Exemption u/s 10(10C) to be allowed even if the scheme is not in accordance with Rule 2BA

The assessee is a retired employee of State Bank. During the
year under consideration, the assessee opted for voluntary retirement under a
scheme named “Early Separation Plan” (ESP) floated by the bank. He received a
compensation of Rs. 18,87,798. The employer, vide its letter, stated that
employees availing the ESP Scheme are not eligible for exemption u/s 10(10C) of
the Act as the scheme was not in conformity with Rule 2BA(i) to (v). Therefore,
no deduction under section 10(10C) was allowed in the Form 16 issued by the
employer. The assessee, however, claimed exemption under section 10(10C) in the
return of income filed. The same was processed under section 143(1) of the Act.
The assessment was reopened u/s 147 and the claim u/s 10(10C) was disallowed by
the AO.

The CIT(A) allowed the assessee’s claim. On Revenue’s appeal,
there was a difference of opinion between the members, and the matter was
referred to the “Third Member”.

The Third Member, in his order, relied on the case of SAIL
DSP VR Employees Association v UOI (262 ITR 638) (Cal.) which squarely applied
to the assessee. Their Lordship in the said judgment observed that section
10(10C) was inserted in order to make voluntary retirement attractive so as to
reduce human complements for securing economic viability of certain companies.
This object was elaborated by various departmental circulars and explanatory
statements issued from time to time. All these go to show that this was intended
to make voluntary retirement more attractive and beneficial to the employees
opting for voluntary retirement. Therefore, this has to be interpreted in a
manner beneficial to the optee for voluntary retirement, if there is any
ambiguity. A similar view was taken by the Hon’ble Bombay High Court in the case
of CIT vs. Nagesh Devidas Kulkarni (291 ITR 407) and the Karnataka High Court in
the case of CIT v P. Surendra Prabhu (279 ITR 402).

Following the above decisions, the amount received by the
assessee was allowed.