Tax Relief Denied: High Court Allows Appeal for VRS Taxation Dispute

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Case Name:

V. Gopalan Vs Chief Commissioner of Income Tax and Ors. (High Court of Kerala)

WP(C).No.16955 of 2013(T)

Date: 23rd November 2020

Key Takeaways:

• The case centers on the taxation of VRS payments and the applicability of Section 89(1) of the Income Tax Act.
• The court acknowledged that the petitioner had a valid legal position but was procedurally barred from relief due to the timing of the rectification application.
• The judgment highlights the importance of timely appeals in tax disputes.

Issue

Can the amounts received under a Voluntary Retirement Scheme be taxed, and is the petitioner entitled to relief under Section 89(1) of the Income Tax Act?

Facts

The petitioner received payments under a VRS and filed a tax return, seeking relief under Section 89(1). However, the tax authorities denied this relief through intimations under Sections 143(1) and 154. The petitioner then approached the Commissioner of Income Tax under Section 264, but the relief was again denied due to procedural issues.

Arguments

• Petitioner: Argued for relief under Section 89(1) of the Income Tax Act, claiming the VRS payments should not be taxed.
• Respondent (Income Tax Department): Maintained that the relief was not applicable and that the petitioner should have filed an appeal against the initial tax intimations.

Key Legal Precedents

The court referred to the procedural aspects of the Income Tax Act, specifically Sections 143(1), 154, 246(A), and 264, emphasizing the need for timely appeals and the limitations of rectification applications post-judgment.

Judgement

The court did not fault the tax officer’s decision to reject the rectification application but allowed the petitioner to file an appeal against the tax intimations within three weeks. This appeal would be treated as timely and decided on its merits.

FAQs

Q1: What is Section 89(1) of the Income Tax Act?

A1: It provides relief for income tax on salary received in arrears or advance, potentially applicable to VRS payments.

Q2: Why was the petitioner’s relief initially denied?

A2: The relief was denied due to procedural issues, specifically the timing of the rectification application after the High Court’s decision.

Q3: What does this judgment mean for the petitioner?

A3: The petitioner has a chance to appeal the tax intimations, which could lead to a favorable outcome if the appeal is successful.

1. The writ petition has been filed praying to quash Exts.P1, P4 and P6 and to issue a writ of mandamus directing the respondents not to levy tax from the petitioner since he is entitled to the relief under Section 89(1) of the Income Tax Act. The issue relates to whether the amounts received by the petitioner under the Voluntary Retirement Scheme can be brought to tax under the Income Tax Act. The petitioner had filed return initially but he was issued with an intimation under Section 143(1) on 20.12.2001 denying the relief under Section 89(1).

There was another intimation under Section 154 on 31.12.2003 declining to revise the assessment. In the above circumstances, the petitioner approached the Commissioner of Income Tax under Section 264 of the Income Tax Act. By Ext.P1, the said relief was declined. Thereafter, on 14.01.2010, by Ext.P4, the Commissioner of Income Tax found that even though the legal position is settled in favour of the petitioner, he will not be able to give the relief since a rectification application filed subsequent to the decision of the jurisdictional High Court cannot be maintained. By Ext.P6, the Income Tax Department raised a demand on the petitioner regarding the arrears of tax to be paid.

2. When the case is taken up today, learned counsel for the respondents reiterated the contention that Ext.P4 order cannot be found fault since the Officer has acted only in accordance with law when he rejected the rectification application, for the reason that it was filed after the decision of the jurisdictional High Court in favour of the assessee. At the same time, it is conceded that the intimations under Sections 143 and 154 were appealable under Section 246(A) of the Income Tax Act and appropriate remedy for the petitioner was to move an appeal.

The writ petition is hence disposed of permitting the petitioner to file an appeal against the intimation dated 20.12.2001 under Section 143(1) and intimation dated 31.12.2003 under Section 154 within a period of three weeks from today. If such an appeal is filed, the same shall be treated as an appeal filed within time and concerned authority shall dispose of the same on merits.

Sd/-

T.R.RAVI

JUDGE