ASHWANI KUMAR SHARMA,PANCHKULA vs. INCOME TAX OFFICER, WARD- 1 PANCHKULA, PANCHKULA

Against the said findings and the direction of the Ld. CIT(A) the assessee is in appeal before us.

During the course of hearing the Ld. Counsel for the Assessee submitted that the assessee an employee of HSEB thereafter the said Board was bifurcated into four units including HVPNL and the assessee was transferred to the said Nigam and he retired on 30/09/2019. It was submitted that HVPNL has also adopted the Haryana Civil Service (Pension) Rules, 2016 as notified by the State Government Haryana Finance Department vide letter No. Ch-15/NGE/G153/2016/HSCR dt. 28/03/2017. It was submitted that the case of the assessee is squarely covered by the decision of Coordinate SMC Delhi Bench of the Tribunal vide order dt. 27/05/2016 with lead case titled as Shri Jagdeep Singh Vs. AO in ITA No. 1576/Del/2016 wherein the relevant findings read as under:

I have considered the submissions of both the parties and carefully gone through the material available on the record, to resolve the present controversy it is relevant to discuss the provisions contained in Section 10(10)(i), (ii) & (iii) of the Act which read as under: "(10) (i) any death- 'cum- retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services; (ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972 ), to the extent it does not exceed an amount calculated in accordance with the provisions of sub- sections (2) and (3) of section 43 of that Act; (iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependents on his death, to the extent it does not, in either case, exceed one- half month's salary for each year of completed service, calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, 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]: Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified]: Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income- tax under this clause shall not exceed the limit so specified] as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years. " In the present case, it is not in dispute that the assessee claimed the exemption u/s 10(10)(i) of the Act while the AO allowed the exemption u/s 10(10) (iii) of the Act. In the instant case, it is an admitted fact that the assessee was earlier employee of the Haryana State Government and working in Haryana State Electricity Board which later on was bifurcated into 4 utilities one of which was Dakshin Haryana Bijli Vitran Nigam Ltd. and the assessee was employee of the said corporation, which adopted the Haryana Civil Service (Revised Pension), Part-1 rules issued by the Haryana Government. The Haryana Government Power Department in its notification dated 14.08.\99& provided the conditions at the time of transfer of personnel in Clause 11 which read as under:

"The terms and conditions of the services applicable to them on the effective date, the pay, pattern of Dearness Allowances, Additional Dearness Allowances, Interim Relief City Compensatory Allowances, House Rent allowances, Shift Duty allowances, Hardship allowances, medical facility, medical allowances, all other allowances on the projects, field and head office, leave of all kinds (including casual leave), Pension and Death-cum- retirement benefit, gratuity and leave encashment of every nature shall not be in any way be less favourable to them than those applicable to them immediately before such date. " From the above notification, it is clear that the employees who were transferred in the Power Department like the assessee were eligible for all the benefits which were available before their transfer i.e. when they were the employee of the State Government. As per the provisions contained in Section 10(10)(i) of the Act, the exemption was available for death-cum-retirement gratuity to the employees of the State Government, therefore, the assessee was eligible for exemption u/s 10(10) (i) of the Act and not u/s 10(10)(iii) of the Act as has been held by the AO. It is also noticed that the department itself has allowed the exemption to another employees also on the basis of the notification issued on 01.07.1999 by the Government of Haryana in which it has been declared that the Dakshin Haryana Bijli Vitran Nigam Ltd. is a Government Company and there is no existence of public fund and the employees of the wrest while HSEB were very much covered under GPF scheme which applies only to the Government employees. Moreover, the DHBVN also adopted the Haryana Civil Service (Revised Pension), Part-1, Rules, 2009 which shall apply to all pensioners entitled as on 01.01.2006 under PCS Rules, 1953. One of such order dated IS.05.2012 u/s 147/143(3) of the Act for the assessment year 2010-11 in the case of Sh. Jai Dayal Singh Bamel, 488, Sector-7, Faridabad was furnished by the 717/Chd/2022 dt. 02/06/2023 has allowed the exemption in respect of the entire amount of Gratuity received from the employer. It was submitted that the principle of consistency requires that the order of the Coordinate Bench be followed and therefore applying the ratio laid down in the said decision the assessee be granted the necessary relief and claim of whole of the exemption in respect of leave encashment received by the assessee upon his retirement be allowed as exempted under section 10(10AA) of the Act.

Per contra, the Ld. DR relied on the decision of Hon'ble Delhi High Court in case of Kamal Kumar Kalia Vs. Union of India[2019] 111 taxmann.com 409 (Del) wherein it was held that the retired employee of PSU's and Nationalised Bank cannot be treated as Government employee and thus they are entitled to get full tax exemption on leave encashment after retirement / superannuation under section 10(10AA) of the Act, in this regard the relevant findings of the Hon'ble High Court read as under:

We do not find any merit in this submission either. Merely because Public Sector Undertaking and Nationalised Banks are considered as 'State' under Article 12 of the Constitution of India for the purpose of entrainment of proceedings under Article 226 of the Constitution and for enforcement of fundamental right under the Constitution, it does not follow that the employees of such Public Sector Undertaking, Nationalised Banks or other institutions which are classified as 'State' assume the status of Central Government and State Government employees. It has been held in multiple decisions that employees of Public Sector Undertakings are not at par with government servants (Ref Officers & Supervisors of I.D.P.L. v. Chairman & M.D. I.D.P.L. AIR 2003 SC 2870). In the noted case of A.K. Bindal v. Union of India [2003] 5 SCC 163, while considering the issue of revision of the pay scales of employees of government companies/PSUs at par with government employees, it was held that the employees of government companies cannot claim the same legal rights as government employees. The relevant extract from the said judgment reads as under:

The legal position is that identity of the government company remains distinct from the Government. The government company is not identified with the Union but has been placed under a special system of control and conferred certain privileges by virtue of the provisions contained in Sections 619 and 620 of the Companies Act. Merely because the entire share holding is owned by the Central Government will not make the incorporated company as Central Government. It is also equally well settled that the employees of the government company are not civil servants and so are not entitled to the protection afforded by Article 311 of the Constitution (Pyare Lal Sharma v. Managing Director (1989) 3 SCC 448). Since employees of government companies are not government servants, they have absolutely no legal right to claim that the Government should pay their salary or that the additional expenditure incurred on account of revision of their pay scale should be met by the Government. Being employees of the companies it is the responsibility of the companies to pay them salary and if the company is sustaining losses continuously over a period and does not have the financial capacity to revise or enhance the pay scale, the petitioners cannot claim any legal right to ask for a direction to the Central Government to meet the additional expenditure which may be incurred on account of revision of pay scales. It appears that prior to issuance of the office memorandum dated 12.4.1993 the Government had been providing the necessary funds for the management of public sector enterprises which had been incurring losses. After the change in economic policy introduced in the early nineties, the Government took a decision that the public sector undertakings will have to generate their own resources to meet the additional expenditure incurred on account of increase in wages and that the Government will not provide any funds for the same. Such of the public sector enterprises (government companies) which had become sick and had been referred to BIFR, were obviously running on huge losses and did not have their own resources to meet the financial liability which would have been incurred by revision of pay scales. By the office memorandum dated 19.7.1995 the Government merely reiterated its earlier stand and issued a caution that till a decision was taken to revive the undertakings, no revision in pay scale should be allowed. We, therefore, do not find any infirmity, legal or constitutional in the two office memorandums which have been challenged in the writ petitions." (Emphasis supplied) We therefore, reject the present petition, insofar as the petitioners' challenge to the provisions of Section 10 (10AA) is concerned.

We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justified. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10 (10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect.

1 Further Ld. DR submitted that although coordinate bench decisions exist, the statutory interpretation of Section 10(10AA) must prevail over any individual ruling.

2 The Ld. DR distinguished the coordinate bench decisions by pointing out that the electricity distribution companies like HVPNL are corporate bodies constituted under the Companies Act and not "State" or "local authority" as defined under the Income Tax Act. Therefore, employees of such corporations cannot be treated as "employees of the State Government" for the purpose of Section 10(10AA) (i).

3 The Ld. DR contended that the assessee's employer, HVPNL, is not a State Government department, and reliance on employee-friendly service conditions or ownership cannot override the explicit scope of Section 10(10AA)(i). It was also pointed out that section 10(10AA)(ii) is specifically meant for such cases and provides a monetary cap of Rs.3,00,000 on exemption.

4 The Ld. AR had filed the following written submission in support of the case of the assessee contents of which read as under: The doctrine of judicial discipline requires that benches of judicial and quasi-judicial bodies, like the ITAT, operate on principles of consistency, continuity, and certainty. This will explain the binding nature of judgments passed by one bench of a tribunal on another, especially in taxation matters. Theory of Precedent Over Res Judicata: In Bharat Sanchar Nigam Ltd. vs. Union of India, ([2006] 282 ITR 272), the Supreme Court clarified that res judicata did not apply to tax matters for different assessment years because the cause of action for each year is different. However, courts and tribunals, under the theory of precedent, normally follow earlier decisions. Judicial and quasi- judicial authorities cannot deviate from established precedents unless; The earlier decision is distinguishable on new grounds or changes of fact. The earlier decision is held to be per incuriam (decided in ignorance of binding law). Relevant Paragraph of the Judgement- "

The impugned order of the Tribunal after making a note of its Co-ordinate Bench's order dated 24 June 2011 seeks to take a different view. This different view was taken in the impugned order inter alia by relying upon the decision of this Court in Sind Co-op. Hsg. Society (supra) which was also subjected to consideration in its order dated 24 June 2011. We are of the view that when an identical issue, which had earlier arisen before the Co-ordinate Bench of the Tribunal on identical facts and a view has been taken on the issue then judicial discipline would demand that a subsequent bench of the Tribunal hearing the same issue should follow the view taken by its earlier Co-ordinate Bench. No doubt this discipline is subject to the well settled exceptions of the earlier order being passed per incurim or sub silentio or in the meantime, there has been any change in law, either statutory or by virtue of judicial pronouncement. If the earlier order does not fall within the exception which affects its binding character before a co-ordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different then the view taken by its Co-ordinate Bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue, which could only be on one of the well settled exceptions which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier order of Co-ordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it choses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co-op. Hsg. society (supra), and take a view contrary to that taken by its earlier Co-ordinate Bench. It is made clear that in case a subsequent bench of the Tribunal does not agree with the reasons indicated in a binding decision of a co-ordinate bench, then for reason to be recorded, it must request the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue. "Resolving Conflicting Views of co-ordinate bench: In Mercedes Benz India Pvt. Ltd. vs. Union of India (MANU/MH/0285/2010), the Bombay High Court held that one co-ordinate bench finding fault with another without referring the matter to a larger bench undermines judicial discipline. The tribunal must refer conflicting views to the President for the constitution of a larger bench. Relevant Paragraphs of the Judgement- "

Having said so, the impugned view taken by the Tribunal by no means can be said to be correct approach. Needless to mention that if the Tribunal wanted to differ to the earlier view taken by the Tribunal in the identical set of facts, the judicial discipline required reference to the larger bench. One co-ordinate bench finding fault with another co-ordinate bench is not a healthy way of dealing with the matters. In this view of the matter, we have no option but to set aside the impugned judgment passed by the Tribunal on 20th November, 2009 incorporated at Exh.A to the petition.

In the result, impugned judgment dated 20th November, 2009 is quashed and set aside. Appeal is restored to the file of the Tribunal with direction to hear and decide the same afresh by a reasoned order following principles of natural justice. If the Tribunal decides to take view contrary to the view holding the field, then in that event it is expected of the Tribunal to pass appropriate order leading to reference to a larger bench to resolve differences, if any." Role of Special Bench: In DCIT vs. Summit Securities Ltd. ([2011] 11 ITR(T) 88 (Mumbai) (SB)), the Special Bench of the ITAT highlighted that a later bench which was not willing to accept an earlier judgment had to seek a reference to the President to . constitute a larger bench. This ensures consistency and prevents judicial inconsistency that can dilute public confidence. Relevant Paragraphs of the Judgement- "

It is however not the end of the road. As the Tribunal is quasi-judicial body, its Members cannot work mechanically by following the view taken by the earlier Co- ordinate Bench when they strongly believe that the earlier decision was not rendered by appreciating the legal position in correct perspective. Naturally there cannot be any fetters on the powers of the subsequent Bench of the Tribunal to dispute the correctness of an earlier decision in deserving cases from their own point of view. If after due application of mind the subsequent Bench comes to the conclusion that it cannot agree with the earlier view, it should not straight away proceed to record a conflicting decision. In such a situation the subsequent Bench is empowered or rather duty bound to make a reference to the President on the point they perceive to be an error of law in the earlier decision. The Larger Bench is then made up to consider the correctness of the earlier decision on the facts and circumstances of the case before it. The decision thus arrived at by the larger wi om becomes a binding precedent for all other Benches across the country unless there is a contrary judgment of the Hon'ble juri ictional High Court on the point. After such order, no Division Bench can or should question the correctness of view taken by the Special Bench.

From the above discussion it clearly emerges that if a subsequent Bench of the Tribunal is disinclined to follow the view taken by an earlier Bench on a particular issue, the only course open before it is to make a reference to the Hon'ble President for the constitution of Special Bench so that the issue may be finally decided by a Larger Bench. Right to Question Earlier Judgments: (MANU/SC/0173/1991), the Supreme Court recognized the necessity of allowing subsequent benches to question earlier decisions in cases of perceived legal error. Such cases must be referred to a larger bench to resolve differences. Relevant Paragraphs of the Judgement- "

It is true that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the earlier decision is rendered by a larger Bench. The rationale of this rule is the need for continuity, certainty and predictability in the administration of justice. Persons affected by decisions of Tribunals or Courts have a right to expect that those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identical matters. Classification of particular goods adopted in earlier decisions must not be lightly disregarded in subsequent decisions, lest such judicial inconsistency should shake public confidence in the administration of justice. It is, however, equally true that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings being to light what is perceived by them as an erroneous decision in the earlier case. In such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger Bench. This is what was done by the Bench of two members who in their reasoned order pointed out what they perceived to be an error of law in the earlier decision and stated the points for the President to make a reference to a larger Bench." ITAT is Final Judge of Facts: In CIT vs. Goodias Nerolac Paints Ltd., ([1991] 188 ITR 1), Bombay High Court observed that although tribunals are the ultimate decision-makers of fact, inconsistency of conclusions reached by different benches diminishes public confidence. In such a case, the disagreement of a subsequent bench with the findings of an earlier bench would necessitate the reference of the matter to the President for adjudication by a larger bench. Relevant Paragraphs of the Judgement- "

Before parting with this question, we consider it desirable to mention that the Tribunal is a final Judge of facts. The High Court in reference does not interfere with the findings of fact unless such a finding is perverse or is such that no reasonable person can come to such a finding. This will be so even when the High Court feels that it would have come to a different conclusion, if it was sitting in appeal. In that sense, when the High Court declines to interfere with a finding of fact given by the Tribunal in an earlier year, it may not mean that the High Court had approved of such a finding. This, however, does not mean that a subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal in the same case for an earlier year on a similar set of facts. Such a thing may not be in the larger public interest as it is likely to shake the confidence of the public in the system. It is, therefore, desirable that in case a subsequent Bench of the Tribunal is of the view that the finding given by the Tribunal in an earlier year requires reappraisal either because the appreciation in its view was not quite correct or inequitable or some new facts have come to light justifying reappraisal or reappreciation of the evidence on record, it should have the matter placed before the President of the Tribunal so that the case can be referred to a larger Bench of the Tribunal for adjudication and for which there is a provision in the Act." In conclusion, A co-ordinate bench of Tribunal must follow precedents laid by another co-ordinate benches, except under limited exceptions. If there is disagreement, matters should be sent to larger bench by placing the matter before the President of Tribunal.

We have heard the rival contention and perused the material available on the record. In the present case, we find that there is no dispute that HVPNL is a public sector utility wholly owned by the State Government. However, the decisive question is whether such employment qualifies as Government employment for purposes of Section 10(10AA) (i). Section 10(10AA) reads as under: Section 10(10AA) of the Income Tax Act, 1961, provides for exemption of leave encashment received at the time of retirement: Clause (i): Entire leave encashment is exempt for employees of the Central or State Government. Clause (ii): In the case of any other employee, exemption is limited to: Actual amount received, 10 months' average salary, Leave standing to credit (cash equivalent), Rs.3,00,000 whichever is least. Clause (iii): Pertains to other special cases such as employees governed by Industrial Disputes Act or notified schemes.

1 Section 10(10AA)(i) applies strictly to employees of the Central Government or a State Government. The statute does not extend this benefit to statutory corporations or government-owned companies, unless such extension is expressly provided. Merely being under the ownership and control of the State Government or being governed by State Service Rules does not convert the employer into a "State Government." Ld. AR has not pointed out any decision whereby the employer of the assets was held to be the state government under the Income Tax Act for the purposes of section 10A(10AA) of the Act.

2 While coordinate bench rulings in Jagdeep Singh, Om Prakash, and Baliramji Thakre support the assessee's position, it must be noted that these decisions do not conclusively settle the legal character of the employer vis-à-vis Section 10(10AA)(i). In fact, the legislative framework and judicial precedents from High Courts (were available) require strict interpretation of exemption provisions.

3 The principle of consistency, though important, cannot override legal interpretation. As held by the Hon'ble Supreme Court in Distributors Baroda vs. Union of India (155 ITR 120), beneficial interpretation cannot be applied where statutory language is clear and unambiguous.

4 Furthermore, It is a settled principle of law that where the language of a statute is plain, clear, and unambiguous, the rule of literal interpretation must be applied. In such circumstances, neither the Tribunal nor the Court is empowered to legislate or to read into the provision any meaning not expressly intended by the legislature. Where the statutory language admits of only one meaning, it must be given effect to, regardless of the consequences. Courts are not authorised to supply any omission or add words under the guise of interpretation. This principle assumes greater significance in the context of taxation laws, where it is well established that a provision must be construed strictly, and no equitable or liberal construction is permissible. We are also of the considered opinion that there is no scope for equity or equality in the interpretation of taxing statutes. The assessee may have contended that other benches of the Tribunal granted similar relief to certain colleagues; however, we are of the firm view that there is no merit in perpetuating an interpretation that is contrary to the statutory scheme. It is a well-settled principle that consistency cannot override the correct interpretation of law, and there is no heroism in sustaining an erroneous precedent.

5 Furthermore, the decisions cited by the assessee are distinguishable and not applicable to the facts of the present case. The definition of 'State' under Article 1, read with Schedule I of the Constitution of India, and the delineation of the Central and State Governments under the Income-tax Act and the Constitution, do not include undertakings of such Governments as being synonymous with the Governments themselves for the purposes of the present controversy. In view of the above, we are of the considered opinion that the case laws relied upon by the assessee do not aid its case and are clearly inapplicable on both facts and law. Furthermore, no decision from the juri ictional High Court or any binding authority was brought to our attention to conclusively demonstrate that State PSU employees are deemed to be State Government employees for the purposes of Section 10(10AA).

6 Thus, we find ourselves in agreement with the reasoning of the CIT(A). The assessee is eligible only for exemption under Section 10(10AA)(ii), i.e., up to Rs.3,00,000. 9. In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 24/06/2025 कृणवन्त सहाय (KRINWANT SAHAY) लेखा सदस्य / ACCOUNTANT MEMBER ललित कुमार (LALIET KUMAR) न्यायिक सदस्य /JUDICIAL MEMBER AG आदेश की प्रतिलिपि अग्रेषित /