I.T.A. No.528/LB of 2003, decided on 3rd September, 2005. VS I.T.A. No.528/LB of 2003, decided on 3rd September, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 632 (2005)

Income Tax Ordinance (XXXI of 1979)---

----S.16(2)(c) & Second Sched.---Income Tax Rules, 1982, Rr.4 to 18---C.B.R. Circular No. 5 of 1980 dated 16-2-1980---C.B.R. Circular No.1 of 1965 dated 1-7-1965---Profit in lieu of salary---Payments under Golden Handshake Scheme---Pro rata taxation of the Golden Handshake Scheme's payments---First Appellate Authority set aside the assessment for fresh proceedings with the direction of pro rata taxation of the Golden Handshake Scheme payment for the remaining period of assessee's service in terms of Circular No.5 of 1980 dated 16-2-1980---Validity---Payments received by the employees from their employers in consequence of Golden Handshake Scheme were taxable, as they fell in the definition of salary as provided under' S.16(2)(c) of the Income Tax Ordinance, 1979 being compensation in connection with termination of service---C.B.R. Circular No.1 of 1965 dated 1-7-1965 remains intact and available to the assessee. who wants to avail it---Assessing Officer was directed that while framing fresh assessment, he should also consider the decision of the superior Courts or any subsequent improvement in this regard---Directions of the First Appellate Authority regarding pro rata taxation was vacated and setting aside of the assessment was upheld by the Appellate Tribunal.

2002 PTD 562 rel.

Mahboob Alam, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 3rd September, 2005.

ORDER

The Department through this appeal has objected to the impugned order of the learned C.I.T.(A) dated 30-10-2002 for the assessment year 1998-99 issuing directions for pro rata taxation applying provisions of Circular No.5 of 1980 and setting aside the assessment.

We have heard the learned D.R. and have also perused the impugned order of the learned C.I.T.(A) the assessment order and other relevant facts of the case.

Assessee, in this case, is an employee of the Bank and has received payment under the Golden Handshake Scheme on his termination from service. The Assessing Officer has observed that the payments made under the Golden Handshake Scheme is in fact a compensation package which includes certain variety of pay and allowances. According to this view point of the Assessing Officer, Income Tax Law is clear about the extent of taxability of salary income of an employee either in service or retiring from service. Section 16(1) of the repealed Income Tax Ordinance, 1979, Rules 4 to 18 of the repealed Income Tax Rules, 1982 and 2nd Schedule to the repealed Income Tax Ordinance, 1979 are sufficient guide in this behalf. As the assessee has received advance salary in lumpsum covered by the charging of section 16(1) of the repealed Income Tax Ordinance, 1979, therefore, Assessing Officer has charged tax in accordance with law.

On appeal filed by the assessee, the learned C.I.T.(A) has set aside the assessment for fresh proceedings with the direction of pro rata taxation of the Golden Handshake Scheme payment for the remaining period of assessee's service in terms of Circular No.5 of 1980 dated 16-2-1980. Now, the Department in this appeal has objected the directions of the learned C.I.T.(A) in the impugned order.

While perusal of the above referred Circular No.5 of 1980, we have found that this Circular is regarding clarification of subsection (2) of section 165 of the repealed Income Tax Ordinance, 1979 as to how total income and the tax payable shall be prorated in case the income year exceeds 12 months. But in the present case, the income year does not exceed 12 months. The Golden Handshake Scheme amount has been received within the period of 12 months of the income year, therefore, the Circular No.5 of 1980 is not relevant in this case. The directions of the learned C.I.T.(A) for pro rata taxation in terms of Circular No.5 of 1980 are, therefore, vacated.

We have found that the issue of taxation of payments received under the Golden Handshake Scheme on termination of service has already been decided by the Hon'ble Lahore High Court in the judgment reported as 2002 PTD 562. The relevant part of the judgment is reproduced hereunder:---

"We are of the considered view that payments received by the petitioners from their employers are covered by the definition of the word "salary" which is one of the heads given in section 15 under which such receipts are to be taxed. In the given situation, however, we are of the view that C.B.R. Circular No.15 of 1997 dated 6-11-1997 whereby amounts in hands of an employee were directed to be assessed in the light of earlier Circular No.1/65 dated July 1, 1965 was clearly beneficial. Accordingly all petitioners and those placed in similar situation will be entitled to the benefits of Circular No.1 of 1965. The declaration made by this Court in various judgments against issuance of Circular No.1 of 1997 operates only to the extent of the advice given by the C.B.R. to the Assessing Officers as to the taxability of the receipt. The later part of the circular extending concession of Circular No.1 of 1965 shall however remain intact and be available to all those who wish to avail it".

After perusal of the above referred judgment, we are of the view that the Hon'ble Lahore High Court has held that the payments received by the employees from their employers in consequence of Golden. Handshake Scheme are taxable, as they fall in the definition of salary as provided under section 16(2)(c) of the repealed Income Tax Ordinance, 1979 being compensation in connection with termination of service. In that decision of the Hon'ble Lahore High Court, it has been further held that the Circular No.1 of 1965 dated 1-7-1965 remains intact and available to the assessee who wants to avail it.

In view of the above legal position, the Assessing Officer is -directed that while framing the fresh assessment, he should also consider the above referred decision of the Hon'ble High Court or any subsequent improvement in this regard. The directions of the learned C.I.T.(A) regarding pro rata taxation is vacated. However, the setting aside of the assessment is upheld.

The appeal filed by the Department is dismissed with the directions as referred supra.

C.M.A./556/Tax(Trib.)Order accordingly.