MAHADEO AHILAJI VIR,PUNE vs. ACIT, NFAC, PUNE

On the other hand Ld. Departmental Representative (DR) supported the order of Ld. CIT(A) and submitted that alongwith alleged sum assessee has also received VRS compensation and that the employer has deducted the tax

We have heard rival contentions and perused the record placed before us. The issue before us is that whether the ex gratia amount received by the assessee is a taxable income or capital receipt. We observe that the assessee is an individual and return for A.Y. 2018-19 furnished on 31.08.2018.

We also note that similar type of payment made by the employer to another employer namely Mahadev Vasant Dhangekar was also claimed as a capital receipt but denied by the revenue authorities but this Tribunal in ITR 472/PUN/2022 dated 03.04.2023 has held the ex-gratia payment as a capital receipt not liable to be taxed. Relevant finding of this Tribunal reads as under:- “6. We have heard rival submissions, considered relevant materials/documents on record, analysed the facts and circumstances in this case. The assessee had received Rs. 47,21,154/- from his erstwhile company as ex-gratia and from this amount claimed Rs. 5,00,000/- u/s 10(10C) VRS compensation/termination of Service and balance remaining amount of Rs. 47,21,154/- from ex-gratia taken as capital receipt. The Id. A.O taxed the amount u/s 17(3)(ii) of the Act by 17(3) (iii) of the Act. Section 17(3)(iii) of the Act provides as follows: "17. For the purposes of sections 15 and 16 of this section (1)--------------- (3) "profits in lieu of salary" includes ------------ (iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person (A) before his joining any employment with that person or (B) after cessation of his employment with that person. Therefore, as per the aforesaid provision, it is clearly evident that any payment received whether in lump sum or otherwise by an assesses from any person after cessation of his employment with that person is also considered as profit in lieu of salary and is to be brought to tax accordingly being defined inclusively as per the Act. The Ld. A.O has invoked this provision and has brought to tax the deputed amount. The NFAC while upholding the addition has discussed that the amount received by the assessee is part and parcel of Form No. 16 issued to him and that The TDS has also been paid in respect of the said amount and that further the letter which was produced by the assessee was signed by Vice President (Human Resources) only surfaced once the scrutiny started and notices u/s 143(2) and 143(1) were issued to the assessee. On the other hand, it is contended by the assessee that the payment has been made voluntarily by the employer out of his own sweet will and not bound by any or condition by any legal duty or legal obligations which are on sympathetic reason or otherwise, Further, neither the terms of employment nor the service rules of the employer company provides for making ex- gratia payment. Thus, the said amount is totally voluntary and it is not compensation.

Admittedly, the amount was received by the assessee after cessation of his employment with the employer company. In the normal course, section 17(3)(iii) of the Act would apply and the payment would be covered within the definition of profit in lieu of salary as brought out by the department. However, in this case, the letter which has been issued by the employer clearly stated that the payment of the amount has been made voluntarily to the assessee and is not the compensation. This letter has not been doubted by the department. Neither, the Id. A.O nor the NFAC conducted any independent inquiry regarding the veracity of this letter and none of the authorities have held this letter issued by the employer to the assessee as bogus. Without establishing the letter as non-genuine or without examining the sanctity of the payment made simply invoking the provisions of the Act for making addition is not appropriate for a quasi-judicial authority. The revenue should have verified and examined the genuineness of the letter which was produced by the assessee wherein the employer had stated that it is a voluntary payment made as per appreciation for the employee without entering into this exercise simply invoking the provision of the Act is not legally tenable and takes the colour of arbitrariness. The Id. D.R could not produce any documents/evidences on record to show that the payment received from the employer nor voluntary in nature or that the payment was coupled with some legal obligation on the part of the employer to pay to the employee. No such facts were produced before us. We are of the considered view, therefore, in this case, when the employer itself stated that the payment has been made voluntarily by them out of appreciation for the employee thus falls outside the rigours of section 17(3) (iii) of the Act. In view thereof, we set aside the order of the NFAC and direct the Id. A.O to delete the addition from the hands of the assessee. The grounds of appeal of the assessee are allowed.

In the result, appeal of the assessee is allowed.”

Now examining the facts of the instant case in the light of the above decision we find that the same is squarely applicable on the facts of the assessee in the instant case and therefore respectfully following the said decision we are inclined to hold that the alleged sum of Rs. 42,21,420/- received by the assessee from his employer as ex gratia payment is a capital receipt and not liable to be taxed. Grounds of appeal raised by the assessee are allowed.

In the result appeal of the assessee are allowed.