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Facts
The assessee, Anil Kumar Pruthi, received Rs.13,81,050/- as leave encashment upon retirement for AY 2012-13. Initially, he claimed an exemption of Rs.3,00,000/-, including the balance in his taxable income. Later, realizing he might be eligible for full exemption under section 10(10AA)(i) as a 'civil post holder under a State', he filed a rectification application u/s 154 which was rejected by the AO and subsequently dismissed by the CIT(A).
Held
The Tribunal held that the assessee was an employee holding a civil post under a 'State' (CCSHAU, Hissar, being a State University). Therefore, he was entitled to full exemption for leave encashment under section 10(10AA)(i), following precedents for gratuity under section 10(10)(i). The Tribunal found the non-allowance of this exemption to be a legal mistake apparent from the record, allowing rectification under section 154, and set aside the orders of lower authorities.
Key Issues
Whether the assessee was entitled to full exemption for leave encashment under Section 10(10AA)(i) as an employee holding a civil post under a State; and whether the disallowance of such exemption constituted a mistake apparent from record, rectifiable under Section 154 of the Act.
Sections Cited
Section 143(1), Section 154, Section 133(5), Section 10(10), Section 10(10)(i), Section 10(10)(iii), Section 10(10AA), Section 10(10AA)(i), Article 12 of the Constitution of India
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Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
Assessee by Shri Lalit Mohan, CA and Ms. Monika Agarwal, Adv. Department by Shri Rajesh Mahajan, Sr. DR Date of Hearing 19/12/2024 Date of Pronouncement 19/12/2024 O R D E R PER BENCH: This appeal by Assessee is arising out of the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in appeal No. NFAC/2012-13/10027112 vide order dated 04/02/2023. The return of income was processed u/s 143(1) of the Act (herein after referred to as ‘the Act’) by CPC, Bengaluru. Subsequently, the assessee filed rectification application u/s 154 of the Act dated 13/11/2016, which was
Brief facts of the case are that the assessee filed his return of income for the relevant Asst. Year 2012-13 declaring total income at Rs.23,50,130/- on 25/02/2014. The assessee claimed that he has received a sum of Rs.13,81,050/- as leave encashment. The assessee under bona-fide belief claimed that exemption for leave encashment is at Rs.3,00,000/-, hence, balance amount of Rs.10,81,050/- was included in the return of income. The return of income at Rs.23,50,130/- was processed u/s 143(1) of the Act. The assessee later on noticed that under bona-fide belief, he has included the sum of Rs.10,81,050/- being leave encashment received at the time of retirement in his total income under wrong assumption. Hence, he moved rectification application dated 13/11/2017 before the ITO, Ward-1, Hissar. According to AO, the assessee can revise its return of income within the prescribed time limit u/s 133(5) of the Act but in this case, no such revised return has been filed by the assessee and, hence, application claiming rectification of mistake u/s 154 of the Act claiming exemption for whole of leave encashment amount of Rs.13,81,050/- was rejected. Aggrieved, assessee preferred appeal before CIT(A).
The CIT(A), after discussing theoretically many issues, dismissed the appeal. Aggrieved, the assessee is in appeal before the Tribunal.
Anil Kumar Pruthi vs. ITO 3. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the records including rectification order passed u/s 154 of the Act as well as order of CIT(A) and Paper Book of consisting 88 pages also case law PB of 39 pages. We noted that the assessee is a retired employee of CCSHAU, Hissar. During the year under consideration, he had received leave encashment for an amount of Rs.13,81,050/-. On this issue, amount of leave encashment TDS was deducted after allowing exemption of Rs.3,00,000/-. As per the TDS certificate, the exemption allowed by their employer at Rs.3,00,000/-, he included balance leave encashment of Rs.10,81,050/- in the total income of the assessee. Ld. Counsel for the assessee now before us filed copies of orders claiming deduction u/s 10(10AA)(i) that the entire leave encashment of Rs.13,81,050/- and the relevant orders passed reads as follows:
(i) ITAT, SMC-I, Delhi in the case of Anant Kumar Gupta Vs ITO-ITA No.1361/Del/2016-A.Y.2010-11, dated 10.08.2016 (ii) ITAT, SMC-I, Delhi in the case of Ranjit Singh Grewal Vs ACIT -ITA No. 1521/Del/2016-A.Y.2010-11, dated 21.07.2016 (iii) ITAT, SMC I, Delhi in the case of Ram Kanwar Rana Vs ITO-ITA No. 1307/Del/2016-A.Y.2010-11, dated 16.06.2016 (iv) ITAT, SMC-I, Delhi in the case of Kushi Ram Yadav Vs ACIT -ITA No.1520/Del/2016-Α.Υ.2011-12, dated 20.07.2016 (v) Order of CIT (A) Hissar in the case of Dr. Suraj Pal Singh Vs ITO - A.Y.2010-11-Apeeal No.204/HSR/2016-17-dated 23.03.2018 (vi) Order of CIT (A) Hissar in the case of Beena Kumari Vs ITO -A.Y.2014- 15-Appeal Nos.77 to 78, 90,96, 104 &105/HSR/2018-19 dated 22.02.2019 Anil Kumar Pruthi vs. ITO (vii) Order of CIT (A) Hissar in the case of Sube Singh Siwach Vs ITO - A.Y.2016-17-Appeal Nos. 101/HSR/2018-19 dated 29.03.2019. (viii) Order of CIT (A) Hissar in the case of Satish Kumar Khirbat Vs ITO - Α.Υ.2015-16 & 2014-15- Apeal No. 28 and 46/HSR/2019 dated 22.07.2020.” We noted that this issue has been deliberated by Delhi Tribunal in the case of Ram Kanwar Rana vs. ITO, vide order dated 16/06/2016, wherein Tribunal has considered in great deal from para 4 to 10 as under:-
“4. I have heard the rival submissions and perused the relevant material on record. The controversy in this appeal can be viewed separately in respect of receipt of gratuity amount and leave encashment. In so far as the addition on account of gratuity received by the assessee amounting to Rs.6,50,000/- is concerned, it is found that the case of the assessee is that this amount falls u/s 10(10)(i) of the Act. On the contrary, the Revenue has treated it as a case falling u/s 10(10)(iii).In order to appreciate the rival contentions in right perspective, it will be apposite to set out the relevant parts of section 10, 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)…..
Anil Kumar Pruthi vs. ITO (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 dependants 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 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.' 5. A careful perusal of the above provision indicates that if a case falls under clause (i) of section 10(10), the entire amount of death-cum- retirement gratuity becomes exempt. Au contraire, if a case falls under sub-clause (iii) of section 10(10), then, the exemption is limited to the amount as the Central Government may notify in official gazette. It is an accepted position that the Notification24.5.2010 raised the ceiling of exemption from Rs.3,50,000/- to Rs.10 lac. Since the original amount was received by the assessee during the currency of an earlier year on his retirement, the exemption limit prevalent at that time at Rs.3,50,000/- was used by the assessee. It is nobody's case that the extended limit of exemption can be applied to the assessee, because of his retirement which took place much before the cut-off date. To be more specific, the question is as to whether the extant case falls under clause (i) or clause (iii) of section 10(10). If a case does not fall under clause (i), it will automatically go to clause (iii). On a specific query from the Bench, the ld. AR submitted that the case of the assessee should be considered under sub-clause (i) of section 10(10) as a 'holder of civil post under a State.' In order to construe any person as a holder of civil post under a State, two requirements must Anil Kumar Pruthi vs. ITO be fulfilled viz., first that the employee should be holding a civil post and, second, such civil post must be under a State.
The first condition is that the employee should be holding a civil post. The assessee was appointed as a Research Assistant in December,1971, who eventually rose to the post of Head of Department, Plant Breeding Department at the time of his retirement. Page 32 of the paper book is copy of the assessee's Pension Payment Order, which depicts the assessee's designation as Sr. Scientist, Department of Plant Breeding. On the 'Pensioner's Portion' of this document, there is a reference to Rule 10, 11 and note thereunder of Civil Services Rules (CSR) V.II. As the assessce's pension has been computed under Civil Services Rule, it goes to show that the assessee was holding a 'civil post' at the time of his retirement. No other contrary material has been placed on record by the ld. DR to show that the assessee was holding a post other than civil post.
The second requirement is that such civil post must be under a State. Page 20 of the paper book is a copy of Haryana and Punjab Agricultural University Act, 1970, which was passed by the Parliament and received the assent of the President on 2nd April, 1970. Under this Act of Parliament, and received the assent of the President on 2nd April, 1970. Under this Act of Parliament, two independent agricultural universities in place of the hitherto Punjab Agricultural University, were established. Section 5of this Act sets out the name of CCSU as the agricultural university to function within the territories of State of Haryana. This proves that the CCSU was established by an Act of Parliament. Page 29 of the paper book is a document which shows that the assessee is a State University covered under University Grants Commission (UGC). It is undisputed that the entire funding of the CCSU is done by the State Government. Page 25 is a copy of Notification issued by the Haryana Government increasing the maximum limit of death-cum-retirement gratuity at Rs.10 lac, under which the assessee has received the arrears of retirement gratuity under this scheme only. The above facts amply demonstrate that CCSU is covered under the expression 'State.' This is further corroborated from Article 12 of the Constitution of India which states that: 'In this part, unless the context otherwise requires, 'the State' includes the Government and Parliament of India and the Government and the legislature of each of the States either local or other authorities within the territory of India or under the control of the Government of India. The expression 'other authorities' has been interpreted in Umesh v. Singh A 1967 Pat. 3(9) F.B. as including: 'a Board, a University, theChief Justice of a High Court, having the power to issue rules, bylaws or regulations having the force of law. The above discussion manifests that CCSU is covered within the meaning of 'State'.
Anil Kumar Pruthi vs. ITO 8. As the assessee is found to be an employee holding a civil post under a State, in my considered opinion, the provisions of section 10(10)(i) are fully attracted in this case entitling him to exemption for the amount under consideration. Once a case falls under clause (i) of section 10(10), the same cannot be brought within the purview of clause (iii) of section 10(10). 1, therefore, hold that the assessee is entitled to exemption u/s 10(10)(i) in respect of gratuity amount received in total upto Rs. 10 lac, which covers a sum of Rs.6,50,000/- received during the year. Overturning the impugned order on this score, I allow exemption u/s 10(10)(i) to the arrears of gratuity received by the assessee at Rs.6,50,000/- during the instant year.
As regards the second amount of Rs.1,88,720/- received by the assessee during the year towards the arrears of leave encashment, it is noticed that the assessee claimed exemption u/s 10(10AA)(i) which was refused by the AO by holding the case to be covered under sub-clause (ii) of section 10(10AA). The Id. CIT(A) affirmed the view taken by the AO on this point, thereby denying the benefit of exemption in respect of the arrears of leave encashment received during the year.
I have heard the rival submissions and perused the relevant material on record. The Id. AR submitted that there is not much difference in the language of section 10(10)(i) and 10(10AA)(i) and the view taken in respect of arrears of gratuity u/s 10(10) should be followed for arrears of leave encashment u/s 10(10AA). The ld. DR supported this proposition. As both the sides are consensus ad idem on the position that the view taken in the context of section 10(10) as applicable to leave gratuity be followed here in the context of section 10(10AA) in the context of leave encashment, I am desisting from independently examining the later provision. In view of the fact that I have held the assessee to be entitled to exemption u/s 10(10)(i) in respect of arrears of gratuity, following the same, I extend the benefit of exemption u/s 10(10AA) (i) in respect of arrears of leave encashment. This ground is allowed.
We noted that this issue is no more res-integra and facts are exactly identical in the present case except this is subject matter of rectification u/s 154 of the Act. We noted that even on merits, the AO or CIT(A) has not disputed the fact, but in case of rectification, Anil Kumar Pruthi vs. ITO legally assessee is entitled to make a claim and this is purely legal mistake apparent from record as the assessee has included this leave encashment in the return of income which was subsequently claimed as exempt by this rectification application. The AO has to compute the correct income and not what is not due to Revenue. Hence, we are of the view that the AO as well as CIT(A) erred in not allowing the relief for leave encashment by adjudicating rectification u/s 154 of the Act. We allow this issue and, accordingly, set aside the orders of lower authorities.
In the result, the appeal of the assessee is allowed. Order pronounced on conclusion of hearing on 19th December, 2024.