No relief admissible u/s 89(1) for compensation received on termination of employment due to closure of plant
In a recent judgment, the Hon’ble ITAT has held that no relief admissible u/s 89(1) towards compensation received on termination of employment due to closure of plant
ABCAUS Case Law Citation:
ABCAUS 3913 (2024) (03) ITAT
In the instant case, the assessee had challenged the order of National Faceless Appeal Centre (NFAC) confirming the action of the Assessing Officer (AO) declining the relief claimed u/s 89(1) of the Income Tax Act, 1961 (the Act) in respect of compensation received for the termination of employment.
The appellant assessee had filed his return of income for the relevant Assessment Year claiming relief u/s 89(1) of the Act in respect of compensation received for the termination of employment due to closure of plant.
Against the said return of income, assessment was completed by the AO vide order passed u/s 143(3) r.w.s. 144B of the Act denying the relief claimed u/s 89(1) of the Act by holding that the appellant had not received any arrears of salary or salary in advance.
Being aggrieved by the above assessment order, an appeal was filed before the CIT(A) seeking relief u/s 89(1) and as an alternate claiming that the receipt of compensation towards termination of services was capital receipt and cannot be taxed within purview of provisions of section 17(3).
The NFAC confirmed the action of the AO in denying the relief u/s 89(1) of the Act as the assessee had failed to comply with several hearing notices.
The Tribunal observed that the issue was related to the eligibility of assessee for relief u/s 89(1) in respect of amount of compensation received for termination of services, as the employer had closed down the plant following the norms imposed by World Health Organization.
The Tribunal noted that the compensation in question comes within the provisions of section 17(3). No doubt, the provisions of section 89 provides for relief when the salary was received in advance or paid in arrears or compensation was received which comes within the purview of clause (3) of section 17 of the Act, but the proviso to section 89 of the Act clearly provides that no relief u/s 89 shall be granted in respect of amount received or receivable by the assessee on his voluntary retirement or termination of services in accordance with any scheme or scheme of voluntary retirement.
The Tribunal opined that the claim made by the assessee u/s 89 of the Act was clearly hit by proviso to section 89(1) of the Act, the assessee was not entitled to relief u/s 89(1).
As regards to the additional claim made by the assessee before the CIT(A) that the compensation in question should be treated as capital receipt, the Tribunal held that it cannot be accepted as the compensation in question comes within the ambit of provisions of section 17(3)(iii) of the Act which clearly provides that the compensation received from the former employer for termination of his services is taxable as a profit in lieu of salary.
Accordingly, the grounds of appeal filed by the assessee were dismissed.
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