HIGH COURT OF KARNATAKA

IT Appeal No. 48 of 2013

D.V. SHYLENDRA KUMAR AND MRS. B.S. INDRAKALA, JJ.

K.V. Aravind for the Appellant.

D.V. Shylendra Kumar, J. - This appeal by the revenue under Section 260-A of the Income-tax Act, 1961 [for short 'the Act'] is directed against the order dated 21.09.2012 passed by the Income-tax Appellate Tribunal, Bangalore Bench 'A' in ITA No.890/Bang/2011.

2. The revenue has raised the following two substantial questions of law as arising out of the order passed by the Tribunal and as having decided erroneously.

3. Brief case of the respondent - assessee is that it is a Public Sector Bank with registered office at Bangalore and the assessment year in question is 2007-2008. The respondent - assessee had filed its return of income for this year and had claimed deduction of a sum of Rs. 7,09,53,323.23. The assessee had claimed this amounts as deductible expenditure, incurred to meet employees claim, who had taken voluntary retirement and had retired prematurely. The Assessing Officer allowed this deduction as a revenue expenditure for the year in question to the entire extent. The assessment order was taken up for suo motu revision by the Commissioner of Income Tax (LTU), Bangalore, under Section 263 of the Act and the Commissioner being of the view that it is in the nature of capital expenditure disallowed this amount and in coming to this conclusion the Commissioner was influenced by the factor that the voluntary retirement scheme framed by the assessee for permitting some of the employees to retire was not in normal course, but to get rid of some frustrated and de-motivated officers from the employment of the Bank and that even applying the provisions of Section 35DDA also the voluntary retirement scheme being not in consonance with Rule 2BA of the Income Tax Rules (for short 'the Rules') and thought it is only in the nature of capital expenditure and therefore, directed the assessing officer to withdraw the deduction and finalize the assessment on such premise. The assessee being aggrieved had carried the matter to the Appellate Tribunal by way of appeal, but the Tribunal in terms of its order dated" 21.9.2012 allowed the appeal in part and took the view that this is a case where the scheme is covered under Section 35DDA of the Act; that a condition imposed in Rule 2BA of the Rules with reference to the recipient of the amount (under voluntary retirement scheme for the purpose of Section 10(10C) of the Act, is not attracted to the provisions of Section 35DDA of the Act and therefore, noticing that under the provisions of Section 35DDA of the Act, the entire amount cannot be allowed as deduction, but it can be spread over for a period of five assessment years and in the order of catering the expenditure by 1/5th can be allowed and the balance to be spread over the following four assessment years and allowed the appeal to this extent and disposed of the appeal holding that the assessee can claim 1/5th of the amount by way of deduction for the assessment year. It is aggrieved by this order of the Tribunal, the present appeal by the Revenue raising the substantial questions of law as noticed above.

4. Appearing on behalf of the appellants - Revenue, Mr. K.V. Aravind, learned Standing Counsel submits that even under Section 35DDA of the Act, where 1/5th of the amount is permitted to be allowed as deduction in terms of Rule 2BA of the Rules that cannot be qualified under Section 35DDA and in this regard has drawn our attention to Rule 2BA of the Rules which is captioned as (Guidelines for the purposes of Section 10(10C). Section 10(10C), Section 35DDA and Rule 2BA reads as follows :—

'Section 10(10C) : any amount received (or receivable) by an employee of—

Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in sub clauses (vii) and (viii), as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of economic viability) as may be prescribed-.

"Section 35DDA: Amortisation of expenditure incurred under voluntary retirement scheme.— (1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee (in connection with his voluntary retirement), in accordance with any scheme or schemes of voluntary retirement, one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal instalments for each of the four immediately succeeding previous years;

(6) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1)' under any other provision of this Act."
(Guidelines for the purposes of section 10(10C)
Rule 2BA: The amount received by an employee of—

at the time of his voluntary retirement (or voluntary separation) shall be exempt under clause (10C) of section 10 only if the scheme of voluntary retirement framed by the aforesaid company or authority (or co-operative society or University or institute), as the case may be (or if the scheme of voluntary separation framed by a public sector company,) is in accordance with the following requirements, namely:—

Provided that requirement of (i) above would not be applicable in case of amount received by an employee of a public sector company under the scheme of voluntary separation framed by such public sector company.'

5. What is submitted is that when an employee, who is a recipient of the amount cannot claim any benefit under Section 10(10C) of the Act and when such amount cannot be claimed as an amount, which is enjoying any benefit under the Act in hands of the employee, correspondingly it cannot enjoy any benefit in the hands of the employer also. Therefore, he submits to clarify that even for the deduction of the amount under Section 35DDA of the Act, there should be compliance with Rule 2BA of the Rules.

6. On a perusal of the order passed by the Tribunal and the provisions of Section 35DDA of the Act, Section 10(10C) of the Act and Rule 2BA of the Rules, Section 35DDA reveals that no mention is made of any rule in the body of this Section. On the other hand, Rule 2BA of the Rules which is substantially relied upon by the learned Standing Counsel for the Revenue is that a specific reference to Section 10(10C) of the Act is made and it is captioned as "Guidelines for purposes of Section 10(1 0C)". Moreover the language of Rule 2BA of the Rules makes it very clear that the amount received is by the employee and for the purpose of claiming benefit under Section 10(10C) of the Act, this has nothing to do with the employer's claim, which is under a different claim under Section 35DDA of the Act.

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.