My VRS compensation is being paid to me in instalments over ten years. Does the section 10(10C) exemption still apply, or is it lost once the payments cross into later years?
It still applies. The Calcutta High Court held that the whole compensation became due when the employee was released under the scheme and was chargeable under section 15(a) at that point, whether paid or not. Spreading the payment over ten years does not turn the later instalments into salary of those later years, so the second proviso to section 10(10C) is not attracted. The exemption up to Rs 5 lakh runs on the compensation component alone. Terminal benefits paid under the same scheme, such as gratuity and leave encashment, are not part of the amount received on voluntary retirement and are not covered.
Decided by the High Court (Calcutta High Court; D.K. Seth J (author) and Maharaj Sinha J) on 2003-02-20, reported as (2003) 128 Taxman 704 (Cal). It bears on section 10(10C), section 15, section 43(2), section 192, section 17(3) of the Income Tax Act 1961, in Salary & Perquisites and Capital Gains Exemptions matters.
This is the case to reach for when VRS compensation is paid in instalments and the employer has been deducting tax under section 192 on each one. It does two things nothing else does as cleanly. It separates the compensation for going early from the terminal benefits the employee would have got anyway, and it holds that only the first is the 'amount received' under section 10(10C). And it explains why the second proviso does not bite on deferred payment: chargeability under section 15(a) attaches when the amount becomes due, and section 43(2) treats incurring the liability as payment, so the character of the receipt is fixed at retirement and cannot change because the money arrives later. It also rejects an estoppel argument squarely: an employee who signed up to a scheme saying tax would be deducted is not bound by that.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Employees of Steel Authority of India took voluntary retirement under the company's scheme. The scheme paid a monthly benefit under clause 4.1(i), being a percentage of basic pay and dearness allowance on the date of retirement, for ten years or until age 58, whichever was earlier; other clauses provided leave encashment, half pay leave, gratuity and medical benefits. The company, relying on its own circular, deducted tax at source under section 192 on the whole of what it paid. The Employees' Association challenged that by writ petition, saying the receipt was exempt under section 10(10C). SAIL and another respondent said the scheme conflicted with rule 2BA, because it bundled in gratuity and leave pay and because its re-employment bar was limited to SAIL's own units, subsidiaries and joint ventures rather than any other company; they also said the second proviso to section 10(10C) confined the exemption to one assessment year, so instalments falling in later years were taxable, and that the employees who opted with open eyes were estopped.
The appeal succeeded so far as the monthly benefit under clause 4.1(i) of the scheme was concerned. That benefit, up to Rs 5 lakh, is exempt under section 10(10C). The scheme conforms to rule 2BA, both on the re-employment condition and on the ceiling. The other amounts under the scheme, leave encashment, half pay leave, gratuity and medical benefit, were payable to the employee anyway on cessation of service; they are salary or profit in lieu of salary under section 17(1) or 17(3) and are not part of the amount received on voluntary retirement. The second proviso does not apply, because the whole compensation became due and chargeable under section 15(a) at the time of release under the scheme; deferring the payment over ten years does not shift it into later assessment years. There is no estoppel: what is not taxable cannot be made taxable by the assessee's admission. The employer was directed to recompute, adjust the tax already deducted against tax due on the non-exempt amounts, and refund the balance.
On rule 2BA the Court read requirement clause (v) as barring re-employment in another company or concern belonging to the same management, so the scheme's bar on employment in SAIL's plants, subsidiaries and joint ventures matched it. On the ceiling in clause (vi) it worked through the eligibility conditions, minimum twenty years' service or age above fifty against a retirement age of fifty-eight, and showed that the monthly benefit could never exceed the statutory limit. On the meaning of 'any amount received', the Court held that even read literally the phrase means something other than terminal benefits, which accrue under their own statutes and cannot be taken away by any scheme; the limits prescribed by rule 2BA, framed by reference to months of salary or remaining service, show that section 10(10C) is aimed at the compensation for cessation alone. The purpose of the provision, to make voluntary retirement attractive and so reduce headcount for economic viability, points the same way, and where there is ambiguity it is to be read in favour of the optee. The Court noted Circular No. 640 to the same effect. On the proviso, the reasoning turns on timing. Section 15(a) charges salary as soon as it is due, and section 43(2) makes the incurring of the liability a payment. The liability was incurred and the amount became payable when the employee was released. It is therefore a receipt on voluntary retirement, chargeable in that year and exempt in that year; the instalments are deferred payment of that same benefit, not salary from service, not arrears and not deferred salary, and the character of the receipt does not change because it is stretched. On estoppel, chargeability depends on the charging section, strictly construed, and not on what the assessee has admitted or waived.
What is not otherwise taxable cannot become taxable because of admission of the assessee.
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Handle my notice → Ask a CA on WhatsAppIt still applies. The Calcutta High Court held that the whole compensation became due when the employee was released under the scheme and was chargeable under section 15(a) at that point, whether paid or not. Spreading the payment over ten years does not turn the later instalments into salary of those later years, so the second proviso to section 10(10C) is not attracted. The exemption up to Rs 5 lakh runs on the compensation component alone. Terminal benefits paid under the same scheme, such as gratuity and leave encashment, are not part of the amount received on voluntary retirement and are not covered. This was decided by the High Court (Calcutta High Court; D.K. Seth J (author) and Maharaj Sinha J) and bears on section 10(10C), section 15, section 43(2), section 192, section 17(3) of the Income Tax Act 1961. It is reported as (2003) 128 Taxman 704 (Cal). This is the case to reach for when VRS compensation is paid in instalments and the employer has been deducting tax under section 192 on each one. It does two things nothing else does as cleanly. It separates the compensation for going early from the terminal benefits the employee would have got anyway, and it holds that only the first is the 'amount received' under section 10(10C). And it explains why the second proviso does not bite on deferred payment: chargeability under section 15(a) attaches when the amount becomes due, and section 43(2) treats incurring the liability as payment, so the character of the receipt is fixed at retirement and cannot change because the money arrives later. It also rejects an estoppel argument squarely: an employee who signed up to a scheme saying tax would be deducted is not bound by that. If it applies to you, the first step is this: Split the scheme's payments into the compensation for early exit and the terminal benefits, and claim section 10(10C) only on the first; expect the officer to test each clause of the scheme.
Employees of Steel Authority of India took voluntary retirement under the company's scheme. The scheme paid a monthly benefit under clause 4.1(i), being a percentage of basic pay and dearness allowance on the date of retirement, for ten years or until age 58, whichever was earlier; other clauses provided leave encashment, half pay leave, gratuity and medical benefits. The company, relying on its own circular, deducted tax at source under section 192 on the whole of what it paid. The Employees' Association challenged that by writ petition, saying the receipt was exempt under section 10(10C). SAIL and another respondent said the scheme conflicted with rule 2BA, because it bundled in gratuity and leave pay and because its re-employment bar was limited to SAIL's own units, subsidiaries and joint ventures rather than any other company; they also said the second proviso to section 10(10C) confined the exemption to one assessment year, so instalments falling in later years were taxable, and that the employees who opted with open eyes were estopped. The matter was decided on 2003-02-20 by the High Court (Calcutta High Court; D.K. Seth J (author) and Maharaj Sinha J). On those facts the High Court held as follows. The appeal succeeded so far as the monthly benefit under clause 4.1(i) of the scheme was concerned. That benefit, up to Rs 5 lakh, is exempt under section 10(10C). The scheme conforms to rule 2BA, both on the re-employment condition and on the ceiling. The other amounts under the scheme, leave encashment, half pay leave, gratuity and medical benefit, were payable to the employee anyway on cessation of service; they are salary or profit in lieu of salary under section 17(1) or 17(3) and are not part of the amount received on voluntary retirement. The second proviso does not apply, because the whole compensation became due and chargeable under section 15(a) at the time of release under the scheme; deferring the payment over ten years does not shift it into later assessment years. There is no estoppel: what is not taxable cannot be made taxable by the assessee's admission. The employer was directed to recompute, adjust the tax already deducted against tax due on the non-exempt amounts, and refund the balance.
On rule 2BA the Court read requirement clause (v) as barring re-employment in another company or concern belonging to the same management, so the scheme's bar on employment in SAIL's plants, subsidiaries and joint ventures matched it. On the ceiling in clause (vi) it worked through the eligibility conditions, minimum twenty years' service or age above fifty against a retirement age of fifty-eight, and showed that the monthly benefit could never exceed the statutory limit. On the meaning of 'any amount received', the Court held that even read literally the phrase means something other than terminal benefits, which accrue under their own statutes and cannot be taken away by any scheme; the limits prescribed by rule 2BA, framed by reference to months of salary or remaining service, show that section 10(10C) is aimed at the compensation for cessation alone. The purpose of the provision, to make voluntary retirement attractive and so reduce headcount for economic viability, points the same way, and where there is ambiguity it is to be read in favour of the optee. The Court noted Circular No. 640 to the same effect. On the proviso, the reasoning turns on timing. Section 15(a) charges salary as soon as it is due, and section 43(2) makes the incurring of the liability a payment. The liability was incurred and the amount became payable when the employee was released. It is therefore a receipt on voluntary retirement, chargeable in that year and exempt in that year; the instalments are deferred payment of that same benefit, not salary from service, not arrears and not deferred salary, and the character of the receipt does not change because it is stretched. On estoppel, chargeability depends on the charging section, strictly construed, and not on what the assessee has admitted or waived. In the words reproduced by the source cited on this page: "What is not otherwise taxable cannot become taxable because of admission of the assessee."
It was decided by the High Court on 2003-02-20 and is reported as (2003) 128 Taxman 704 (Cal). 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 10(10C), section 15, section 43(2), section 192, section 17(3), 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 cuts both ways and is cited by both sides. The appeal succeeded so far as the monthly benefit under clause 4.1(i) of the scheme was concerned. That benefit, up to Rs 5 lakh, is exempt under section 10(10C). The scheme conforms to rule 2BA, both on the re-employment condition and on the ceiling. The other amounts under the scheme, leave encashment, half pay leave, gratuity and medical benefit, were payable to the employee anyway on cessation of service; they are salary or profit in lieu of salary under section 17(1) or 17(3) and are not part of the amount received on voluntary retirement. The second proviso does not apply, because the whole compensation became due and chargeable under section 15(a) at the time of release under the scheme; deferring the payment over ten years does not shift it into later assessment years. There is no estoppel: what is not taxable cannot be made taxable by the assessee's admission. The employer was directed to recompute, adjust the tax already deducted against tax due on the non-exempt amounts, and refund the balance. It arises in Salary & Perquisites and Capital Gains Exemptions matters, on section 10(10C), section 15, section 43(2), section 192, section 17(3) of the Income Tax Act 1961, and was decided by Calcutta High Court; D.K. Seth J (author) and Maharaj Sinha 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. Fix the date on which the compensation became due under the scheme and argue chargeability under section 15(a) from that date, with section 43(2) to answer the point that nothing was paid then. Test the scheme clause by clause against rule 2BA, especially the re-employment condition and the ceiling on the amount; read the re-employment bar as covering companies and concerns under the same management. If the employer has already deducted tax under section 192 on the exempt part, claim the adjustment or refund rather than treating the deduction as settling the question.
Still good law. The source page records the decision as followed in a substantial number of later cases, and its reading of section 10(10C) is consistent with Circular No. 640 dated 26 November 1992, which the Court set out. Whether it was carried to the Supreme Court was not traced in this session. 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.
Until build 87 this library carried a second entry on the same judgment, at /caselaw/case/sail-dsp-vr-employees-association-v-union-of-india-vrs-instalments/, which asked: My VRS compensation is being paid in instalments over ten years - do I lose the section 10(10C) exemption for the later years? It was the shorter of the two write-ups and has been merged into this one. That address now redirects here, and every citation, section and subject it carried that this entry did not has been folded in. The Rs 5 lakh ceiling and the rule 2BA limits are as they stood for the years in issue; check the current text before applying the figures. The judgment does not name the assessment years. The Department asked for a stay of the judgment, which was refused, but whether an appeal was in fact filed is not on the record read. The decision turns on the particular clauses of SAIL's scheme, so the split between compensation and terminal benefits has to be redone for any other scheme. 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 succeeded so far as the monthly benefit under clause 4.1(i) of the scheme was concerned. That benefit, up to Rs 5 lakh, is exempt under section 10(10C). The scheme conforms to rule 2BA, both on the re-employment condition and on the ceiling. The other amounts under the scheme, leave encashment, half pay leave, gratuity and medical benefit, were payable to the employee anyway on cessation of service; they are salary or profit in lieu of salary under section 17(1) or 17(3) and are not part of the amount received on voluntary retirement. The second proviso does not apply, because the whole compensation became due and chargeable under section 15(a) at the time of release under the scheme; deferring the payment over ten years does not shift it into later assessment years. There is no estoppel: what is not taxable cannot be made taxable by the assessee's admission. The employer was directed to recompute, adjust the tax already deducted against tax due on the non-exempt amounts, and refund the balance.
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