ACIT 2(1) CITY-2, MUMBAI V. LATE SHRI ANIL BHATIA, MUMBAI

ITA 4884/MUM/2010

• Counselvise Citation: 488419914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-11-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 11-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Section: 6; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4884/MUM/2010 (ASSESSMENT YEAR: 2001-02) ACIT -2(1), AAYAKAR BHAVAN, R. NO.561, 5TH FLOOR, M.K. ROAD, MUMBAI -400 020 ...... APPELLANT VS LATE SHRI ANIL BHATIA, FLAT NO.2/2, ASHOKA APART., A, OFF ARTHUR BUNDER ROAD, COLABA, MUMBAI -400 005 ..... RESPONDENT PAN: AAHPB 4365 Q APPELLANT BY: SHRI P.K. B. MENON RESPONDENT BY: SHRI PRAKASH JOTWANI DATE OF HEARING: 28.11.2011 DATE OF PRONOUNCEMENT: 28.12.2011 O R D E R PER R.S. PADVEKAR, JM IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A) -4, MUMBAI DATED 16 .03.2010 FOR THE A.Y. 2001-02. 2. THE FIRST ISSUE IS WHETHER THE GRATUITY PAID ON A DEATH OF THE ASSESSEE AS AN EMPLOYEE WHILE IN SERVICE CAN BE TRE ATED AS FULLY EXEMPT U/S.10(10) OF THE ACT. 3. BRIEFLY STATED THE FACTS ARE AS UNDER. THE DECE ASED ASSESSEE WAS A DIRECTOR IN M/S. HINDUSTAN THOMPSON ASSOCIATE S. THE RETURN OF INCOME WAS FILED BY HIS LEGAL HEIR WHO IS A WIDO W OF THE DECEASED ASSESSEE. AFTER HIS DEATH THE LEGAL HEIRS WERE PAI D GRATUITY AMOUNTING TO RS. 30,25,000/- DUE TO THE DECEASED ASSESSEE AND ALSO ` . ITA 4884/MUM/2010 LATE SHRI ANIL BHATIA 2 35,00,000/- AS EX-GRATIA IN ADDITION TO THE GRATUITY. SO FAR AS THE ISSUE IN CONTROVERSY, RE. TREATMENT OF GRATUITY, IT WAS CLAIMED THAT IN VIEW OF THE CIRCULAR NO.573 DATED 21.08.1990 ((1990 ) 185 ITR (STATUTE) 31) ISSUED BY THE CBDT ENTIRE AMOUNT OF GRATUITY WA S EXEMPT. THE A.O. REJECTED THE CLAIM OF THE ASSESSEE BY STATING THAT THE AMOUNT OF GRATUITY RECEIVED ON THE DEATH OF THE DECEASED ASSE SSEE FROM HIS EMPLOYER COMPANY IS NOT COVERED BY CIRCULAR NO.573 ISSUED BY THE CBDT. IN THE OPINION OF THE A.O. THE SAID CIRCULAR IS ONLY APPLICABLE WHEN THE LUMP SUM PAYMENT IS MADE GRATUITOUSLY BY WAY OF COMPENSATION TO A WIDOW OR OTHER LEGAL HEIRS OF THE EMPLOYEE WHO DIES WHILE IN ACTIVE SERVICE AND AMOUNT OF GRATUITY RECE IVED BY THE WIDOW DUE TO DECEASED EMPLOYEE CANNOT BE TREATED AS A COM PENSATION OR PAYMENT MADE GRATUITOUSLY AND IT IS A PART OF THE S ALARY U/S.17(1)(III) OF THE I.T. ACT. THE A.O. RESTRICTED THE AMOUNT OF EXEMPTION TO THE EXTENT OF RS.3.5 LAKHS AND BALANCE AMOUNT OF ` 26.75 LAKHS WAS BROUGHT TO TAX. THE A.O. REFERRED TO SEC.10(10) OF THE ACT. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) W HO WAS CONVINCED THAT THE GRATUITY RECEIVED ON OR PAID TO THE LEGAL HEIRS ON THE DEATH OF LATE SHRI ANIL BHATIA, THE ASSESSE, WAS COVERED BY THE CBDT CIRCULAR NO.573. HE ACCORDINGLY DIRECTED THE A.O. TO DELETE THE ENTIRE ADDITION. NOW, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE LD. COUNSEL PLACED HIS HEAVY RELI ANCE ON THE CBDT CIRCULAR NO.573 DATED 21.8.1990. THE LD. COUNSEL A LSO RELIED ON THE DECISION IN THE CASE OF EXECUTORS OF ESTATE D.S. MI STRY VS. SECOND ITO (BOM) 27 ITD 525. PER CONTRA, THE LD. D.R. RELIED ON THE DECISION IN THE CASE OF CIT VS. N.S. PAVRI 237 ITR 472 (BOM). TO SORT OUT THE CONTROVERSY, WE HAVE TO CONSIDER THE BASIC FACTS AS WELL AS PROVISIONS CL. (10) OF SEC.10 OF THE ACT. IT IS NOT DISPUTED BEFORE US THAT THE GRATUITY PAID ON THE SAD DEMISE OF LATE ASSESSEE SH RI ANIL BHATIA WHILE IN SERVICE WAS TOWARDS THE EMPLOYMENT WITH M/S. HIN DUSTAN TOPSUN ASSOCIATES AS WORKING DIRECTOR. THE AMOUNT OF GRAT UITY HAS BEEN ITA 4884/MUM/2010 LATE SHRI ANIL BHATIA 3 SHOWN AS ASSESSABLE IN THE HANDS OF LATE SHRI ANIL BHATIA, THOUGH THE RETURN OF INCOME WAS FILED BY THE LEGAL HEIR MRS. A NURADHA ANIL BHATIA. SEC.10(10) READS AS UNDER:- (I) ANY DEATH-CUM-RETIREMENT GRATUITY RECEIVED UND ER THE REVISED PENSION RULES OF THE CENTRAL GOVERNMENT OR, AS THE CASE MAY BE, THE CENTRAL CIVIL SERVICES (PENSION) R ULES, 1972, OR UNDER ANY SIMILAR SCHEME APPLICABLE TO THE MEMBE RS OF THE CIVIL SERVICES OF THE UNION OR HOLDERS OF POSTS CON NECTED WITH DEFENCE OR OF CIVIL POSTS UNDER THE UNION (SUCH MEM BERS OR HOLDERS BEING PERSONS NOT GOVERNED BY THE SAID RULE S) OR TO THE MEMBERS OF THE ALL-INDIA SERVICES OR TO THE MEMBERS OF THE CIVIL SERVICES OF A STATE OR HOLDERS OF CIVIL POSTS UNDER A STATE OR TO THE EMPLOYEES OF A LOCAL AUTHORITY OR ANY PAYMENT O F RETIRING GRATUITY RECEIVED UNDER THE PENSION CODE OR REGULAT IONS APPLICABLE TO THE MEMBERS OF THE DEFENCE SERVICES ; (II) ANY GRATUITY RECEIVED UNDER THE PAYMENT OF G RATUITY ACT, 1972 (39 OF 1972), TO THE EXTENT IT DOES NOT EXCEED AN AMOUNT CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF SUB -SECTIONS (2) AND (3) OF SECTION 4 OF THAT ACT ; (III) ANY OTHER GRATUITY RECEIVED BY AN EMPLOYEE ON HIS RETIREMENT OR ON HIS BECOMING INCAPACITATED PRIOR T O SUCH RETIREMENT OR ON TERMINATION OF HIS EMPLOYMENT, OR ANY GRATUITY RECEIVED BY HIS WIDOW, CHILDREN OR DEPENDANTS ON HI S DEATH, TO THE EXTENT IT DOES NOT, IN EITHER CASE, EXCEED ONE- HALF MONTHS SALARY FOR EACH YEAR OF COMPLETED SERVICE CALCULATED ON THE BASIS OF THE AVERAGE SALARY FOR THE TEN MONTHS IMME DIATELY PRECEDING THE MONTH IN WHICH ANY SUCH EVENT OCCURS, SUBJECT TO SUCH LIMIT AS THE CENTRAL GOVERNMENT MAY, BY NOTIFI CATION IN THE OFFICIAL GAZETTE, SPECIFY IN THIS BEHALF HAVING REG ARD TO THE LIMIT APPLICABLE IN THIS BEHALF TO THE EMPLOYEES OF THAT GOVERNMENT : ITA 4884/MUM/2010 LATE SHRI ANIL BHATIA 4 PROVIDED THAT WHERE ANY GRATUITIES REFERRED TO IN THIS CLAU SE ARE RECEIVED BY AN EMPLOYEE FROM MORE THAN ONE EMPL OYER IN THE SAME PREVIOUS YEAR, THE AGGREGATE AMOUNT EXEMPT FROM INCOME-TAX UNDER THIS CLAUSE SHALL NOT EXCEED THE L IMIT SO SPECIFIED : PROVIDED FURTHER THAT WHERE ANY SUCH GRATUITY OR GRATUITIES WAS OR WERE RECEIVED IN ANY ONE OR MORE EARLIER PRE VIOUS YEARS ALSO AND THE WHOLE OR ANY PART OF THE AMOUNT OF SUC H GRATUITY OR GRATUITIES WAS NOT INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE OF SUCH PREVIOUS YEAR OR YEARS, THE AMOUNT EXEMPT FROM INCOME-TAX UNDER THIS CLAUSE SHALL NOT EXCEED THE LIMIT SO SPECIFIED AS REDUCED BY THE AMOUNT OR, AS THE CASE MAY BE, THE AGGREGATE AMOUNT NOT INCLUDED IN THE TOTAL INCOME O F ANY SUCH PREVIOUS YEAR OR YEARS. [* * *] EXPLANATION. IN THIS CLAUSE, AND IN CLAUSE (10AA)], SALARY SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (H) OF RULE 2 OF PART A OF THE FOURTH SCHEDULE. 5. AS PER SUB-CLAUSE (I), ENTIRE AMOUNT OF THE GRAT UITY IS EXEMPT FROM TAX IN RESPECT OF THE CENTRAL GOVERNMENT EMPLO YEES OR MEMBERS OF THE CIVIL SERVICES OF THE UNIONS OR ADVANCE SERV ICES OR CIVIL SERVICES OF THE STATE OR EMPLOYEES OF THE LOCAL AUTHORITIES. SO FAR AS SUB-CLAUSE (II) TO SEC.10(10) IS CONCERNED, IT REFERS TO THE G RATUITY PAID UNDER THE PAYMENT OF GRATUITY ACT, 1972. IT IS NECESSARY TO NOTE HERE THAT PAYMENT OF GRATUITY ACT, 1972, THERE IS A CEILING O N THE SALARY AND HENCE, IN CLAUSE (II) ALSO THE EXEMPTION IS RESTRIC TED TO THE EXTENT OF AN AMOUNT OF THE GRATUITY CALCULATED UNDER SUB-SECTION S (II) & (III) OF SEC.4 OF THE SAID ACT. THE PAYMENT OF GRATUITY ACT IS AP PLICABLE THE EMPLOYEES WITH A CEILING ON THE SALARY AND MAXIMUM AMOUNT PAYABLE TOWARDS GRATUITY IS ALSO RESTRICTED. THE GRATUITY M AY BE PAID TO A EMPLOYEE ON THE RETIREMENT ON SUPERANNUATION OR ON THE TERMINATION ITA 4884/MUM/2010 LATE SHRI ANIL BHATIA 5 OF EMPLOYMENT OR ON A DEATH TO HIS LEGAL HEIRS. TH E LD. COUNSEL PLACED HIS RELIANCE ON THE CIRCULAR NO.576 DATED 21 .8.1990 TO SUPPORT HIS CONTENTION THAT THE SAID CIRCULAR EXEMPT THE AM OUNT OF GRATUITY. WITH DUE RESPECT, WE ARE NOT AGREEING WITH THE PLEA THAT THE AMOUNT OF GRATUITY RECEIVED ON THE DEATH OF THE DECEASED ASSE SSEE IS COVERED BY THAT CIRCULAR. AS PER THE LANGUAGE USED BY THE CBD T, IT IS VERY CLEAR THAT WHEN ANY COMPENSATION OR LUMP SUM EX-GRATIA PAYMENT IS MADE TO THE WIDOW AND OTHER LEGAL HEIRS OF THE EMPLOYEE WHO DIE WHILE IN ACTIVE SERVICE, WILL NOT BE TAXABLE AND SAID CIRCUL AR IS ISSUED, MORE PARTICULARLY, CONSIDERING THE CHARGING PROVISIONS O F THE ACT I.E. SEC.4 OF THE ACT AND NOT ON INTERPRETATION OF SUB-CL.(III ) TO SEC. 10(10) OF THE ACT. 5. SO FAR AS SUB.-CL. (III) TO SEC.10(10), THE DISC RETION IS LEFT TO THE CENTRAL GOVERNMENT TO PRESCRIBE THE UPPER LIMIT OF AMOUNT TO BE EXEMPTED, BY THE NOTIFICATION IN THE OFFICIAL GAZET TE. THE GOVERNMENT HAS ISSUED A NOTIFICATION NO.10772 DATED 28.1.1999 (F. NO.200/77/97-ITA-I). THE SAID NOTIFICATION READS A S UNDER:- IN EXERCISE OF THE POWERS CONFERRED BY SUB-CLAUSE (III) OF CLAUSE (10) OF SECTION 10 OF THE INCOME-TAX ACT, 1961 (43 OF 1961), THE CENTRAL GOVERNMENT, HAVING REGARD TO THE MAXIMUM AM OUNT OF ANY GRATUITY PAYABLE TO ITS EMPLOYEES, HEREBY SPECI FIES THREE LAKHS AND FIFTY THOUSAND RUPEES AS THE LIMIT FOR TH E PURPOSES OF THE SAID SUB-CLAUSE IN RELATION TO THE EMPLOYEES WH O RETIRE OR BECOME INCAPACITATED PRIOR TO SUCH RETIREMENT OR DI E ON OR AFTER THE 24TH SEPTEMBER, 1997, OR WHOSE EMPLOYMENT IS TE RMINATED ON OR AFTER THE SAID DATE. 6. ADMITTEDLY, THE GRATUITY DECLARED IN THE HANDS O F THE DECEASED ASSESSEE IS NOT ANY GRATUITOUS PAYMENT OR COMPENSATION BUT SAME IS TOWARDS THE SERVICES RENDERED BY THE DECEASED ASSES SEE TO HIS COMPANY IN THE CAPACITY AS A FULL TIME WORKING DIRE CTOR. THE ABOVE REFERRED NOTIFICATION IS DIRECTLY ON THE RELEVANT I SSUE. MOREOVER, THE ITA 4884/MUM/2010 LATE SHRI ANIL BHATIA 6 SCOPE OF SEC.10(10) HAS BEEN EXPLAINED BY THE HONB LE HIGH COURT OF BOMBAY IN THE CASE OF N.J. PUVRI (SUPRA). THE RELI ANCE PLACED BY THE LD. COUNSEL IN RESPECT OF THE LEAVE ENCASHMENT HAVI NG NO BEARING ON THE ISSUE OF GRATUITY AND HENCE, NOT HELPFUL TO THE PRESENT ASSESSEE. WE, THEREFORE, HOLD THAT THE AMOUNT OF GRATUITY REC EIVED ON THE DEATH OF THE DECEASED ASSESSEE IS COVERED BY SUB-CL. (III ) OF SEC.10(10) OF THE ACT AND IN VIEW OF THE NOTIFICATION DATED 28.1.1999 , THE SUM OF ` 3,50,000/- IS EXEMPT FROM TAX AS RIGHTLY HELD BY TH E A.O. WE, THEREFORE, REVERSE THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND RESTORE THAT OF THE A.O. AND RESPECTIVE GROUND OF THE REVEN UE IS ALLOWED. 7. THE NEXT ISSUE IS WHETHER THE AMOUNT OF THE BONU S IS EXEMPT AND COVERED BY CIRCULAR NO.573 OF THE ACT. 8. WE HAVE HEARD THE PARTIES. IN THIS CASE, THE LD . CIT (A) CALLED THE REMAND REPORT OF THE A.O. AND A.O. ACCEPTED IT IS COVERED BY THE SAID CIRCULAR. THE LD. CIT (A) HAS MADE THE CATEGO RICAL OBSERVATION IN PARA NO.17 OF HIS ORDER, HENCE WE FIND NO MERIT IN THE GROUND TAKEN BY THE REVENUE. ACCORDINGLY, GROUND NO.2 IS DISMISSED . 9. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH DECEMBER, 2011. SD/- SD/- ( G.E. VEERABHADRAPPA ) PRESIDENT ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE : 28TH DECEMBER, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -8, MUMBAI. 4) THE CIT-4, MUMBAI. 5) THE D.R. A BENCH, MUMBAI. ORDER PRONOUNCED IN THE OPEN COURT ON 28.12.2011 SD/- SD/- ( JSR ) ( RSP ) ITA 4884/MUM/2010 LATE SHRI ANIL BHATIA 7 BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN