Now Reading: ITAT rules Pfizer VRS payout of ₹65 lakh not taxable
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ITAT rules Pfizer VRS payout of ₹65 lakh not taxable
The Pune bench of the Income Tax Appellate Tribunal (ITAT) has ruled that a ₹65.21 lakh payment received by a former Pfizer Healthcare India employee under a voluntary retirement scheme (VRS) is a capital receipt and not taxable. The tribunal, in an order dated June 8, 2026, held that Section 56(2)(xi) of the Income Tax Act did not apply because the employee had voluntarily resigned, and the company did not terminate his employment.
The taxpayer, Prakash Sukhdeo Sonawane, was employed at Pfizer’s Aurangabad plant, which closed in 2018-19. He received ₹50.70 lakh as ex-gratia/severance pay, ₹12 lakh as early-bid incentive, and ₹2.50 lakh as notice payout. In his tax return, he mistakenly claimed relief under Section 89 treating it as advance salary. The Assessing Officer rejected that claim, and the CIT(A) held the amount taxable as income from other sources.
ITAT set aside the lower authority’s order, noting that the scheme’s clause 11(viii) explicitly stated that cessation was resignation, not termination. The tribunal also relied on its own earlier decisions in similar Pfizer cases, where such payments were consistently held to be capital receipts. The Assessing Officer has been directed to modify the assessment accordingly.
Indian Opinion Analysis
The ITAT Pune held that a ₹65.21 lakh payment under Pfizer's voluntary retirement scheme was a capital receipt, not taxable. The employee had mistakenly claimed relief under Section 89 for arrears, later arguing the amount was not salary. The tribunal agreed, citing that clause 11(viii) of the scheme specified resignation, not termination, so Section 56(2)(xi) did not apply. Both The Economic Times and Livemint report the same facts neutrally, with minor differences in emphasis: The Economic Times frames the case as a cautionary tale about tax treatment of termination payments, while Livemint sticks to a straight procedural account of the tribunal order. The ruling could set a precedent for employees under similar plant-closure VRS schemes, but applicability depends on the scheme's specific legal design. The Income Tax Department's next move on appeal or reassessment is now the factor to watch, though no such step is reported yet.
Coverage: 2 sources, 2 neutral
Sources (2): economictimes.indiatimes.com (neutral report), livemint.com (neutral report)
This brief was synthesised by AI from the 2 sources linked above, so one read covers every framing they carry. Methodology and corrections.
Updated: this story now draws on 2 sources.
