Income Tax Exemption Allowable on Voluntary Payment made by Employer to Employee out of Appreciation: ITAT [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) recently observed that the payment has been made voluntarily by them out of appreciation for the employee and thus falls outside the rigours of Section 17(3)(iii) of the Income Tax Act.

The assessee, Mahadev Vasant Dhangekar, has taken voluntary retirement from Racold Thermo Private Limited Pune during the year under consideration. Thereafter the assessee started a trading business of Industrial consumable supply in the name of M/s. Laxmi Enterprises.

The assessee received Rs. 47 lakhs from the company as Ex-Gratia and from this amount claimed Rs. 5 lakhs under Section 10(10C) VRS compensation/Termination of service and the balance remaining amount from Ex-Gratia taken as capital receipt.

When the matter went up to the NFAC, it upheld the findings of the A.O. by observing that the employer had deducted the TDS on the said amount of payment made. The NFAC also observed that the letter submitted by the assessee that the payment received was voluntarily given by the employer had been issued to the assessee only after the case was taken up for scrutiny and notices under Sections 143(2) and 143(1) of the Income Tax Act were issued to the assessee.

The Coram comprising R.S. Syal (Vice President) and Partha Sarathi Chaudhury (Judicial Member) observed that the Department could not produce any documents or evidence on record to show that the payment received from the employer was coupled with some legal obligation on the part of the employer to pay the employee.

The Bench further noted that “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.”

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