ARVIND KUMAR JOLLY,AMBALA vs. ADDL/JCIT (A)-2 KOLKATA, KOLKATA

Before us, the assessee argued that the entire leave encashment should be exempt, placing reliance on the decision of the Chandigarh Bench of the Tribunal in Shyam Singh v. ITO and on other decisions including Babulal Patel and Kamal Kumar Kalia. He submitted that the failure of CBDT to timely issue notifications should not prejudice the assessee, and that the subsequent enhancement of the limit to Rs.25,00,000 shows legislative intent to extend relief. He also relied upon the following decisions:

We have considered rival submissions and examined the record. The issue before us is whether the assessee, a retired PSU employee, is entitled to exemption of leave encashment beyond the limit of Rs.3,00,000. 9.1 For proper appreciation, we reproduce the bare provision of section 10(10AA): “(i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise; (ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government.” 9.2 The language of the provision makes a clear distinction between Government employees and non-Government employees. For Government employees, the exemption is absolute, whereas for other employees, the exemption is limited both in terms of period (ten months’ salary) and in terms of the monetary limit notified by the Government. The last such notification prior to the assessment year under consideration was issued in 2002, fixing the limit at Rs.3,00,000. The subsequent notification dated 24.05.2023 enhancing the limit to Rs.25,00,000 has expressly been made applicable with effect from 01.04.2023. The assessee, having retired prior thereto, cannot claim the benefit of the subsequent notification. 9.3 The reliance placed on the decisions referred hereinabove does not alter the legal position. We, therefore, are bound to follow the statutory mandate which limits the exemption for non-Government employees to the notified amount. 9.4 The first decision relied upon by the assessee was in the case of Satish Chandra Hiralal. We find that the said judgment does not advance the case of the assessee since the issue therein was entirely different and not related to the 4 controversy under our consideration. Hence, the reliance placed thereon is misplaced. 9.5 The second judgment cited by the assessee was that of Ram Charan Gupta decided by the Jaipur Bench. In that case, the Coordinate Bench proceeded to allow the claim of deduction towards leave encashment, relying upon CBDT Notification No. 31/2023. However, it is material to note that the said notification was issued on 1 April 2023 and, by its plain terms, was prospective in nature. The Jaipur Bench had not examined the specific issue as to whether the notification could be given retrospective effect; the Bench merely proceeded to extend the benefit. A bare perusal of the notification, as has also been extracted by the learned CIT(A) in the impugned order, makes it manifest that the benefit was intended to be operative prospectively and not with retrospective force. Therefore, in our considered opinion, the reliance placed by the assessee on Ram Charan Gupta is of no avail. 9.6 The assessee further placed reliance on the decisions of Vijay Kumar Jain (Agra Bench), Devendra Singh Bhaskar (Ahmedabad Bench) and Goverdhan Deepchand (Ahmedabad Bench). In all these matters, the Coordinate Benches have simply followed the reasoning in Ram Charan Gupta. As already held above, the decision in Ram Charan Gupta cannot be construed as laying down any binding proposition of law to the effect that Notification No. 31/2023 operates retrospectively. It is only a fact-based relief granted without adjudicating the true scope and temporal applicability of the notification. Consequently, the subsequent decisions which merely echo the view taken in Ram Charan Gupta cannot assist the assessee. 9.7 In light of the foregoing discussion, we are of the view that the precedents cited on behalf of the assessee are clearly distinguishable and do not support the proposition sought to be canvassed.9.4 Further the issue is squarely covered by the coordinate decision of this very Bench in Shri Ashwani Kumar Sharma v. ITO (ITA No. 652/Chd/2023, AY 2020-21, order dated 23.06.2025) . In that case too, the assessee, a retired Chief Engineer of a State power utility (HVPNL), claimed full exemption of leave encashment. The Tribunal, after considering section 10(10AA), CBDT notifications, and case law, categorically held that: “Section 10(10AA)(i) applies strictly to employees of the Central or State Government. The statute does not extend this benefit to statutory corporations or government- owned companies. Merely being under the ownership and control of the State 5 Government or governed by State service rules does not convert the employer into a ‘State Government.’ Employees of PSUs/utilities are covered only under clause (ii), and the exemption is capped at Rs.3,00,000. The enhanced limit to Rs.25,00,000 applies prospectively from 01.04.2023.” 9.8 Respectfully following the above binding coordinate Bench decision, and applying the plain language of the statute, we hold that the assessee herein, being a PSU employee, is covered under section 10(10AA)(ii) and hence entitled only to exemption up to Rs.3,00,000.

In the result, appeal of the Assessee is dismissed.