SHRIKANT ANANTRAO ZORI,AURANGABAD vs. INCOME TAX OFFICER WARD 1(1) AURANGABAD , AURANGABAD

आदेश / ORDER

PER ASTHA CHANDRA, JM :

1. The Learned CIT(A) has erred on Facts & Law & has not adjudicated the most important & crucial Ground of Appeal of the said amounts being claimed as Capital Receipts, The Learned CIT(A) has erred & has failed in taking up the said Ground & has not considered any Submissions, Explanations & Legal Judgments. The Learned CIT(A) has failed to adhere to the main Ground hence the Appeal should be restored back to the Hon'ble CIT(A) for adjudication of the Ground of Capital Receipts.

2. The Learned CIT(A) has erred in confirming the AO's ascertaining correct perspective of Form 10E, Form 16 & has thus erred in not granting relief u/s 89 and has erred in giving relief u/r 21A(1) (c) instead of u/r 21A(1)(a).

3. The Learned CIT(A) has erred in confirming the AO's failure to make any enquiries related to non-reliability of Form 10E, employer not reporting relief u/s 89 in Form 16 & the same being taxable u/s 17(3)(i) & the understanding of advance salary, thus the AO has failed & erred in defying the established principle of natural justice, reasonable opportunity & has thus completed a biased & unlawful assessment.

4. The Learned CIT(A) has erred in confirming AO's non consideration and understanding the Financial Scheme Document and failed to arrive at the correct interpretation and the underlying intentions of the Co. towards the appellant and the need for evolving the said scheme of pre-mature retirement of all employees permanently.

5. The Learned CIT(/A) has erred in confirming the AO'% non acceptance of 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 & towards loss of source of income for premature termination of Appellant's employment & the Appellant was legally entitled to change the nature of his claim form Profits in lieu of Salary to the same being Capital Receipts in the course of assessment proceedings.

6. The Learned CIT(A) has erred in confirming the AO's disallowance of the claim of deduction made Superannuation & has failed to analyze the facts and the submissions and explanations made by the Appellant. 7. The Learned CIT(A) has erred in confirming the AOs disallowance of the claim of deduction made u/s 10 (5) and has failed to analyze the facts and the submissions and explanations made by the Appellant. 8. The Learned CIT(A) has erred in confirming the AO's disallowance of the claim of deduction made us 10 (10C) & has failed to analyse the facts and the submissions and explanations made by the Appellant. 9. The Learned CIT(A) has erred in confirming the AO's assessment which has been completed on an unbalanced assessment impartial of any assumptions & presumption, he is required to co-relate the factual parameters & the legal framework in tandem & decide by his wisdom & uphold rule of law, as he is being a quasi-judicial officer. 10. The Appellant Craves Leave to add, Alter, or amend any of the Grounds of the Appeal, before or during hearing of the Appeal.”

3.1 The Ld. AO observed that during the AY 2020-21 under consideration, the assessee was a salaried individual employed with Pfizer Healthcare India Private Limited. The assessee in his return of income showed salary income of Rs.42,57,146/-, claimed loss under the head “Income from house property” of Rs.1,44,045/- and income from other sources of Rs.22,420/-. The assessee claimed deduction of Rs.2,05,753/- under various sections of Chapter-VIA and also claimed tax relief of Rs.6,57,914/- u/s 89(1) of the Act. During the course of assessment proceedings, the assessee submitted that the management of Pfizer Healthcare India Private Limited, MIDC, Waluj, Aurangabad has formulated a scheme for all permanent employees in the company and under the preamble of the said scheme, the company has decided to cease manufacturing in its plant located at Plot No. L-8 (Part), L-9 and Gut No. 36, 37, 38 MIDC, Waluj, Aurangabad-431136 (“Plant”) with the intention to exist the plant due to significant long term loss of product demand.

3.2 The assessee availed the said scheme in the relevant AY 2020-21. On account of loss of income/service, the company had given capital receipts/payments to the employees who were affected, depending on the balance service left on their service records. This is the amount the assessee received from his employer for loss of service. Its calculations were done by the employer on the basis of service balance as per his service records. The assessee submitted Form 10E before the Ld. AO showing the calculation of relief u/s 89 of Rs.6,57,914/- claimed by the assessee on account of compensation on termination of employment.

3.3 The Ld. AO noticed that the assessee has taken amount of compensation at Rs.50,61,315/- whereas as per the Income Tax computation statement provided by the assessee as issued by his employer, the compensation received is Rs.29,42,618/- (Ex-gratia PHIPL) only. From the financial scheme for employees at Aurangabad namely “Pfizer Healthcare India Private Limited Financial Scheme for employees at Aurangabad, 2019” obtained in response to the notice u/s 133(6) from the company, the Ld. AO noticed that the scheme entails for payment of “Compensation” and “Incentives” to the employees who opt for this scheme.

As the relief u/s 89 is available only for compensation, it is imperative to determine the exact amount of compensation received by the assessee under the said scheme. After analyzing Clause-5 relating to “Compensation under the scheme” and Clause-5(i) relating to “Incentives”, the details of which are provided in para 3.3.4 (iii) of the assessment order, the Ld. AO observed that the assessee has received a compensation of Rs.29,42,618/- (Ex-gratia PHIPL) and Rs.5,47,067/- (Notice Pay out PHIPL) totaling to Rs.34,89,685/- only. He, therefore, rejected the calculation of relief offered by the assessee in Form-10E and restricted the relief claimed by the assessee u/s 89 to Rs.1,48,312/- as per his revised computation. Therefore, the Ld. AO completed the assessment at assessed income of Rs.50,63,150/- u/s 143(3) r.w.s. 144B by making-(i) addition of Rs.6,03,310/- on account of disallowance of exemption claimed by the assessee u/s 10(5) and 10(10C) of the Act and (ii) addition of Rs.5,30,072/- on account of amount received by the assessee from Hospira Healthcare India Private Limited Sr. Executive Superannuation Scheme, for which no explanation was rendered by the assessee, to the returned income of Rs.39,29,770/- and allowing the claim of relief u/s 89 of the Act of Rs.1,48,312/-.

4. Aggrieved, the assessee carried the matter before the Ld. CIT(A)/NFAC. The assessee filed detailed submissions which are contained in pages 16 to 38 of the appellate order. In his submissions before the Ld. CIT(A)/NFAC, the assessee, inter alia submitted as under : *Brief Facts: § The Appellant was employee of Pfizer Healthcare India Pvt. Ltd. at Aurangabad at the time of Closure of the Co. he was initially appointed by Orchid Chemicals & Pharmaceuticals Ltd. vide letter of appointment dt. 14.3.13, Orchid was taken over by Hospira Healthcare India Ltd which was further changed to & became Pfizer Healthcare India Pvt. Ltd. & the retirement scheme has been given by Pfizer. § Pfizer intended to exit the plant at Aurangabad due to significant long-term loss of product demand, accordingly, informed its employees. Pfizer desired to provide a Bonafide beneficial settlement to all permanent employees known as Financial Scheme for Employees of Aurangabad 2019, referred to as "Scheme" dt. 9.1.19. The scheme was purely voluntary. § Pfizer paid the Appellant dues on account of Salary & other regular benefits & additionally paid Ex-Gratia (Severance pay), Early Bird & Group participations incentives in lieu of his premature cessation & loss of job. § Appellant in his ITR claimed relief u/s 89 by considering the Ex-Gratia amounts as Salary received in advance & filed Form 10E accordingly, because of his limited knowledge.

§ Appellant during Assessment proceeding withdrew his claim of relief made u/s 89 & alternatively claimed the said receipts of Ex-Gratia & other incentives as Capital Receipts. § AO after considering the nature of these Receipts held that sec. 89 is not applicable because the amount received is not Salary received in advance, but it is compensation received on his service being terminated hence the relief was denied & the entire amounts of ex-gratia & incentives was treated as Salary & taxed accordingly. v AO's Grounds for Addition. o The learned AO has held that the said amounts received as Ex-Gratia (severance pay) & Early Bird & Group Participation Incentives are received as compensation for termination of his services & to claim relief u/s 89 the Appellant should have received Salary either in arrears or as an advance. Thus, the relief u/s 69 was denied because the said amounts were not received as Salary in advance. AO has not given any finding on nature of scheme payments, nor has he held the same as profits in lieu of Salary uls 17(3) in any clear terms. v Claim of Capital Receipts. o The Appellant wide his submission dt. 12.7.21 had withdrawn the claim of relief u/s 89 made in the ITR & Computation & alternatively & protectively requested the AO to treat & consider all these amounts as Capital Receipts as they were received as Ex-Gratia & severance pay & in lieu of termination on premature retirement & permanent loss of source of income. However, the AO has not considered the same nor discussed or rejected the same. o The Appellant after due legal consultations & believing that the said receipts are Capital Receipts as found from various favorable judgments of Pune ITAT & other courts, would hence claim before your Honour to consider & treat the said receipts as Capital Receipts. Accordingly, the Appellant is making the following important submissions for sustaining his claim of Capital Receipts. o Your Honour, the appellant requests that to sustain his claim fur Capital Receipts it is essential to understand the aspect of the legal obligation on part of Pfizer to pay the said scheme amounts & was the appellant legally entitled to claim & receive the same. Hence it is important to analyse the letter of appointment & financial scheme 2019 documents, which are being explained & deliberated upon as under: - v Analysis of letter of Appointment. o Initially the Appellant was appointed by Orchid Chemicals & Pharmaceuticals Ltd. by Letter of Appointment dt. 14.3.13, further the said Co. was acquired by Hospira Healthcare India Ltd. in continuation of his employment with Orchid by letter dt. 3.7.14 thereafter the same Hospira Healthcare India Pvt. Ltd. became Pfizer Healthcare India Pvt. Ltd. hence the Appellant request that it is necessary to analyse the terms of Appointment as under. Kindly refer the letter of Appointment dt. 14.3.13 at pg. 15-17 of paper book o Letter of Appointment dt. 3.7.14 Primary Appointment letter of Orchid which continued with Hospira & thereafter with Pfizer: - § Clause 01.- Emoluments states the details of Salary & allowances & Annual entitlements to be given to the employee.

§ Clause 04. Benefits-states Employees will be entitled for Provident Fund, Gratuity & Bonus no other benefit with reference to retirement has been provided. § Clause 07.- Notice Period - your service can be terminated by either side by giving one month's notice in writing or pay (basic salary) in lieu thereof. - the said clause stipulates that both the employer and the employee can terminate the services by simply giving one month's notice of termination in writing or pay Salary in lieu thereof. § Clause 09. Retirement only states the retirement age at 58-nothing at all has been provided with reference to any entitlement of monetary compensation on retirement. o Sir, considering the important clause of "Letter of Appointment related to the employment & termination, the appraisal of the same brings out & confirms the following: - Letter of Appointment clearly specifies that even the permanent employee was subject to termination from his job & his job was secured only up to 1 month. The Company was not bound by any conditions to keep any employee permanently without having the right to terminate him. The Company had the discretion to terminate any permanent employee by just giving 1-month notice or 1 month's salary in lieu of the notice. The employee never had any overriding right to continue in job without being terminated ever. There is no such condition which obliges the Company to compensate the employees in any other manner, beyond 1 month's salary in lieu of notice of termination. There is no other condition which stipulates any kind of binding on the Company to compensate by any means in the eventuality of termination of employment or premature cessation of services on closure of the Company or otherwise on retirement. The employment offer does not have any conditions with reference to compensation of any kind & nature, neither there is any reference for any Financial Settlement options, nor any amount to be paid as obligatory on the Company on loss of job or source of income, happening on retirement otherwise. v Analysis of Financial Scheme for Employees at Aurangabad, 2019 "Scheme"

7. Pfizer presented all the employees at their plant at Aurangabad with a financial scheme because it wanted to exit the plant due to loss of demand, the scheme was voluntarily offered by Pfizer with favorable & legitimate terms & conditions. The employees were given details of amounts payable to them in Annexure-II. The employees were required to make an application as per Annexure-1 & then sign form of receipt & Full & Final Settlement Computation Sheet, In Annexure-III. The analysis of scheme documents is being explained as under: - Kindly refer to employment & Financial Scheme details in at pg. 4-14 of paper book Kindly refer full & final settlement Computation sheet at pg. 2-3 of paper book o 1. PREAMBLE – § (i) - Pfizer decided to cease manufacturing at Aurangabad Plant with the intention to exit due to significant long-term loss of product demand. § (ii) - Pfizer's decision was Bonafide & had been made after an extensive & careful evaluation & accordingly informed to all the employees. § (iii) - Pfizer desired to give stated a beneficial settlement towards their said objective & the said scheme was stated to purely voluntary from the Co. & optional for the employees. § (iv) - Employees opting for the scheme would be ending their employment on 30.4.19 & will be paid attractive financial package & those who do not opt for the scheme will be only entitled to statutory or contractual dues payable on cessation of employment if they are eligible. The Preamble reflects the purpose & objective of the Co. to shut its plant because of which a financial package was Voluntary offered & which was Bonafides & based on Humanitarian grounds & Sympathetic considerations.

o 11. OTHER TERMS & CONDITIONS – § (1) The scheme is purely voluntary & is an invitation to offer the scheme, Pfizer having absolute discretion to either accept or decline. § (iv) - The scheme amounts to each employee shall be full & final settlement of all claims & no further amounts will be claimed & no demands will be made. § (vi) The scheme is independent & without prejudice to the rights of Pfizer to dispense with the services of the employee either under the contract of employment or under the standing orders or laws applicable. § (vii) The scheme will be final & binding upon all the employees who opt to voluntarily retire from their employment with Pfizer under the scheme. § (viii) Employees who opt for voluntarily retirement under the scheme will not be entitled to any compensation under the provisions of Industrial Dispute Act because their cessation constitute resignation & does not constitute retrenchment or termination of employment. § (ix) - Employees who have opted for the scheme were not entitled to raise any disputes whatsoever about their separation from the services of the Co. separation as arise upon their voluntary resignation. § (x) The scheme was not negotiable & was not deemed to or be construed as a subject matter or right or service condition or contract or form part of service & shall not become a subject matter of Industrial Disputes or any other legal proceedings. The Co. invited all employees for its voluntary scheme & had absolute discretion to accept or reject any application of an employee, the scheme amounts were full & final & nothing more could be demanded, with the Co. still holding the rights to otherwise dispense with the services of all employees as per employment contract & prevailing Laws, no further compensation was payable under Industrial Dispute Act as the cessation was not a retrenchment or Termination of Employment. Employees were barred to raise any disputes further & the scheme was not subject matter of any rights or service condition so as to lead to any legal proceedings.”

4.1 The Ld. CIT(A)/NFAC did not find the above contention(s) of the assessee acceptable. Before the Ld. CIT(A)/NFAC, the assessee submitted that it has withdrawn the claim u/s 89 of the Act made in the ITR and computation and requested the Ld. AO to treat and consider all compensation/payments as Capital Receipts as they were received as Ex- Gratia and severance pay and in lieu of premature termination of assessee’s employment. It was paid towards loss of source of income due to pre-mature termination of assessee’s employment. However, the Ld. CIT(A)/NFA did not agree with the contention(s) of the assessee and upheld the action of the Ld. AO. The relevant ground, arguments and submissions of the assessee on the impugned issue of the Ld. CIT(A)/NFAC in the appellate order are reproduced below : “Ground no. 4.

The Learned AO 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 & towards loss of source of income for premature termination of Appellant's employment & the Appellant was legally entitled to change the nature of his claim form Profits in lieu of Salary to the same being Capital Receipts in the course of assessment proceedings. Arguments & Submissions is Appeal.

15. Sir, the AO has given no findings of any kind & has neither rebutted the claim of the appellant for claiming the said amounts as capital receipts by brining any cogent reasons, the AO has failed even to record the said claim in the Assessment Order the AO has failed to provide any show cause & assign any reasons for not holding the receipts as capital receipts.

17. Your Honour the Appellant would like to rely on some squarely applicable Judgment on the same matter as under: - Jurisdictional Judgment of Pune ITAT - Mahadev Dhangekar – 149 Taxmann.com 170 (2023) - wherein it has been held "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." Copy of Judgement is at pg. 4-7 of Legal Compilation. Similarly as per the facts of the above cited case the Appellant was also placed on identical Grounds as Pfizer wanted to exit the plant & voluntarily offered the scheme to all employees for retiring willingly & paid certain amounts as ExGratia with no link of any kind to the service contract & without any obligation hence the above ruling of the Jurisdictional ITAT is squarely applicable & binding in nature & is most humbly requested to be applied. Ajay Ghose vs DCIT Mumbai ITAT wherein it has been held "The assessee has received the intimation u/s 143(1)of the Act on 04.05.2018 by email, where the A.O.(CPC) has assessed the total income of Rs.1,16,46,980/-and raised a demand of Rs. 36,71,880/- During the financial year under consideration, the assessee has received an amount of Rs.74,28,585/- towards severance pay due to loss of employment from the employer M/s. AREVA India Pvt Ltd because of shutting down the business operations in India. The assessee was working with the AREVA group from the year 2006. On applying the ratio of the decision to the present case, the fact remains that the assessee was paid severance pay due to loss of employment because of shutting down of business operations in India. Further, such payment takes the character of a capital receipt and cannot be considered taxable u/s 17(3)(i) as a compensation. The assessee has received the one- time payment and it is not recurring in nature. We are of the substantiated opinion that the assessee has lost his employment which was continued from the year 2006. The letter dated 31.05.2016 was in respect of severance payment received by the assessee though specifically does not mention the term "ex-gratia" but the fact remains that the assessee has lost his employment at the Instance of the employer closing down its business operations in India. We are of the considered view that the receipt of severance pay though the nomenclature is not mentioned as ex-gratia but takes the character of a capital receipt and the payment was made voluntary by the employer for loss of employment, and such capital receipt is not taxable in the hands of the assessee." Copy of Judgement is at pg. 8-20 of Legal Compilation. • Here like Areva India Pvt. Ltd. Pfizer was shutting down & the Appellant was working with the Co. from quite long & had received scheme offer from the Co. & received Ex-Gratia, which was voluntary payment for loss of employment. Hence the amounts cannot be considered as profits in lieu of Salary u/s 17(3) as compensation & are Capital Receipts. ASPY B. Talati vs. ITO-Mumbai ITAT

75. TTJ 106 (2000) wherein it has been held "... And for determining the true nature of the payment it is to be seen (i) whether there was any liability to make the payment. (ii) whether or not the assessee had any legally enforceable right against the company for claiming this payment, & (iii) whether or not the amount has been paid as compensation. - Mumbai ITAT has relied upon Ajit Kumar Bose(Cal) & Jamini Mohan Kar (Cul). Where the Company is not liable to pay & the employee has no legally enforceable right for claiming such payment & the payments are unilaterally made by the Company without any requirement than the same is capital receipts. Copy of Judgement is at pg. 21-28 of Legal Compilation.

Ranjeet Singh Khurana vs. CIT - Delhi ITAT - (2016) - wherein it has been held ...the court held that it is for this reason that if the payment is made ex-gratia or voluntarily by an employer out of his own sweet will & not conditioned by any legal beautify or legal obligation, whether on sympathetic reasons or otherwise, such payments is not to be treated as "profits in lieu of salary" under clause (i)". - Delhi ITAT has relied upon Arjunbhai R Naik (Guj) & Deepak Verma (Del). Compensation received was not liable to tax u/s 17(3) considering two important judgments of Gujarat & Delhi High Court. Copy of Judgement is at pg. 29-42 of Legal Compilation.

18. Sir, the appellant would like to explain the view taken by the Jurisdictional High Court of Bombay & other High Courts on the aspect of Capital Receipts which are as under: W. A. Guff vs. CIT - Bombay High Court - 31 ITR 826 (1957) - wherein it has in been held "In this case it is not disputed that the cessation of the assessee's 's employment was compulsory. He did not wish to leave the services of the company; he was compelled to leave it due to the intention of his employer to terminate his services. A payment was made by employer to the employee which was a voluntary payment, and which was paid to him, not for past services rendered, but as a compensation or solatium for terminating his employment. It is significant that the employer mentions that the employment was being terminated owing to the closure of the department. Thus, the employer indicates that, but for the accidental closure of the department, the SHRIKANT ZORI - CIT(A)-AY 20-21-DSTA 15 services of the employee would have been continued, and that the employee was without his job through no fault of his. The amount received was a "capital receipt" When Company winds up its operations & curtails employment against the will of the employee & compensates him, that amount is Capital Receipts. Copy of Judgement is at pg. 43-48 of Legal Compilation. R.N. Agrawala vs. CIT Bombay High Court-38 ITR 67 (1959) wherein it has been held "The legislature regards a payment made solely for loss of employment, which is not made by way of remuneration for past services, as a capital payment. It is implicit in the Explanation that a payment made as remuneration for past services is to be regarded as a revenue payment. But in the absence of any express provision about payments which are neither of the nature of compensation paid solely for loss of employment, nor as remuneration for past service it would be difficult to rely upon the Explanation to support the view that the payment is capital payment or revenue payment". Bombay High Court has relied upon W.A. Guff (Bom) when payments are made for loss of employment & not paid for any past services, then they are Capital Receipts. Copy of Judgement is at pg. 49-53 of Legal Compilation. CIT vs. Ajit Kumar Bose - Calcutta High Court - 54 CCH 11 (1986) - wherein it has been held "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 preferable 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 dt. 3rd July, 1969, stated that the amount was being paid as 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 long 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". (see if capital receipts clause is added only instead of clause of compensation) Payments to employee who could not have continued in services beyond a period are ex- gratia, totally voluntarily & it is not the compensation which will imply any obligation to pay as payments are made not under any obligation are hence voluntarily. In this view, it cannot be said that the amount in question was profits in lieu of salary within the meaning of sub-cl. (3) of s. 17 of the Act. 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 as in the circumstances not necessary. We, hence, do not express any opinion on it. Such amounts cannot be profits in lieu of Salary, but are Capital Receipts. Copy of Judgement is at pg. 54-56 of Legal Compilation. CIT vs. Jamini Mohan Kar Calcutta High Court 176 ITR 127 (1988) wherein it has been held "The Tribunal, as indicated earlier, has reled on its own decision in the case of Ajit Kumar Bose relating to the same assessment year. The said reference came up for consideration before this Court which is reported in CIT vs. Ajit Kumar Bose (1986) 52 CTR (Cal) 250: (1987) 165 ITR 90. There, this Court held that the payment made by the employer was ex gratia and totally voluntary and was not compensation which implied some sort of obligation to pay. Therefore, the amount received by the employee was not profits in lieu of salary within the meaning of s. 17(3) of the Act and, as such, was not taxable as income. The facts being identical, the said decree governed this case also. In the premises, we answer the question referred to this court in this reference in the affirmative, in favor of the assessee and against the Revenue". Calcutta High Court has relied upon CIT vs. Ajit Kumar Bose (Cal). The amount being voluntary & not compensation towards any obligation was not profits in lieu of salary within the meaning of sec. 17(3). Copy of Judgement is at pg. 57-58 of Legal Compilation. CIT vs. J. Visalakshi - Madras High Court - 206 ITR 531 (1993) wherein it has been held "It may also be pointed out that if the ex gratia amount received by the assessee by reason of his resignation from employment is not held as falling under cd. (3) of s. 17 of the Act, it cannot also be construed as an income amenable to assessment to income-tax, because it is not the amount earned or paid for the service rendered, and as such it will be only a capital receipt. From this angle also, the stand of the Department cannot be considered to be consistent or in conformity with the provisions of s. 17(3) of the Act. Therefore, it cannot be held that the stand taken by the IT Department is in conformity with the provisions of the Act. Accordingly, the petition is rejected". The amount being not paid for any past services cannot be construed as an income on a/c of profits in lieu of salary. Copy of Judgement is at pg. 59-61 of Legal Compilation.

CIT vs. Deepak Verma - Delhi High Court -339 ITR 475 (2010) wherein it has been held "Merely because payment was to be received on resignation would not change the character of the payment being voluntary in nature granted by HTCGU suo motu in its own discretion without any vested right of the assessee to claim the same under the employment contract. The Courts in the following cases have held that voluntary payments made by the employer to the employee without any right vested in the employee enforceable at law. is in the nature of capital receipt not exigible to tax as 'salary.". Delhi High Court has relied upon Jamini Mohan Kar (Cal) & CIT vs. Ajit Kumar Bose (Cal). - where employee does not have any right vested in him, then payments received are in nature of Capital receipts. Copy of Judgement is at pg. 61-68 of Legal Compilation. Khanna & Annadhanam vs. CIT - Delhi High Court 258 CTR 72 (2013)- wherein it has been held "Held, where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt-...When that source was unexpectedly terminated, it amounted to the impairment of the profit making structure or apparatus of the assessee. It was for that loss of the source of income that the compensation was calculated and paid to the assessee Thus, the amount received by the assessee represented a capital receipt Delhi High Court has relied upon Kettlewell Bullen & Company Ito(SC) & Oberoi Hotels Pv SHRIKANT ZORI-CIT(A)-AY 20-21-DSTA 17 Lid.(SC). Where termination resulled in loss of source of income & payments made to compensate such loss of the source of income is capital receipts. Copy of Judgement is at pg. 69-73 of Legal Compilation. CIT vs. Pritam Das Narang - Delhi High Court - 281 CTR 485 (2015) - wherein it has been held "The Court accordingly concurred with the concurrent view of the CIT(A) and the ITAT that this was a case where there was no commencement of the employment and that the offer by ACEE to the Assessee was withdrawn even prior to the commencement of such employment. The amount received by the assessee was a capital receipt and could not be taxed under the head profits in lieu of salary". Compensation received even before commencement of the employment is also considered as capital receipt. Copy of Judgement is at pg. 74-80 of Legal Compilation. Arunbhai Naik vs. ITO - Gujarat High Court-379 ITR 511 (2015) - wherein it has been held.... In the opinion of High court, the manner of computation of the amount payable to the assessee in terms of the settlement, would not change the character of the payment, inasmuch as, the same being voluntary in nature and without any obligation on the part of the employer, would not amount to compensation in terms of section 17(3)(1) of the Act. The Tribunal was, therefore, not justified in holding that the amount of Rs.3,51,308/- received by the appellant pursuant to the judgment of the High Court was income liable to tax under section 17(3) of the Act. Manner of computation of amount payable to assessee in terms of settlement, would not change character of payment, inasmuch as, same being voluntary in nature and without any obligation on part of employer, would not amount to compensation in terms of section 17(3)(i) hence amount received by Assessee was not income liable to tax u/s 17(3). - Gujarat High Court has relied upon Deepak Verma (Del), Jamini Mohan Kar (Cai) & CIT vs. Ajit Kumar Bose (Cal). - Amount paid in terms of settlement could not change the character of the payment, inasmuch as, the same being voluntary & without obligation & would not amount to compensation in terms of sec. 17(3).

Copy of Judgement is at pg. 81-89 of Legal Compilation. CIT vs. Sharda Sinha - Delhi High Court-94 CCH 168 (2015) - wherein it has been held "Termination of contract had fatally injured the appellant's only source of income for the last 20 years." The mere fact that the Assessee was free to earn through other sources would not make a difference to this position. Supreme Court in Kettlewell Bullen and Company Ltd. (supra) and Oberoi Hotel Pvt. Ltd. v. CIT [1999] 236 ITR 903 (SC), this court held that if the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other similar operations." Accordingly, Court was satisfied that the question framed had to be answered in affirmative i.e. in favour of the Assessee and against the Revenue.". - Delhi High Court has relied upon Kettlewell Bullen & Company Itd(SC) & Oberoi Hotels Pvt Ltd. (SC) & Khanna & Annadhanam (Del). If receipts represent compensation for loss of source of income, then it would be capital receipts. Copy of Judgement is at pg. 90-94 of Legal Compilation.

19. Sir, the appellant has sufficiently demonstrated the characteristic on which the law has stood tall by upholding that any amount which has been received against loss of source of Income is required to be considered as Capital Receipts. The Appellant is further relying on the following Judgements of Supreme Court which have clearly held that whenever the amounts of compensation are paid against loss of source of Income then, such amounts are Capital Receipts: - 20. Sir, the appellant would like to explain "Capital Receipts" as held by the Hon'ble Supreme Court in various cases, which are as under:- Kettlewell Bullen & Company Ltd vs. CIT - Supreme Court-53 ITR 261 (1964) wherein it has been held "whereby cancellation of an agency the trading structure of the assessee is impaired, or such cancellation in loss of what may be regarded as the source of assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt", loss of source of Income is fundamental consideration for holding the compensation as Capital Receipts. Copy of Judgement is at pg. 95-109 of Legal Compilation. Karam Chand Thapar & Bros. Pvt. Ltd. vs. CIT - Supreme Court-80 ITR 167 (1971) wherein it has been held "For finding out a true nature of the receipt, one of the guidelines for finding out the same is to see whether by the cancellation of an agency the trading structure of the assessee is impaired or such cancellation results in loss of what may be regarded as the source of the assessee's Income. The payment made to compensate for cancellation of an agency agreement is normally a capital receipt". Trading structure or source of income is impaired, such compensation is normally Capital Receipts. Copy of Judgement is at pg. 110-113 of Legal Compilation. Oberoi Hotel (P) Ltd. vs. CIT Supreme Court 152 CTR 474 (1999) - wherein it has been held "The amount was received because the assessee had given up its right to purchase and or to operate the property. Further, it is loss of source of income to the assessee and that right is determined for consideration. Obviously, therefore, it is a capital receipt and not a revenue receipt". Consideration paid towards loss of source of income is Capital Receipts. Copy of Judgement is at pg. 114-119 of Legal Compilation.

24. Appellant & other employees were abruptly losing their permanent source of Income prematurely which was a Capital loss as they were being compelled to leave their permanent services which was fulfilling their livelihood & protected & safeguarded their future. The Co. wanted to close their plant & informed the employees, hence paid scheme amounts for their employees well-being, it was oneoff payments not recurring in nature & when the payments are made as compensation for Capital loss of permanent source of -Income then the said amounts are obviously Capital Receipts & as supported by the declaration made by the Co. that the same does not constitute Retrenchment or Termination of employment by the Co. as such the scheme payments are not made in connection of the termination of the job of the appellant, hence do not SHRIKANT ZORI - CIT(A)-AY 20-21-DSTA 20 correspond to being paid as compensation as envisaged under the provision of sec. 17(3)(1) hence the said amounts are not profits in lieu of Salary because as per sec. 17(3)(1) & as per explanation 3 no such amount is Included under the definition of Salary as received herein by the Appellant. This has been upheld by various High Courts The Supreme Court.”

4.2 The Ld. CIT(A)/NFAC mentioned ground No. 4 on the impugned issue for adjudication. He has not decided the same as can be seen from the relevant extract from the order of the Ld. CIT(A) reproduced above.

5. Aggrieved with such order of Ld. CIT(A)/NFAC, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

6. The Ld. AR submitted that the impugned issue is squarely covered in favour of the assessee by the order of this Bench of Tribunal in the case of Ashok Raghunathrao Kulkarni Vs. ITO in for AY 2019-20, dated 12.08.2024. He submitted that the facts of the assessee’s case in the present appeal are identical to the facts in the case of Ashok Raghunathrao Kulkarni (supra) and both the assessees were the ex- employee of Pfizer Healthcare India Private Limited and covered by the same financial scheme of the company.

7. The Ld. DR did not raise any objection to the above submission of the Ld. AR.

(i) Pfizer Healthcare India Private Limited (the "Company") has decided to cease manufacturing in its plant located at Plot No L- 8 (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 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”.

14. 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.”

16. He accordingly submitted that the decision of the Hon’ble High Court of Calcutta cited (supra) is squarely applicable to the assessee.

Sr. No. Particulars PAN Date of Order 1 Sharad D. Magar ASHPM1986C 28.3.2024 2 Dnyaneshwar Waghmare ABCPW4100G 26.3.2024 3 Ajay K. Agrawal AJJPA2079F 21.3.2024 4 Kalidas T Deshmukh AKTPD8174D 10.3.2024 5 Bhimraj S Kahandal ABRPK4860E 9.3.2024 6 Nandkishor Khairnar BFEPK6767A 9.3.2024 7 Narendrakumar P Desale BALPD6728C 4.3.2024 8 Ramesh S. Sonavne CEAPS7400G 21.2.2024 9 Sanjay N. Karale AAFPK0335H 16.2.2024 10 Ravindra W. Aherwal ABDPA1341G 13.2.2024 11 AG Deshmane AVLPD8364J 10.11.2023

21. He accordingly submitted that the CIT(A) / NFAC is not justified in sustaining the addition of Rs.57,12,673/-.

22. The Ld. DR on the other hand heavily relied on the order of CIT(A) / NFAC.

23. 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.

Order pronounced in the open court on 28th January, 2025.