Pune ITAT rules ₹65.21 lakh Pfizer retirement payout not taxable

A ₹65.21 lakh payment received by a former Pfizer Healthcare India employee under a voluntary retirement scheme (VRS) is not taxable, the Pune Bench of the Income Tax Appellate Tribunal (ITAT) has ruled.

In its order dated June 8, 2026, in Prakash Sukhdeo Sonawane vs Income Tax Officer, ITA No. 2180/PUN/2025 for assessment year (AY) 2019-20, the tribunal held that the payment was a capital receipt and not chargeable to tax. Section 56(2)(xi) of the Income-tax Act, 1961, did not apply because the employee had voluntarily resigned, the tribunal said, and his employment had not been terminated by the company.

The taxpayer was an employee of Pfizer Healthcare India at its Aurangabad plant. The company had designed the Pfizer Healthcare India Private Limited Finance Scheme for Employees at Aurangabad, 2019 after deciding to close the plant. Sonawane opted for voluntary retirement under the scheme.

During FY 2018-19, he received an aggregate ₹65,21,105. The amount broke down as ₹50,70,250 in ex-gratia or severance pay, ₹12 lakh as early-bid and group-participation incentives, and ₹2,50,855 in a three-month notice-period payout. When filing his return for AY 2019-20, Sonawane did not initially claim the sum as a capital receipt. He instead claimed ₹21,77,119 relief under Section 89 on the basis that the amount represented advance salary.

The Assessing Officer disallowed the Section 89 relief. During the subsequent appellate proceedings, Sonawane argued that the ₹65.21 lakh should instead be treated as a capital receipt and not taxed. The CIT(A)/NFAC rejected that argument, treating the amount as taxable under Section 56(2)(xi) as income from other sources. The appellate authority held that the amount was received in connection with termination of employment.

The key issue before the Pune ITAT was whether Sonawane's voluntary retirement under Pfizer's scheme amounted to termination of employment for the purpose of Section 56(2)(xi), which covers compensation or other payment received in connection with termination of employment.

The tribunal examined the specific terms of Pfizer's scheme. Clause 11(viii) stated that employees opting for voluntary retirement would not be entitled to compensation or notice pay under the Industrial Disputes Act because their cessation from employment constituted resignation and not retrenchment or termination of employment by the company. Another clause stated that employees would not raise any dispute about their separation, since the separation resulted from their voluntary resignation.

The application form showed that Sonawane had voluntarily resigned from Pfizer with effect from February 8, 2019. The ITAT therefore found no termination of employment by Pfizer. The employee had voluntarily resigned under the scheme.

The tribunal also considered earlier decisions involving employees of Pfizer who had received similar payments under the same scheme. The Pune ITAT had consistently held in similar cases that payments under the Pfizer scheme were capital receipts and not chargeable to tax. The tribunal specifically referred to its earlier decision in Ashok Raghunathrao Kulkarni vs ITO, involving another employee covered by the same scheme. In that case, the tribunal had held that the ex-gratia payment was voluntary and was not compensation falling within Section 17(3).

The Pune ITAT also noted that similar payments received by other Pfizer employees had been accepted as capital receipts by the respective Assessing Officers in reassessment proceedings. The tribunal concluded that the lower authorities had not correctly applied the law and had failed to follow the position established in the earlier cases. It set aside the order of the CIT(A)/NFAC and directed the Assessing Officer to modify the assessment. Sonawane's appeal was allowed on June 8, 2026.