My VRS does not satisfy Rule 2BA. The Commissioner says that kills my s.35DDA deduction as employer. Does it?
No. The Karnataka High Court held that Rule 2BA is a guideline for the purposes of s.10(10C) — the exemption in the retiring employee's hands — and has nothing to do with the employer's claim under s.35DDA. s.35DDA makes no mention of any rule. The employer's deduction is nevertheless confined to one-fifth in the year of payment, with the balance spread over the four succeeding years.
Decided by the High Court (D.V. Shylendra Kumar J and B.S. Indrakala J) on 2013-07-11, reported as Income Tax Appeal No.48 of 2013, High Court of Karnataka at Bangalore; assessment year 2007-08; appeal from ITA No.890/Bang/2011. It bears on section 35DDA, section 10(10C), section 263, section 260A, section Rule 2BA of the Income Tax Act 1961, in Deductions & Disallowances, Revision & Rectification and Salary & Perquisites matters.
This decouples two provisions that Assessing Officers and Commissioners routinely bolt together, and the argument the Revenue lost is worth naming because it is still made: that if the retiring employee cannot claim s.10(10C) then the employer correspondingly cannot claim a deduction. The Court's answer is textual — s.35DDA contains no reference to any rule, whereas Rule 2BA is captioned 'Guidelines for the purposes of section 10(10C)' and speaks of the amount received by the employee. The case is also a useful reminder of the price of the section: the assessee here had claimed the whole Rs 7.09 crore as revenue expenditure and the Assessing Officer had allowed it in full; it was the s.263 revision and the Tribunal that reduced the year's allowance to one-fifth. So s.35DDA is a rationing provision as much as an enabling one, and where a payment on cessation of service is NOT VRS compensation the taxpayer may be better off outside it — compare Ambalal Sarabhai Enterprises (Gujarat High Court, 2026) in this library on gratuity and leave encashment.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee was a public sector bank. For AY 2007-08 it claimed Rs 7,09,53,323.23 as deductible expenditure incurred to meet the claims of employees who had taken voluntary retirement and retired prematurely. The Assessing Officer allowed the deduction as revenue expenditure for the year to its entire extent. The Commissioner of Income Tax (LTU) took the assessment up in suo motu revision under s.263, holding the expenditure to be capital in nature, influenced by the view that the scheme had been framed not in the normal course but to shed frustrated and de-motivated officers, and that even applying s.35DDA the scheme was not in consonance with Rule 2BA of the Income-tax Rules; he directed the Assessing Officer to withdraw the deduction. The Tribunal allowed the assessee's appeal in part, holding that the scheme was covered by s.35DDA, that the condition in Rule 2BA relating to the recipient of the amount for the purposes of s.10(10C) is not attracted to s.35DDA, and that under s.35DDA the entire amount could not be allowed but one-fifth could be allowed for the year with the balance spread over the following four assessment years. The Revenue appealed under s.260A on the two questions whether the assessee was entitled to the s.35DDA deduction when the scheme did not conform to Rule 2BA, and whether compliance with Rule 2BA is mandatory for the employer's deduction under s.35DDA.
The appeal was dismissed before being admitted (para 8). There was no justification or reason to disturb the Tribunal's view that Rule 2BA is attracted and applicable only where the benefit of s.10(10C) is sought, and not where s.35DDA is called in aid (para 7).
On a perusal of s.35DDA, s.10(10C) and Rule 2BA, the Court found that s.35DDA makes no mention of any rule in the body of the section, whereas Rule 2BA, on which the Revenue's Standing Counsel substantially relied, makes specific reference to s.10(10C) and is captioned 'Guidelines for purposes of Section 10(10C)'. Moreover the language of Rule 2BA makes it clear that the amount referred to is the amount received by the employee and is for the purpose of claiming the benefit under s.10(10C); that has nothing to do with the employer's claim, which arises under a different provision, s.35DDA (para 6). The Revenue's submission that because the employee could not claim s.10(10C) the employer correspondingly could not enjoy any benefit was therefore rejected (paras 5 to 7).
We do not find any justification or reason to disturb the view taken by the Tribunal that Rule 2BA of the Rules is attracted and applicable only to a circumstance, where the benefit of Section 10(10C) of the Act is sought for and not in a situation where the provisions of section 35DDA of the Act is called in aid.
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Handle my notice → Ask a CA on WhatsAppNo. The Karnataka High Court held that Rule 2BA is a guideline for the purposes of s.10(10C) — the exemption in the retiring employee's hands — and has nothing to do with the employer's claim under s.35DDA. s.35DDA makes no mention of any rule. The employer's deduction is nevertheless confined to one-fifth in the year of payment, with the balance spread over the four succeeding years. This was decided by the High Court (D.V. Shylendra Kumar J and B.S. Indrakala J) and bears on section 35DDA, section 10(10C), section 263, section 260A, section Rule 2BA of the Income Tax Act 1961. It is reported as Income Tax Appeal No.48 of 2013, High Court of Karnataka at Bangalore; assessment year 2007-08; appeal from ITA No.890/Bang/2011. This decouples two provisions that Assessing Officers and Commissioners routinely bolt together, and the argument the Revenue lost is worth naming because it is still made: that if the retiring employee cannot claim s.10(10C) then the employer correspondingly cannot claim a deduction. The Court's answer is textual — s.35DDA contains no reference to any rule, whereas Rule 2BA is captioned 'Guidelines for the purposes of section 10(10C)' and speaks of the amount received by the employee. The case is also a useful reminder of the price of the section: the assessee here had claimed the whole Rs 7.09 crore as revenue expenditure and the Assessing Officer had allowed it in full; it was the s.263 revision and the Tribunal that reduced the year's allowance to one-fifth. So s.35DDA is a rationing provision as much as an enabling one, and where a payment on cessation of service is NOT VRS compensation the taxpayer may be better off outside it — compare Ambalal Sarabhai Enterprises (Gujarat High Court, 2026) in this library on gratuity and leave encashment. If it applies to you, the first step is this: If the objection is that the scheme fails Rule 2BA, answer it on the text: Rule 2BA is captioned as guidelines for s.10(10C) and speaks of the amount received by the employee, while s.35DDA refers to no rule at all.
The assessee was a public sector bank. For AY 2007-08 it claimed Rs 7,09,53,323.23 as deductible expenditure incurred to meet the claims of employees who had taken voluntary retirement and retired prematurely. The Assessing Officer allowed the deduction as revenue expenditure for the year to its entire extent. The Commissioner of Income Tax (LTU) took the assessment up in suo motu revision under s.263, holding the expenditure to be capital in nature, influenced by the view that the scheme had been framed not in the normal course but to shed frustrated and de-motivated officers, and that even applying s.35DDA the scheme was not in consonance with Rule 2BA of the Income-tax Rules; he directed the Assessing Officer to withdraw the deduction. The Tribunal allowed the assessee's appeal in part, holding that the scheme was covered by s.35DDA, that the condition in Rule 2BA relating to the recipient of the amount for the purposes of s.10(10C) is not attracted to s.35DDA, and that under s.35DDA the entire amount could not be allowed but one-fifth could be allowed for the year with the balance spread over the following four assessment years. The Revenue appealed under s.260A on the two questions whether the assessee was entitled to the s.35DDA deduction when the scheme did not conform to Rule 2BA, and whether compliance with Rule 2BA is mandatory for the employer's deduction under s.35DDA. The matter was decided on 2013-07-11 by the High Court (D.V. Shylendra Kumar J and B.S. Indrakala J). On those facts the High Court held as follows. The appeal was dismissed before being admitted (para 8). There was no justification or reason to disturb the Tribunal's view that Rule 2BA is attracted and applicable only where the benefit of s.10(10C) is sought, and not where s.35DDA is called in aid (para 7).
On a perusal of s.35DDA, s.10(10C) and Rule 2BA, the Court found that s.35DDA makes no mention of any rule in the body of the section, whereas Rule 2BA, on which the Revenue's Standing Counsel substantially relied, makes specific reference to s.10(10C) and is captioned 'Guidelines for purposes of Section 10(10C)'. Moreover the language of Rule 2BA makes it clear that the amount referred to is the amount received by the employee and is for the purpose of claiming the benefit under s.10(10C); that has nothing to do with the employer's claim, which arises under a different provision, s.35DDA (para 6). The Revenue's submission that because the employee could not claim s.10(10C) the employer correspondingly could not enjoy any benefit was therefore rejected (paras 5 to 7). In the words reproduced by the source cited on this page: "We do not find any justification or reason to disturb the view taken by the Tribunal that Rule 2BA of the Rules is attracted and applicable only to a circumstance, where the benefit of Section 10(10C) of the Act is sought for and not in a situation where the provisions of section 35DDA of the Act is called in aid."
It was decided by the High Court on 2013-07-11 and is reported as Income Tax Appeal No.48 of 2013, High Court of Karnataka at Bangalore; assessment year 2007-08; appeal from ITA No.890/Bang/2011. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 35DDA, section 10(10C), section 263, section 260A, section Rule 2BA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed before being admitted (para 8). There was no justification or reason to disturb the Tribunal's view that Rule 2BA is attracted and applicable only where the benefit of s.10(10C) is sought, and not where s.35DDA is called in aid (para 7). It arises in Deductions & Disallowances, Revision & Rectification and Salary & Perquisites matters, on section 35DDA, section 10(10C), section 263, section 260A, section Rule 2BA of the Income Tax Act 1961, and was decided by D.V. Shylendra Kumar J and B.S. Indrakala J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not concede the whole deduction in the year of payment: s.35DDA(1) allows one-fifth in the year of payment and the balance in four equal instalments, and claiming the full amount invites a s.263 revision as it did here. Keep the employer's s.35DDA claim and the employee's s.10(10C) exemption on separate tracks in any submission — the outcome for one does not follow from the other. Where the company later amalgamates or demerges within the five-year block, work through s.35DDA(2) to (5): the unexpired instalments pass to the amalgamated or resulting company, and s.35DDA(5) denies the amalgamating or demerged company any deduction for the year in which the amalgamation, demerger or succession takes place. Remember s.35DDA(6): no deduction for the same expenditure under any other provision of the Act.
Validity check could not be completed. Later treatment was NOT checked and no citator was consulted. The judgment records that the appeal was dismissed 'before being admitted', so no substantial question of law was formulated; that limits its weight as precedent outside Karnataka. Nothing in the sources read suggests s.35DDA has been amended since the Finance Act 2005 substitution recorded in the departmental footnotes. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment reproduces s.10(10C), s.35DDA and Rule 2BA as they stood in 2013; sub-sections (2) to (5) of s.35DDA are printed only as 'XXXXXXXXX' in the reproduction, so their text was NOT read from this judgment. The full text of s.35DDA(1) to (6) was separately read on the Department's page at incometaxindia.gov.in/w/section-35dda, which carries the heading 'Amortisation of expenditure incurred under voluntary retirement scheme' and a 'Year: 2009' stamp with footnotes recording insertion by the Finance Act 2001 w.e.f. 1-4-2001, substitution of sub-sections (2) to (6) by the Finance Act 2002 w.r.e.f. 1-4-2001, and a substitution by the Finance Act 2005 w.r.e.f. 1-4-2004. Because that page is an archived edition, it is relied on here as legislative history only; probes of /w/section-35dd-60 and -62 returned 404, so no current-edition departmental page for these sections was found. Departmental RULE pages carry no year stamp at all, so Rule 2BA has NOT been dated. The order runs to eight numbered paragraphs and the disposal was read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed before being admitted (para 8). There was no justification or reason to disturb the Tribunal's view that Rule 2BA is attracted and applicable only where the benefit of s.10(10C) is sought, and not where s.35DDA is called in aid (para 7).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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