subsequently.
14. In Partington vs. Attorney General (1869) LR HL 100, Lord Cairns observed thus : “If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind. On the other hand, if the Court seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.” Thus, in interpreting a taxing statute, one cannot go by the notion as to what is just and expedient (CIT vs. Shahzada Nand AIR 1966 SC 1342). In IRC vs. Hinchy (1960) AC 740, the House of Lords held that a provision in the IT Act, 1952, for a statutory penalty (for making an incorrect return of income) of 20 pounds and trebling ‘the tax which he ought to be charged under this Act’ referred not to the tax on the amount which the taxpayer had failed to declare, but to the whole tax which he ought to be charged for the relevant year, notwithstanding the extravagant consequences which flowed from giving the words their natural meaning. The Supreme Court of India has held that equity is out of place in tax laws [CIT vs. Firm Muar AIR 1965 SC 1216. See also Smt. Tarulata Shyam & Ors. vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC)]. In CIT vs. Madho Prasad Jatia 1976 CTR (SC) 438 : (1976) 4 SCC 92 it was held that there could be no consideration of equity if the language of the provision was plain and clear, but where it was not, and two interpretations were possible, the one in consonance with equity and fairness should be preferred. Where the language of a provision is plain, Courts cannot ordinarily concern themselves with the policy behind the provision. (Baidyanath Ayurved Bhawan vs. Excise Commissioner AIR 1971 SC 738) or the intention of the legislature [ITO vs. Nadar (supra)] (See also AIR 1963 SC 1062). As Lord Watson said in Solomon vs. Solomon & Co. 1897 AC 22 ‘intention of the legislature is a common but slippery phrase’. In ITO vs. Nadar (supra) the Supreme Court of India observed that the rule that ‘we must look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the legislature contemplated’ (Lord Hatherley in 1869 4 Ch 735) was made while construing a non-taxing statute. The said rule had only a limited application in interpreting a taxing statute. It follows from this decision that the mischief rule laid down in Heydon’s case 1584 3 Co Rep 7(a) has only a limited application to taxing statutes.
In Bank of Chettinad vs. CIT AIR 1940 PC 183 (approved in AIR 1957 SC 657) the Privy Council protested against the suggestion that in revenue cases ‘the substance of the matter’ may be considered as against the strict legal position. In CIT vs. B.M Kharwar AIR 1969 SC 812, the assessee transferred some machinery of a firm to a private limited company. He sought to avoid the liability to be taxed on the excess realised over the written down value of the machinery on the plea that the substance of the transaction was only a step to readjust the business relation of the partners inter se. The Supreme Court of India rejected this contention holding that while taxing authorities were entitled to determine the true legal relation resulting from a transaction to unravel the device adopted by a party, the legal effect of a transaction could not be displaced by probing the ‘substance of the transaction’. Having laid down the above general principles relating to the interpretation of taxing statutes, we may now come to the facts of the case on hand. In the present case, all the authorities have agreed that the assessee is entitled to exemption to the extent of Rs. 5 lakhs as contemplated by s. 10(10C) of the Act. The only question, therefore, remains is whether the assessee is also entitled to exemption under s. 89(1) of the Act? We have already observed that notions of equity do not apply in taxing statutes. Hence, if the assessee is entitled to two benefits on the plain language of statute, he has to be granted both those benefits. The AO in his assessment order observed that once exemption is allowed under s. 10(10C), no further exemption can be allowed in relation to any other assessment year in view of the proviso to s. 10(10C). We are of the opinion that the view taken by the AO is clearly incorrect. The second proviso to s. 10(10C) only refers to exemption claimed in any other assessment year. It is well settled that every assessment year is a self contained unit. The assessment year in question in the present case is 2001-02 and the exemption claimed is in respect of this assessment year, although the exemption granted under s. 89(1) has been spread over several assessment years. The mere fact that the relief has been spread over several years, does not mean that the relief is not in respect of a particular assessment year.
18. The Tribunal has rightly pointed out that in the IT Act, there are several provisions granting twin or double benefits, while in other provisions, twin or double benefits has been specifically prohibited. There is no prohibition to the twin benefits in respect of the amount received under the voluntary retirement scheme. The relief contemplated under s. 89(1) of the Act is aimed to mitigate hardship that may be caused on account of the high incidence of tax due to progressive increase in tax rates. Hence, we entirely agree with the view taken by the Tribunal. The word ‘salary’ as defined in s. 17 of the Act includes any profit in lieu of salary, which has been defined in s. 17(3) of the Act to include any amount of compensation due or received by the assessee from his employer or former employer in connection with the termination of his employment. Hence, payment under the voluntary retirement scheme is covered by the word ‘salary’, which has been given a very wide definition in s. 17. Since the assessee is covered by s. 89, he will get both the benefits, which he has claimed for. Apart from the above, it is well settled that if two reasonable interpretations of taxing statutes are possible, the one in favour of the assessee should be accepted vide CIT vs. Naga Hills Tea Co. Ltd. 1973 CTR (SC) 329 : AIR 1973 SC 2524 [See also CIT vs. Shahzada Nand & Sons & Ors. (1966) 60 ITR 392 (SC), CIT vs. Kulu Valley Transport Co. (P) Ltd. (1970) 77 ITR 518 (SC), CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), CED vs. R. Kanakasabai & Ors. 1973 CTR (SC) 227 : (1973) 89 ITR 251 (SC) and Sun Export Corp. vs. Collector of Customs (1997) 6 SCC 564]. Thus, where the question was whether an assessee who has sustained a loss could validly file a return after the expiry of the period specified in s. 22(1) of the IT Act, 1922, but before the assessment was made, the answer was given in the affirmative relying on the above principle vide CIT vs. Kulu Valley Transport Co. (supra). Where the expression ‘company in which the public are substantially interested’ in the IT Act had two interpretations, the one in favour of the assessee was preferred vide Addl. CIT vs. Hindustan Milk Food Mfg. Ltd. (1975) 98 ITR 441 (P&H). In CED vs. Kanakashabai (supra), it was held that the phrase ‘of any benefit to him by contract or otherwise’ in s. 10 of the ED Act had two interpretations, and hence the one in favour of the assessee should bee preferred. In view of the above, we do not find any merit in this Department appeal and the appeal is dismissed.
[Citation : 273 ITR 307]
