Section 10(10C)

Section 10(10C) — the law in short

What the courts have decided on section 10(10C), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Hosur Bata Employees Union v Principal Chief Commissioner of Income Tax High CourtCuts both waysNo later treatment found
  My clients settled a wage dispute and took VRS and compensation for loss of future salary in two instalments. The company deducted TDS on the whole amount without giving s.89 relief. Can we make the employer refund it?
  No — not from the employer. The Madras High Court held that the employer cannot be found at fault for deducting tax at source in the absence of an application in Form 10E under Rule 21A, because s.192(2A) is what obliges the employer to compute and give s.89 relief and it operates only on the particulars the employee furnishes. The Court's remedy was to direct the employees to file returns under s.139(1) within thirty days and the Income Tax Officer to process them under s.143(1) and refund within two months.
• R. Banumathy v Commissioner of Income Tax-I High CourtHelps taxpayer
  My client missed the s.10(10C) exemption in the original return, filed a revised return that the officer lodged as invalid, and the Commissioner rejected the s.264 revision. Is there anything left?
  Yes. The Madras High Court set aside the s.264 order and directed refund of the excess tax, holding that the exemption under s.10(10C) up to five lakh rupees was available to the employee of a bank under an early retirement option scheme and that Rule 2BA cannot cut down the section. It added that where an assessee pays excess tax it is the Department's bounden duty to tell him of the reliefs he is entitled to and to refund the excess.
• CIT v State Bank of Mysore High CourtHelps taxpayerNo later treatment found
  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.
• CIT v Koodathil Kallyatan Ambujakshan High CourtHelps taxpayerSuperseded by amendment
  My employer's early retirement scheme does not spell out every condition in Rule 2BA. Does that destroy the s.10(10C) exemption?
  Not on these facts. The Bombay High Court upheld the exemption for employees who took the Reserve Bank of India's Optional Early Retirement Scheme, holding that the six requirements of Rule 2BA were satisfied expressly or by implication on the material on record, including evidence that the vacancies were not filled. That is what the decision is still good for. Its second holding — that relief under s.89 is available on the amount above Rs 5,00,000 in addition to the exemption — states the law only for assessment years up to 2009-10. From assessment year 2010-11 the proviso to s.89 and the third proviso to s.10(10C), inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010, make the exemption and the relief alternatives, and claiming s.89 relief forfeits the Rs 5,00,000 exemption 'in relation to such, or any other, assessment year'. The Court also applied the Supreme Court's ruling in Hero Cycles that a Board circular binds the Assessing Officer but not the appellate authorities, the Tribunal or the Court.
• CIT v Nagesh Devidas Kulkarni High CourtHelps taxpayerSuperseded by amendment
  I took voluntary retirement. Can I claim both the s.10(10C) exemption and s.89 relief on the balance?
  Only for assessment years up to 2009-10. The Bombay High Court held that a voluntary retirement payment is compensation received in connection with the termination of employment and so is 'profits in lieu of salary' under s.17(3), and that relief under s.89 was therefore available on the amount taxed over and above the Rs 5,00,000 exempted by s.10(10C). That was the position for the year before the Court, assessment year 2002-03. From assessment year 2010-11 the two are alternatives by statute: the proviso to s.89 and the third proviso to s.10(10C), both inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010, mean that claiming the s.10(10C) exemption bars s.89 relief on the same receipt, and that taking s.89 relief forfeits the exemption — not only for that year but 'in relation to such, or any other, assessment year'. What survives of this decision is its holding that a voluntary retirement payment is 'profits in lieu of salary' under s.17(3).
• CIT v G.V. Venugopal High CourtHelps taxpayerSuperseded by amendment
  I took VRS from a bank and claimed the Rs 5 lakh exemption under section 10(10C). Can I also claim spread-over relief under section 89(1) on the balance?
  Yes, for the years this judgment governs. The Madras High Court held that exemption under section 10(10C) up to Rs 5 lakh and relief under section 89(1) on the balance VRS compensation are two separate benefits, and nothing in the Act barred taking both. The second proviso to section 10(10C) only stops a second exemption under that clause in another assessment year; it says nothing about section 89(1). VRS compensation is a profit in lieu of salary under section 17(3), so section 89(1) applies to it. The Department's appeal was dismissed.
• SAIL DSP VR Employees Association 1998 v Union of India High CourtCuts both ways
  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.
• Suresh Pal Chauhan v ITO ITATHelps taxpayer
  My client took the package when HMT's Tractor Division was closed. CPC allowed only Rs 5 lakh under s.10(10C) and then refused s.89 relief because of it. Is the whole package exempt?
  On these facts yes. Where the Central Government approves a scheme for extending special protection to workmen of an undertaking being closed down, the second proviso to s.10(10B) displaces the monetary ceiling and the whole of the compensation is exempt. The Chandigarh Bench held the HMT Tractor Division package fell under s.10(10B) and not s.10(10C), and separately directed that s.89 relief be allowed on the net gratuity.
• Krishnan Achary v ITO ITATHelps departmentNo later treatment found
  My client took the State Bank's exit option and claimed Rs 5 lakh under s.10(10C). The officer says the scheme does not meet rule 2BA. Is partial compliance enough?
  No. Compliance with s.10(10C) and rule 2BA is cumulative, and satisfying some of the six requirements does not entitle the employee to the exemption. Where the employer's own certificate described the payment as ex gratia under an 'Exit Option Scheme', said the amount would be added to income and tax deducted at source, and said nothing about rule 2BA, the Cochin Bench held the exemption was not available.
• Statutory position — s.10(10B): retrenchment compensation, the lesser-of test against s.25F(b) of the Industrial Disputes Act, and the second proviso that removes the cap altogether for an approved scheme CBDT Circulars & InstructionsCuts both ways
  My client's factory closed and he was paid retrenchment compensation. How much is exempt, and is there any way to get the whole of it out of tax?
  Section 10(10B) exempts compensation received by a workman at the time of his retrenchment under the Industrial Disputes Act 1947 or under any other Act, rules, orders, notifications, standing orders, award, contract of service or otherwise, but the first proviso caps the exemption at the lower of two figures — the amount calculated under clause (b) of section 25F of the Industrial Disputes Act, and such amount, not being less than fifty thousand rupees, as the Central Government may specify by notification. There is one way to escape the cap entirely: the second proviso disapplies the first where the compensation is received in accordance with a scheme approved by the Central Government having regard to the need for extending special protection to the workmen in the undertaking to which the scheme applies.
• Statutory position — s.89 with Rule 21A and Rule 21AA: the five categories of relief on arrears, the proviso that forfeits relief where the s.10(10C) exemption has been claimed, and what Rule 21AA actually says about Form 10E CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client received salary arrears and family pension arrears in one year and has been pushed into a higher slab. What relief is available, how is it computed, and is Form 10E a precondition?
  Section 89 gives relief where an assessee receives a sum in the nature of salary paid in arrears or in advance, or salary for more than twelve months in one financial year, or a payment which under s.17(3) is a profit in lieu of salary, or a sum in the nature of family pension as defined in the Explanation to s.57(iia) paid in arrears, and his total income is on that account assessed at a higher rate; the Assessing Officer must, on an application, grant such relief as may be prescribed. Rule 21A prescribes five different computations depending on which of five categories the payment falls into. On Form 10E, be precise: Rule 21AA says that an assessee entitled to relief under section 89 "may furnish to the person responsible for making the payment referred to in sub-section (1) of section 192" the particulars specified in Form No. 10E — it is expressed as a permission, and it is directed at the employer for the purposes of tax deduction, not in terms as a condition precedent to the relief.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.