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Income Tax Appellate Tribunal, PUNE SMC BENCH : PUNE
Before: SHRI RAMA KANTA PANDA, VICE- & Ms. ASTHA CHANDRA
The appeal filed by the assessee is directed against the order dated 12.01.2024 of the Ld. Commissioner of Income Tax, Addl/JCIT (Appeals)-6, Chennai [“Addl/JCIT(A)”] pertaining to Assessment Year (“AY”) 2016-17.
It is a recalled matter. The assessee has raised the following grounds of appeal:-
“1. The Appellant has received a specific letter from his employer Colgate dt. 6th October 2023 which was not available before the AO & hence the same is not considered while completing the assessment, against the Appellant. While deciding a similar matter in Anil Rangale your Honors were pleased to consider the said letter of Colgate as an important additional evidence & vide Appellate Order dt.8.12.22 had Set-aside the Assessment Order & remit the matter to the file of the AO, with a direction to decide the issue afresh in the hue of the said additional 2 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) evidence as per law. The Learned CIT(A) has erred in not considering the said letter & has not given any finding on the same hence it would be justified to remit the file to the AO with similar directions.
2. The Learned CIT(A) has erred on Facts & Law in holding & treating the amounts of Rs. 29,82,830 as Profits in lieu of Salary u/s 17(3)(i) & has erred in considering the said amounts as compensation & failed to appreciate that the said amounts were received de hors of any contract & entitlement & without any obligation on the Employer to pay.
3. The Learned CIT(A) has erred in understanding the ERS Document & failed to arrive at the correct interpretation & the underlying intentions of the Co. towards the appellant & the need for evolving the said scheme of retirement of all employees permanently. The Learned CIT(A) has erred in understanding the meaning of voluntarily retirement & dealt upon the same erringly with closure of the Co. & offering of ERS Scheme against ex-gratia.
4. The Learned CIT(A) has erred in holding the AO's erring in his opinion & holding that the said amount received in not Voluntary in nature & is received as Compensation & has erred in holding that the said amount is not paid by the Co. on its sweet will or any sympathetic considerations, the AO has erred in understanding the Contract of employment between the Appellant & the Co.
5. The learned CIT(A) has erred in understanding the correct perspective of the retirement scheme & the co-relation of the amount so received by the appellant, he has failed to analyze the nature of payment received by the Appellant & has erred in considering the amount received was obligatory.
6. The Learned CIT(A) has erred in not accepting the Appellant's stand of the said amount received, being Capital Receipts in nature, irrespective of the same being obligatory or not on part of the Co. & has erred in not considering that the payments were made de hors any contract of employment & was paid voluntarily & as compensation for premature termination of Appellant's employment.
7. The learned CIT(A) has erred & failed to co-relate & apply the Pune ITAT Judgment of Mahadev Dhangekar & by not considering & understanding all the correlated Judgments, cited by the appellant and has failed to co-relate the facts and the law apprised by the Courts, where it is laid laws, that amounts received on loss of Job or on loss of permanent source of income is to be considered a Capital Receipts.
8. The Appellant Craves Leave to add, Alter, or amend any of the Grounds of the Appeal, before or during hearing of the Appeal.”
It is a recalled matter. Briefly stated the facts of the case are that assessee is an individual deriving income under the head ‘salary & other sources”. During the A.Y. 2016-17, he was an 3 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) employee of Colgate Palmolive Ltd. For AY 2016-17, the assessee e- filed his return on 12/07/2016 declaring total income of Rs. 29,82,830/-. The return of the assessee was processed u/s 143(1) of the Income Tax Act, 961 (the ‘Act’) and was subsequently selected for scrutiny under CASS for the reason “Large Relief claimed u/sec. 89”. Accordingly, statutory notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee, in response to which, the assessee filed his written submissions furnishing the details called for. The assessee in his return of income offered the amount received from his employer, Colgate Palmolive Ltd. as his salary income under the provisions of section 17(3) of the Act as profits in lieu of salary and claimed relief under section 89 read with Rule 21A(1)(a) of the Income Tax Rules, 1962 (the “Rules”) as the said amount pertained to the compensation received for termination of assessee’s employment with Colgate Palmolive Ltd. During the course of assessment proceedings, in response to explanation sought by the Ld. Assessing Officer (“AO”), the assessee submitted that the said amount received from the Company is in the nature of capital receipt and the same is paid voluntarily and as compensation on premature termination of employment. The Ld. AO did not find the submissions of the assessee tenable and proceeded to complete the assessment vide order dated 17/12/2018 passed u/s 143(3) of the Act assessing the income to be the same as returned income of Rs. 29,82,830/- and allowing relief u/s 89 of Rs. 2,60,022/- as against the total claim of Rs. 7,87,795/- and thereby disallowing the relief of Rs. 5,27,773/-
4 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) made by the assessee by observing in para 4.15 of the assessment order as under:-
“(i) There is termination of employment, (ii) The payment received by assessee is compensation, (iii) The payment is not in the nature of capital receipt, (iv) The payment is not received by the assessee voluntarily from employer out of its own sweet will or sympathetic grounds or otherwise but, payment is conditioned by legal obligation, (v) Payment received is not in the nature of Arrear or Advance salary, and finally. (vi) The nature of the payment is compensation received by assessee from his employer or former employer at or in connection with the termination of his employment.”
The Ld. AO allowed part relief to the assessee u/s 89(1) of the Act observing as under:-
“Thus, the amount so received by the assessee cannot be termed as arrears of salary or advance salary. Neither, it can be termed as Capital Receipts nor it can construed as voluntary payment from employer out of its own sweet will or sympathetic grounds or otherwise. However, Assessee has claimed the relief u/s 89 in Form 10E treating the payment received on retirement as arrears of salary or advance salary as he has claimed relief as per the Rule 21A(1)(a) for which relief is calculated as per sub rule (2) of rule 21A. Once it is not in dispute that the amount is taxable not as arrears of salary or advance salary, but profits in lieu of salary, as provided under section 17(3) of the Act, it is eligible for relief under section 89(1) of the Act.”
Aggrieved, the assessee filed an appeal before the Addl/JCIT(A). Before the Addl/JCIT(A), the assessee did not challenge the calculation adopted by the Ld.AO in computing the relief u/s 89(1), but only challenged the rejection of the alternative claim of the assessee by the Ld. AO that as per the retirement scheme of the Company i.e. ERS/VRS document, the receipt is capital in nature and therefore not taxable. Before the Addl/JCIT(A), the assessee made detailed submissions and placed reliance on the decision of Pune Tribunal in the case of Mahadev Dhangekar vs. ACIT (NFAC) 149 Taxmann.com 170 in support of 5 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) his contention that the compensation received by the assessee at the time of ERS/VRS is a capital receipt which is not taxable and not profit in lieu of salary taxable in the hands of the assessee under the provisions of section 17(3)(i) of the Act as alleged by the Ld. AO. The Addl/ JCIT(A) did not find the submissions of the assessee as tenable and dismissed the assessee’s appeal by observing as under:-
“4.6 The facts of the case in the light of the submission made by the appellant at the time of assessment proceedings and the present appellate proceedings and the case laws relied upon were carefully considered. The short question to be answered is whether the compensation received by the appellant at the time of VRS or ERS, by whatever name called is a capital receipt, being exempt from tax, or profit of lieu of salary as per S.17(3)(i), being taxable? 4.7 The Hon'ble ITAT at Pune in the case of Mahadev Dhangekar Vs. ACIT (NFAC) 149 Taxmann.com 170, had dealt with the issue in the light of the imposition of S.17(3)(iii) to tax the lump sum received in the case of that assessee and held that the same is exempt from tax. Before proceeding to deal with the enforceability of the said decision, the extracts of the applicable provisions of law, the decision relied upon and the confirmation letter provided by the erstwhile employer of the appellant needs to be brought on record and the same is accomplished hereunder. Provision of S.17(3)(i) & 17(3)(iii) (3) “profits in lieu of salary” includes- (i)the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) .... (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. Decision of Hon'ble ITAT at Pune in the case of Mahadev Dhangekar Vs. ACIT Section 17 of the Income-tax Act, 1961 Salaries Profit in lieu of salary (Ex- gratia) - Assessment year 2018-19 - Assessee had received Rs. 47.21 lakhs from his erstwhile company as ex-gratia and from this amount claimed Rs. 5 lakhs under section 10(10C) VRS compensation/ termination of service and balance remaining amount as capital receipt – Assessing Officer taxed amount under section 17(3)(iii) by treating it as additional compensation received by assessee from his employer as profit in lieu of salary under section 17(3) (iii) However, a letter had been issued by employer which clearly stated that payment of amount had been made voluntarily to assessee and was not compensation This letter had not been doubted by department – No independent inquiry regarding veracity of this letter had been conducted and none of authorities had held this letter issued by employer to assessee as bogus – Whether without
6 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) establishing letter as non-genuine or without examining sanctity of payment made simply invoking provisions of Act for making addition was not appropriate for a quasi-judicial authority Held, yes Whether when employer itself stated that payment had been made voluntarily by them out of appreciation for employee, thus it falls outside rigours of section 17(3)(iii) – Held, yes – Whether therefore, Assessing Officer was to be directed to delete addition from hands of assessee – Held, yes (Paras 6 & &)(in favour of assessee) Confirmation letter of the Employer
4.8 First and foremost, it is brought on record that the decision in the case of Mahadev Dhangekar (supra) will not be applicable to the facts of the case since the provisions of law are enforced in the case under consideration is S.17(3)(i) as compared to 17(3)(iii) in the case relied upon. In the case of Mahadev Dhangekar, the gratuitous payment was made not at the time of retirement, but subsequently, when such compensation has no connection with that of his employment and its termination. In order to comprehend this distinctive feature in an appreciable manner, the brief facts of the case incorporated in the order of the Hon'ble ITAT is depicted below: The brief facts in this case are that the assessee has taken voluntary retirement from Racold Thermo Private Limited Pune during the year under consideration. Thereafter the assessee has started trading business of Industrial consumable supply in the name of M/s. Laxmi Enterprises. The assessee received Rs. 47,21,154/- from the company as Ex-Gratia and from this amount claimed Rs. 5,00,000/- u/s 10(100) VRS compensation/Termination of service and balance remaining amount of Rs. 42,21, 154 from Ex- Gratia taken as capital receipt.
4.9 Whereas in the case of the appellant, the severance package was paid at the time of his retirement and hence it has to be necessarily as a profit in lieu of salary as per S.17(3)(i) of the Act. In the case of Mahadev Dhangekar, that assessee did not possess the right to receive the compensation and the payment by his erstwhile employer was made as a gratis. Therefore, the receipt was held to 7 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) be capital in nature. On the contrary, in the case of the appellant, the contents of the communication issued by the employer M/s. Colgate Palmolive, described the payment to be a compensation paid towards VRS/ERS and the appellant possessed the right to receive such compensation on opting for this scheme. Mere usage of the phrase, "Payment on own sweet will", cannot alter the course of taxation, which if were to be considered as a deciding factor, would make the provisions of S.2(24)(iii) r.w.s.17(2) & 17(3) redundant. 4.10 If it were a gratuitous payment and not in lieu of salary, the employer ought to have qualified that the said payment was not claimed as expenditure in its books. If it were true that the payment was free from any obligation on the part of the employee appellant, being personal in nature, the company ought to have disallowed the corresponding expenditure u/s.37(1) of the Act. The employer has not committed that this compliment extended to the appellant was not claimed as deduction in its books. The employer company went ahead to deduct tax u/s.192, which otherwise would have resulted in disallowance u/s.40(a)(ia). It postulates that while qualifying the amount to be made out of own sweet will, it had claimed the same as expenditure. In such a situation, failure to bring this compensation to tax and granting total exemption treating it as a capital receipt would result in double jeopardy to the exchequer. This test of applicability of s.37(1) had not evolved in the adjudication of the case of Mahadev Dhangekar (supra). If viewed in this angle, the qualification provided by the employer, that it was paid on own sweet will is a falsification. Therefore, the claim that the receipt is capital in nature and exempt from tax is untenable as it is proven to be a severance compensation paid at the time of VRS/ERS to the appellant which is squarely covered by the provisions of s.17(3) (i). Based on the discussion made above, the determination of income as computed by the AO to be Rs.29,82,830/- is upheld and the corresponding grounds of appeal of the appellant is dismissed.”
5. Dissatisfied, the assessee is in appeal before this Tribunal and all the grounds of appeal of the assessee relates thereto.
At the outset of the hearing, referring to the legal compilation filed on behalf of the assessee, the Ld. AR submitted that the impugned issue stands covered in favour of the assessee by catena of decision(s) of the Coordinate Bench of the Pune Tribunal wherein under the similar set of facts, the Tribunal has taken a view that the compensation received by the assessee under the ERS/VRS scheme from his employer at the time of VRS is capital in nature which is exempt from tax and not profit in lieu of salary taxable
8 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) under the provisions of section 17(3)(i)/(iii) of the Act. In support thereof, he cited the recent decision of the Pune Tribunal in the case of Shriant Anantrao Zori vs. ITO in dated 28/01/2025, pronounced by this Bench.
7. The Ld. DR fairly has not raised any objection to the above submission of the Ld. AR.
We have heard Ld. Representatives of the parties and perused the material on record and paper book(s) filed on behalf of the assessee. The facts of the case are not in dispute. The Ld. AO has not accepted the claim of the assessee that the impugned amount is in the nature of capital receipts received by the assessee on loss of employment and not taxable as compensation received on termination of service under the provisions of sec 17(3)(i) of the Act.
The Addl/JCIT(A) has upheld the action of the Ld. AO observing that the claim that the receipt is capital in nature and exempt from tax is untenable as it is proven to be a severance compensation paid at the time of ERS/VRS to the assessee which is squarely covered by the provisions of section 17(3)(i) of the Act, for the reasons reproduced in the paragraph(s) above. Before us, the Ld. AR has submitted that the issue “whether the amount received by the assessee under VRS scheme is in the nature of capital receipt and not profit in lieu of salary” has been decided by the coordinate Bench of the Pune Tribunal in favour of the assessee in the case of Shrikant Anantrao Zori (supra) under the identical set of facts. The Ld. DR has not objected to the above contention of the Ld. AR and 9 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) has also not brought on record any contrary material to refute the submission of the Ld. AR.
We have perused the order of the Pune Tribunal in the case of Shrikant Anantrao Zori (supra) and find that the Tribunal in turn relying on various other decisions of the Coordinated Bench(es) of the Tribunal including the decision in the case of Mahadev Vasant Dhangekar (supra) as well as the decision of the Hon’ble Calcutta High Court, has decided the impugned issue in favour of the assessee under the similar set of facts. The relevant observations and findings of the Tribunal in the said order are reproduced below:-
“8. We have heard the Ld. Representatives of the parties and perused the material on record. The facts are not in dispute. Admittedly, the assessee was a salaried employed of Pfizer Healthcare India Private Limited, Aurangabad during the AY 2020-21 and was covered by the Financial Scheme 2019 of the company for employees at Aurangabad. We have perused the order of the Tribunal in the case of Ashok Raghunathrao Kulkarni (supra) wherein the Tribunal has set aside the order of Ld. CIT(A)/NFAC and directed the Ld. AO to delete the impugned addition. The relevant findings and observations of the Tribunal in the case of Ashok Raghunathrao Kulkarni (supra) is as under: “12. The Ld. Counsel for the assessee referred to the Financial Scheme for the employees at Aurangabad of Pfizer Healthcare India Pvt. Ltd., copy of which is placed at pages 73 to 83 of the paper book and drew the attention of the Bench to the following clauses: “I. PREAMBLE (i) Pfizer Healthcare India Private Limited (the "Company") has decided to cease manufacturing in its plant located at Plot No L8 (part), L-9 & Gut Nos 36, 37, 38, MIDC, Waluj, Aurangabad - 431136 ("Plant") with the intention to exit the Plant due to significant long term loss of product demand. (ii) The above decision is bona fide and has been made after an extensive and careful evaluation. The employees of the Plant have been informed of this decision and reasons thereof. (iii) The Company is desirous of providing a beneficial settlement to all permanent employees of the Plant. Towards this objective, the Company has taken a decision to offer a financial scheme to its permanent employees at the Plant, on the terms and conditions set out below. The Scheme (as hereinafter defined) is 10 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) purely voluntary and it is for each such employee to decide whether or not to opt for the same. (iv) In the event the employees opt to retire voluntarily from their employment with the Company in accordance with the Scheme, their last day of employment with the Company will be February 8, 2019, (unless mutually agreed otherwise in writing) and they will be paid an attractive financial package on the terms and conditions set out below. Those employees who do not opt for the Scheme (as hereinafter defined), will be paid only statutory or contractual dues payable on cessation of employment, provided they are eligible for the same.”
13. Referring to other terms and conditions as per clause (11), the Ld. Counsel for the assessee drew the attention of the Bench to the sub-clause (viii) of the same, which reads as under: “(viii) All Employees who opt for voluntary retirement under the Scheme will not be entitled to any compensation or notice pay under the provisions of the Industrial Dispute Act, 1947 as their cessation from the employment constitutes “resignation” and does not constitute “retrenchment” or “termination of employment” by the Company”.
Referring to the provisions of section 17(3) of the Act, the Ld. Counsel for the assessee submitted that the same are not applicable to the facts of the assessee, which reads as under: “17(1)…. 17(2)…. (3) "profits in lieu of salary" includes— (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation.—For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10; (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.”
So far as sub-clause (ii) is concerned, the Ld. Counsel for the assessee referring to the various decisions submitted that this clause is also not applicable. He submitted that the amount received
11 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) by the assessee is not a compensation but on account of loss of pay. Referring to the decision of the Hon’ble High Court of Calcutta in the case of CIT vs. Ajit Kumar Bose (1987) 165 ITR 90 (Cal), he submitted that the Hon’ble High Court has held that where the conditions of service clearly stipulated that the assessee’s services could be terminated at any time on giving three months notice and there was no obligation on the employer to pay anything to the assessee in connection with the termination, payment made ex- gratia, therefore, totally voluntary and not compensation which implies some sort of obligation to pay and cannot be taxed as profits in lieu of salary within meaning of section 17(3) of the Act. Referring to the copy of letter of probation dated 20.07.2020 he drew the attention of the Bench to column 14 of the same which reads as under: “14. Notice Period : During the period of probation, your employment can be terminated without any notice or assigning any reason thereof on either side. On confirmation your employment can be terminated by one month’s notice in writing or pay in lieu thereof on either side.”
He accordingly submitted that the decision of the Hon’ble High Court of Calcutta cited (supra) is squarely applicable to the assessee.
The Ld. Counsel for the assessee referring to the decision of the Pune Bench of the Tribunal in the case of Mahadev Vasant Dhangekar vs. ACIT (2023) 149 taxmann.com 170 (Pune-Trib.) submitted that the Tribunal in the said decision has held that where the assessee had received Rs.47.21 lacs from the erstwhile company as ex-gratia and letter has been issued by the employer which clearly stated that payment of amount has been made voluntarily to the assessee and was not compensation without establishing letter as non-genuine or without examining sanctity of payment made simply invoking provisions of section 17(3)(iii) for making addition was not justified.
Referring to the decision of the Delhi Bench of the Tribunal in the case of ITO vs. Avirook Sen (2024) 161 taxmann.com 462 (Delhi – Trib.), he submitted that the Tribunal in the said decision has held that where the assessee has received certain amounts as lump sum amount after his termination from the service as a settlement out of court with his employer and said payment was voluntary in nature without there being any obligation on part of employer to pay further amount to assessee in terms of any service rule, such payment would not amount to compensation in terms of section 17(3)(i).
Referring to the various other decisions as per case law compilation, he submitted that the amount received by the assessee cannot be termed as compensation in terms of section 17(3)(i).
The Ld. Counsel for the assessee submitted that in case of the following employees where they have also received similar amounts from Pfizer Healthcare India Pvt. Ltd., the said amounts have not been added by the respective AOs in the reopening assessments treating the same as capital in nature.
12 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore)
He accordingly submitted that the CIT(A) / NFAC is not justified in sustaining the addition of Rs.57,12,673/-.
The Ld. DR on the other hand heavily relied on the order of CIT(A) / NFAC.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both the sides. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of relief u/s 89 of the Act of Rs.18,74,899/- on income of Rs.57,12,674/- treating the same as income u/s 17(3) of the Act. We find the CIT(A) / NFAC upheld the action of the Assessing Officer, reasons of which are already reproduced in the preceding paragraphs. The CIT(A) / NFAC also rejected the alternate claim of the assessee that such amount being a capital receipt cannot be brought to tax. It is the submission of the Ld. Counsel for the assessee that in case of various other employees who have received similar compensation, the same has been accepted as capital receipt by the respective AOs in re- assessment proceedings and no addition has been made. Further, various Co-ordinate Benches of the Tribunal in similarly placed employees have also treated such compensation received on termination of service as capital in nature and not falling u/s 17(3) of the Act. 24. We find the Assessing Officer in the case of Sharad D. Magar, who also resigned voluntarily from service of Pfizer Healthcare India Pvt. Ltd., Aurangabad has accepted the compensation received at Rs.30,49,176/- as capital in nature by observing as under: “Brief facts of the case: The assessee, Shri Sharad Daulatrao Magar, having PAN: ASHPM1986C, an salaried individual, had filed ITR-1 u/s. 139(1) for AY 2019-20 on 29.07.2019 declaring total income of Rs.32,03,150/-. Further, Rs.35,54,140/- was shown as Gross Salary. The assessee was employee of M/s Pfizer Healthcare India Pvt Ltd, Aurangabad during FY2018-19. The company launched VRS beneficial to the employees on planned closure of its unit. The assessee voluntarily resigned from service w.e.f 08.02.2019 and received compensation and out of that compensation he claimed Rs.30,49,176/- being salary claimed in Advance as exempt u/s 89 from taxation in his ITR u/s 139(1) of the Act. …….. 14. The submissions made by the assessee have been examined. As the assessee has submitted corroborative and binding judicial pronouncements in support of his claim that the amount of 13 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore)
Rs.30,49,176/- received by him from his employer at the time of cessation of his employment due to closure of the manufacturing unit was a capital receipt, not subject to tax. The assessee has also placed reliance on various case laws, in support of his above claim, and court has held as under "The amounts received were due to loss of employment & not recurring in nature & are not paid in lieu of any salary hence it does not come under the preview of sec. 17(3)(i) as amount of compensation. The said amounts have not been paid against any services of the assessee. Hence the same is not compensation as contemplated under the provisions of sec. 17(3)(i)." As the various courts have allowed the claim that the amount received at the time of cessation of his employment due to closure of the manufacturing unit as capital receipt during assessment proceedings in the cases referred by the assessee, the AO's has duly accepted the above claims of the respective assessee, which are very similar cases as that of the assessee’s instant case. Hence, the reopened assessment proceedings in the case of the assessee, is hereby proposed to be completed by accepting the income returned by the assessee in response to 148.”
In the remaining cases also, the respective AOs have treated such compensation as capital in nature. We, therefore, find merit in the arguments of the Ld. Counsel for the assessee that when the concerned AOs after reopening of the assessment have treated such compensation as capital in nature and the Revenue has not challenged the same and which has attained finality since no 263 proceedings have been initiated, therefore, the assessee’s case being identical to the facts of the other employees of Pfizer Healthcare India Pvt. Ltd., the CIT(A) / NFAC is not justified in sustaining the addition made by the Assessing Officer.
We further find the Hon’ble Calcutta High Court in the case of CIT vs. Ajit Kumar Bose (supra) has observed as under: “4. The amount in question was received by the assessee from his employer. It was received by him in connection with the termination of his service. But the question still remains whether it was compensation. Since it was received by the assessee in connection with the termination of his employment, the term "compensation" would be referable to that event. In other words, it is to be seen whether the amount was paid as compensation for the termination or in lieu of the termination of the employment.
The letter issued by the employer dated July 3, 1969, stated that the amount was being paid ex gratia. There is nothing to indicate that the assessee was entitled to continue in the employment of the company up to any particular age. Under the conditions of service, his services were liable to be terminated on giving three months' notice without assigning any reason. Under the circumstances, it cannot be said that the assessee was entitled to remain in service for any period longer after the requisite notice has been given or that the employer was under any obligation to pay anything to the assessee in connection with the termination of his employment other than the salary for the period of notice. Under the circumstances, in its true nature and character, the payment was ex gratia, that is to say, totally voluntary; it was not compensation which implies some sort of an obligation to pay.
6. In this view, it cannot be said that the amount in question was profits in lieu of salary within the meaning of Clause (3)
14 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) of Section 17. It was not taxable as such. The finding of the Tribunal that the amount was a capital receipt or that it was payment of a casual and non-recurring nature was in the circumstances not necessary. We, hence, do not express any opinion on it.
The question of law referred to us in this case, namely : "Whether, on the facts and in the circumstances of the case, the amount of Rs. 24,933 received by the assessee could be treated as income under the charging section or under the section dealing with the computation of income of the assessee ?" 8. is answered in the negative, in favour of the assessee and against the Department.”
We find the Delhi Bench of the Tribunal in the case of ITO vs. Avirook Sen (supra) at para 12 of the order has observed as under: “12. As the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule. it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned addition was rightly deleted by the Ld. CIT(A). The aforesaid point is accordingly determined against the revenue department. The appeal is accordingly not sustainable as we don't find any error of law or fact in the impugned order passed by Ld. CIT(A). The department appeal is liable to be dismissed.”
The various other decisions relied on by the Ld. Counsel for the assessee placed in the paper book support his case to the proposition that the payment of ex-gratia compensation received by the assessee was voluntary in nature without there being any obligation on the part of the employer to pay further amounts to the assessee in terms of any service rule and therefore, would not amount to compensation in terms of section 17(3) of the Act. We, therefore, set aside the order of the CIT(A) / NFAC and direct the Assessing Officer to delete the addition. The grounds raised
by the assessee are accordingly allowed.”
9. Respectfully following the decision in the case of Ashok Raghunathrao Kulkarni (supra) and in the absence of any contrary material brought on record by the Revenue, we set aside the order of the Ld. CIT(A)/NFAC and direct the Ld. AO to delete the addition. Accordingly, ground Nos. 1, 2, 3, 4 and 5 are allowed.”
Considering the facts of the case and the legal position set out above and following the decision of the Coordinate Bench in the case of Shrikant Anantrao Zori (supra) and in absence of any objection/ any contrary material brought on record by the Revenue, we set aside the order of the Ld. CIT(A) and allow the impugned issue in favour of the assessee. The Ld. AO is directed to delete the 15 ITA.No.449/PUN./2024 (Maruti Keshavrao Didhore) addition. Ground Nos.1 to 7 raised by the assessee are accordingly allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 22.05.2025.