Punjab & Haryana High Court sets aside rejection of delayed revised ITR claim by HMT employee seeking additional VRS compensation exemption under Section 10(10B).
The Punjab & Haryana High Court has provided important relief to a former employee of HMT Limited by setting aside an order that rejected his request to condone the delay in filing a revised income tax return to claim an additional exemption on compensation received under a Voluntary Retirement Scheme (VRS).
The Court held that the tax department must properly examine the reasons given by an assessee for the delay and cannot reject a condonation application on the ground that no explanation was furnished when the records actually contain such an explanation. The judgment is particularly relevant for taxpayers who discover an eligible exemption or deduction after filing their original income tax return.
Background of the HMT VRS Case
The case concerned employees of the Tractor Division of HMT Limited at Pinjore, Haryana. The division had been facing severe financial difficulties, and employees had reportedly not received salaries since July 2014. The Government of India subsequently approved financial support for payment of outstanding employee dues and closure of the HMT Tractor Division.
As part of the closure process, HMT introduced a VRS/VSS package for its employees. A large number of employees opted for the scheme, while employees who did not opt for it were subsequently retrenched.
One of the employees received approximately ₹29.14 lakh under the VRS arrangement. While processing his tax affairs, an exemption of ₹5 lakh under Section 10(10C) of the Income Tax Act, 1961 was considered, and the balance amount was subjected to tax.
The employee initially filed his income tax return on the basis of the Form 16 issued by HMT. His return was subsequently processed.
Later, however, the employee became aware of judicial and appellate decisions involving similarly placed HMT employees, under which the compensation could potentially qualify for exemption under Section 10(10B) of the Income Tax Act.
Why Was a Revised Return Necessary?
Section 10(10C) provides an exemption, subject to prescribed conditions, in respect of payments received under certain voluntary retirement or voluntary separation schemes.
Section 10(10B), on the other hand, deals with retrenchment compensation and contains specific provisions concerning compensation received by employees in circumstances covered by the section.
In the case of HMT’s Tractor Division employees, the argument was that the VRS compensation was effectively connected with the closure of the undertaking and had the character of retrenchment compensation.
Earlier appellate proceedings involving another HMT employee had accepted this position. The decision also relied upon the reasoning of the Madras High Court in Hindustan Photo Films Workers’ Welfare Centre v. Government of India, where similar issues concerning compensation paid in the context of closure and employee rehabilitation had been considered.
Consequently, the petitioner sought to claim the benefit under Section 10(10B).
However, the normal statutory period for filing a revised return under Section 139(5) had already expired.
Application for Condonation of Delay Under Section 119(2)(b)
The Income Tax Act provides a mechanism to deal with such situations.
Under Section 119(2)(b), the competent income tax authority has power, subject to prescribed conditions, to admit certain applications or claims involving refund or relief even where the statutory time limit has expired.
The HMT employee therefore approached the Principal Commissioner of Income Tax seeking condonation of the delay so that the revised return claiming the additional exemption could be considered.
The application was rejected in January 2022.
The department, among other things, took the position that the assessee had voluntarily accepted the VRS compensation, had already filed his return after claiming the available exemption, and had not established sufficient reasons for the delay.
High Court Finds Fault With the Rejection Order
The Punjab & Haryana High Court examined the material placed before it and found that the rejection order could not be sustained.
A significant aspect of the judgment was the Court’s observation regarding the alleged absence of reasons for the delay.
The petitioner had explained that he became aware of his potential entitlement only after decisions were rendered in cases involving similarly situated employees. Therefore, the contention that the petitioner had provided no explanation for the delay was not supported by the record.
The Court emphasised that whether the explanation ultimately deserves to be accepted is a separate question. The authority is required to consider the explanation and apply the relevant statutory and administrative guidelines before reaching a decision.
Accordingly, the High Court found that the impugned order had not properly applied the governing principles and therefore deserved to be quashed.
Matter Remanded for Fresh Consideration
The High Court allowed the writ petitions and set aside the order rejecting the condonation request.
Importantly, however, the Court did not itself grant the exemption under Section 10(10B).
Instead, the matter was remitted to the Principal Commissioner of Income Tax for fresh consideration. The authority was directed to provide the petitioner an opportunity of hearing, examine the material available on record and pass a reasoned order within the prescribed period.
Thus, the judgment does not mean that every delayed claim for VRS exemption will automatically be allowed. Rather, it establishes that a condonation application must be examined fairly and on the basis of the actual facts and reasons placed before the authority.
Key Takeaway for Taxpayers
The judgment carries an important lesson for taxpayers who discover an exemption, deduction or refund entitlement after the normal time limit has expired.
A taxpayer should not assume that expiry of the ordinary revised-return period automatically ends the possibility of seeking legitimate tax relief. Where the law provides a mechanism for condonation of delay, the taxpayer can consider approaching the appropriate authority with a properly documented application explaining the circumstances.
The HMT case also highlights the importance of keeping track of judicial developments. An assessee may initially file a return based on the information available to him but later discover, through a court or appellate decision, that a particular receipt may receive different tax treatment.
However, such claims should be supported by proper legal analysis, documentary evidence and a convincing explanation for the delay.
Conclusion
The Punjab & Haryana High Court’s decision reinforces the principle that applications for condonation of delay cannot be rejected mechanically. Where an assessee has furnished an explanation, the competent authority must consider it objectively and pass a reasoned order.
For former HMT employees and similarly situated taxpayers, the judgment provides an opportunity to have delayed claims examined afresh. More broadly, it demonstrates the importance of Section 119(2)(b) as a statutory avenue for taxpayers seeking legitimate tax relief where procedural time limits have prevented them from making a claim within the ordinary period.
The decision is therefore significant not merely for HMT employees but for taxpayers generally who discover an additional exemption or refund entitlement after filing their original income tax return.