S. B. I. EXIT OPTEES ASSOCIATION MUMBAI vs. THE CENTRAL BOARD OF DIRECT TAXES AND ANR,

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1718 OF 2011 S.B.I. Exit Optees' Association, Mumbai having registered address at 701-B, Heritage Plaza,Teli Galli, Andheri(E), Mumbai 400069. ..Petitioner. Vs. 1 The Central Board of Direct Taxes Department of Revenue Ministry of Finance, CS Bldg., North Blog, parliament Street, New Delhi-110001. 2 Union of India, Aaykar Bhavan, 2nd floor, M.K.Road, Mumbai-400020. ..Respondents. Mr.J.D.Mistri,Sr. Advocate i/by Mr. Mandar Vaidya for the petitioner. Mr. Arvind Pinto for the Respondents. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ.

DATE : 17th August, 2012 JUDGMENT (Per S. J. VAZIFDAR, J.): The petitioner is a society registered under the Societies Registration Act. Its members are employees of the State Bank of ASN 1/13 WP-1718.sxw CNR No : HCBM020183432011 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

India (SBI) who had opted to retire under the Voluntary Retirement Scheme (VRS) of the SBI. The 2nd respondent is the Union of India. 2) The petitioner has challenged a circular dated 6th October, 2009 issued by the 1st respondent. The petitioner has sought orders directing the Chief Commissioner/Officers to follow the orders of the Appellate Authorities holding that the VRS schemes are entitled to exemption under Section 10(10C) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The petitioner has further sought an order holding that certain orders passed by the CIT dated 13/9/2010 as clarified by an order dated 11th November, 2010 allowing exemption under Section 10(10C) is final and binding. In the alternative, the petitioner has sought an order directing the officers to allow exemption under Section 10(10C) of the Act. 3)(A) The State Bank of India propounded a “Staff Supervising Exit Option Scheme” dated 29th April, 2005. The object of the scheme was to reduce the staff strength by providing a exit route to eligible officers from Top Executive Grade Special Scale to Officers of Middle Management Grade Scale-III. Clause 10 of the scheme reads as under: ASN 2/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

“10 INCOME TAX -TDS As the proposed scheme does not comply with Rule 10(10C) of Income Tax Act 1961 and no benefit of exemption of ex-gratia from income tax is intended in this scheme, there is no legal requirement for obtaining prior approval of Income Tax Department.” B) On 31st August, 2006 the State Bank of India propounded a “Staff Award Exist Option Scheme”. The object of the scheme was to provide an exit route to the employees in workmen category who felt frustrated and demotivated due to lack of carrier prospects. Clause 8 of the Scheme reads as under: “8 Income Tax- In terms of Section 35DDA [37(i)] of the Income Tax Act the payments to employees under Exit Option would be an admissible deduction for the Bank. The amount of Ex-gratia will be added to the employee's income for the year and Income Tax will be deducted at the applicable rate.” 4) We have set out the provisions of the schemes only for the reason that they were the basis on which the impugned circular dated 6th October, 2009 was issued. It is not necessary for us to decide the effect thereof. We have by this order and judgment left it to the ASN 3/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

appropriate authorities under the Act to do so. 5) An employee of State bank of India had filed an appeal being ITA No.6016/M/07 before the Income Tax Appellate Tribunal against the order of the CIT (Appeals) in respect of his assessment pertaining to the assessment year 2006-07. That appeal was decided by an order dated 6th October,2008. One of the aspects that fell for consideration was the effect of the scheme. He had opted for the first scheme dated 29th April, 2005. Apparently, a notice under Section 148 was issued for reopening the assessment merely on the basis of a copy of the said scheme. The Tribunal held that the foundation of the reopening was wrong as the Assessing officer only relied upon the scheme instead of considering the provisions of the Act. On merits, the Tribunal held that the issue was covered in favour of the assessee by the Judgment of the Division Bench of this Court in Commissioner of Income Tax v. Koodathil Kallyatan Ambujakshan 309 ITR 113. The Tribunal therefore, held in favour of the Officer on merits as well as on the jurisdictional issue under Section 148. 6) A year later the 1st respondent issued the impugned circular dated 6th October, 2009 which reads as under: ASN 4/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

“It has been observed that the State Bank of Patiala and State Bank of India are offering Exit Option Schemes to employees of various grades in the management of the bank. These schemes clearly lay out that they are not eligible for deduction under section 10(10C) of the Income Tax Act, 1961. Some employees who have availed of these schemes are nevertheless claiming exemption of the benefits received from such scheme u/s. 10(10C). The field offices may be advised to examine such cases and take immediate action or remedial action in such cases. A compliance report on the number of cases examined and the number of cases where remedial action has been taken should be conveyed to the Board by 3rd October, 2009.” 7) Mr. Mistri, the learned Senior Counsel appearing on behalf of the petitioner, submitted that by this circular the first respondent directed the concerned authorities to proceed on the basis that the employees of the State Bank of India who had availed the benefit of the said scheme would not be eligible for deduction under Section 10(10C). Mr. Pinto, the learned Counsel appearing on behalf of the respondents denied the same. He inter alia submitted that the circular merely advised the concerned authorities to decide the issue in accordance with law. 8) We could normally have disposed of the petition on the basis of the statement on behalf of the respondents. However, ASN 5/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

considering the manner in which the matters have proceeded in relation to the assessment proceedings of hundreds employees of State Bank of India, it is necessary to state a few facts. Moreover, it is apparent that some authorities including the Assessing officer construed the circular as a mandatory order requiring them to deny the benefit of Section 10(10C). 9(A) For instance, by an order dated 24th March, 2010 in respect of one such officer the Commissioner of Income Tax inter alia observed as under: “I have gone through the facts of the case. The assessee was an ex-employee of SBI and had taken voluntary retirement under the Exit Option Scheme of SBI. The CBDT vide its F. No.200/3-4/2009-ITA dated 6th October,2009 has made it very clear that the Exit Option Scheme of SBI is not eligible for deduction u/s. 10(10C) of the Income Tax Act, 1961. In view of the clear instructions of the CBDT, it is held that the assessee Shri. Ravikant Seth is not eligible for claim of deduction u/s. 10(10C) of the Income Tax Act even if he had filed the revised return within the prescribed time. In view of the facts mentioned above, petition u/s. 264 of the Income Tax Act is hereby rejected.” It is clear therefore, that the CIT(A) did not consider the matter on merits. He did not consider the provisions of the Act and the ASN 6/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

Rules. He merely considered himself bound by the circular and construed the circular as directing him to hold the assessee ineligible for exemption under Section 10(10C). It is necessary to note that the Assessing officer had granted the benefit of Section 10(10C) to the assessee. The CIT(A) however, reviewed the order under Section 264. B) The said officer filed Writ Petition No.1051 of 2010 inter alia challenging the circular. He also sought an order directing that exemption under Section-10 (10C) be allowed. The Writ Petition was disposed of by a Division Bench of this Court in terms of the Minutes of Order dated 23rd August, 2010, the relevant part whereof reads as under: “Rule. By consent of parties returnable forthwith. Respondents waive service of the Rule. 2 The impugned order u/s 264 of the Income Tax Act, 1961 dated 24.3.2010 (Ex.D to the petition) is hereby quashed and set aside. 3 The 1st respondent is directed to consider whether the petitioner is entitled to the exemption u/s.10 (10C) of the Income Tax Act, 1961 and the Rules made under the Income Tax Rules, 1962 within a period of 4 weeks from today and to pass an order afresh in accordance with law. 4 The petitioner shall be entitled to be heard and put forward such arguments and contentions as he requires.” ASN 7/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

C) Thereafter, the CIT (Appeals) passed an order dated 13th September, 2010 directing the Assessing officer to process the return in accordance with law. It is important to note that ultimately the said officer was allowed exemption under Section 10(10C). The details of the proceedings have not been furnished. The same is however, evident from an order of the CIT under Section 264 dated 13th September, 2010 directing the Assessing officer to process the return in accordance with law. The details of the proceedings have not been furnished. The same is however, also evident from a letter dated 11th November 2010 addressed by the Income Tax officer in which it is stated that the Assessing officer had been issued instructions for processing the return and allowing the exemption under Section 10(10C). 10) It is equally important to note that the officers in various States including Maharashtra gave the benefit of the exemption to various other officers who had opted for the said scheme. Eight such orders have been annexed to the petition. The claim for exemption was considered on merits and held in favour of the assessee. ASN 8/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

11) It appears that thereafter, some officers of the Department continued to proceed on the basis of the impugned circular. In view thereof, the petitioner by a letter dated 27th October, 2010 called upon the 1st respondent to withdraw the impugned circular and to issue a fresh circular allowing exemption under Section 10(10C) to the employees who had opted for the VRS Schemes. The petitioner stated that thousands of officers were facing harassment on account of the said circular. 12) By a letter dated 16th March, 2011, the Director (ITA-I) revenue refused to withdraw the circular on the ground that this Court by the said order dated 23rd October, 2010 had not directed the withdrawal of the same. 13) Despite the above facts, certain officers continued to consider themselves bound by the impugned circular. They further considered themselves bound to reject the exemption under Section 10(10C) merely on the basis thereof. This is evident inter alia from a letter dated 3rd June, 2011 calling upon one such officer to show cause in respect of a notice under Section 148.The Assistant Commissioner of Income Tax stated as under: ASN 9/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

“Further relying on Board Instructions dated 6/10/2009 and Income Tax Ombudsman, Pune Letter No.Pn/IT/ombudsman/grievances/SBI/2010- 11/143 dt.16/3/2011, it is clear that the assessee has claimed a wrong exemption leading to income of Rs.5,00,000/- escaping assessment. In this regard you are requested to show cause as to why the above mentioned income should not be taxed in the respective assessment year.” 14) Mr. Mistri submitted that the impugned circular dated 6th October, 2009 is illegal, null and void. He submitted that the first respondent cannot by issuing circulars dictate the orders to be passed by the authorities under the Income Tax Act. Nor can it affect the provisions of the Act if they are otherwise applicable. He further submitted that the provisions of the said scheme purporting to state the position under the Act which we have set out earlier are not material to the determination of the assessee's eligibility to claim an exemption under Section 10(10C). The authorities must decide the question of eligibility on the basis of the provisions of the schemes and the provisions of the Act and the Rules made thereunder. 15) Although the submissions appear to be well founded, it is not necessary for us to decide the same in view of the statement made ASN 10/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

on behalf of the respondents. Mr. Pinto states that it is not even the respondents' case that the impugned circular prohibits the authorities under the Act from considering themselves the said questions in accordance with law. He stated that the said circular merely contains instructions to the authorities to decide the question of eligibility under Section 10(10C) in accordance with law namely the provisions of the Act, the rules made thereunder and all other legal principles including the doctrine of precedent. We are of the opinion that the statements are correctly made. The circular does not prohibit the authorities from discharging their functions under the Act. It appears that some officers have wrongly considered themselves bound by the circular to the extent of their being required to reject the application under Section 10(10C) merely on the basis thereof and without considering whether in law the assessees are entitled to exemption in view of their having opted for the scheme. 16) We also agree with Mr. Pinto that in the facts and circumstances of this case, it is not proper for this Court to decide the question of eligibility on merits and that the same ought to be considered by the appropriate authorities in accordance with law. In view thereof, we do not intend considering prayers (b), (c), (d) and (f). ASN 11/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

All the contentions of the petitioners, its members and other similarly placed assessees are kept open. 17) Mr. Mistri invited our attention to the Judgment of the Division Bench of this Court in CIT v. Koodathil Kallyatan (supra). He stated that in deference to the judgment the CBDT issued instructions to all the Chief Commissioners to Income Tax, Director General of Income Tax and the Director General (Legal & Research dated 8/5/2009 to the following effect. “The matter has therefore been reviewed in the Board in view of the aforesaid order of Hon'ble High Court of Bombay and it has been decided that the employees of RBI who accepted OERS would be entitled for the benefit of Section 10(10C) of Income Tax Act, 1961”. Mr. Mistri further states that the judgment of this Court has been affirmed by the Supreme Court in Chandra Ranganathan and ors. v. Commissioner of Income Tax 326 ITR 49. He submitted therefore, that the respondents ought to be directed to issue similar instructions in the present matter. This submission is on the basis that what fell for consideration in the aforesaid judgment of this Court was a similar scheme propounded by the RBI in respect of its employees. ASN 12/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05

18) We do not consider it proper to issue such directions ourselves. The CBDT is requested to consider the matter and issue such instructions as it thinks fit and proper. 19) The writ petition is accordingly disposed of by accepting the above statement made on behalf of the respondents. It is clarified that the authorities shall decide the question of exemption under Section 10(10C) without being influenced by the impugned circular dated 6th October, 2009 in any manner whatsoever. They shall decide the question in accordance with law including under the provisions of the Act, the Rules and legal principles. The authorities shall not take any further steps including under Section 147 and 154 on the basis of the said circular alone. No order as to costs.

( M.S. SANKLECHA, J. ) ( S. J. VAZIFDAR, J.) ASN 13/13 WP-1718.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:05 Powered by TCPDF (www.tcpdf.org)