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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. K. Saini
ORDER These two appeals by the assessees are directed against the separate orders each dated 23.12.2015 of ld. CIT(A), Hisar.
Common issues are involved in these appeals which were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. & 906/Del/2017 2 Dev Raj Sood & Anand Singh Bangarwa 3. In 2010-11, following grounds have been raised by the assessee: “1. That the notice issued U/s 148 and assessment order passed U/s 147/143(3) and the additions/ disallowances made are illegal, bad in law and without jurisdiction.
2. That the reason to believe was never framed by the AO and notice issued is without any tangible material, which is illegal, bad in law and without jurisdiction and without application of mind by the assessing officer.
3. That no proper statutory approval has been taken by the Assessing officer U/s 151 of the I.T. Act, 1961, as required. If any approval is taken then the approval is in very mechanical manner without application of mind by the statutory authority hence the proceedings initiated U/s 147/148 is illegal, bad in law and without jurisdiction.
4. That, the assessing officer/CIT(A) erred in completing the assessment proceedings U/s 147 r.w.s. 148, without supplying the reasons recorded to the assessee appellant, which is illegal, bad in law and without jurisdiction.
5. That the additions/ disallowances made are illegal, unjust, highly excessive and are not based on any material on record by the Assessing Officer. The total income of the Appellant has been wrongly and illegally computed by the Assessing Officer at Rs. 16,08,211/- as against income declared at Rs. 2,24,500/-.
6. The assessing officer erred in making the addition of Rs. 6,50,000.00 on account of the arrear of Gratuity received during the year on the retirement of the assessee appellant U/s 10(10)(iii) of the Act due to the revision in Civil Service & 906/Del/2017 3 Dev Raj Sood & Anand Singh Bangarwa Rules of State of Haryana. The CIT(A) has erred in law and on facts in upholding the action of the AO.
7. The assessing officer erred in making the addition of Rs. 2,51,031 on account of the arrear of leave encashment U/s 10(10AA)(iii) of the Act received during the year on the retirement of the assessee appellant due to the amendment in Civil Service Rules of State of Haryana. The CIT(A) has erred in law and on facts in upholding the action of the AO.
8. That, the CIT(A)/ AO failed to appreciate that the assessee is the employee of the Chaudhary Charan Singh Haryana Agriculture University, which is a State Governed University and instituted from Punjab Agri. Univ. Ludhiana in Feb. 1970 by Parliament Act.
9. That the CIT(A)/ AO erred in holding that the assessee appellant is not the state employee , which is totally wrong and perverse, by ignoring the fact that the Chaudhary Charan Singh Haryana Agriculture University is a State controlled and a State Govt Statutory Body and the gratuity received by the employees of the University in exempt as per provision of section 10(10)(i) of the Income Tax Act, 1961.
10. That the CIT(A) failed to appreciate that the additions made by the AO in the Assessment order are made merely on the basis of surmises and conjectures and contrary to facts and evidence on record and cannot be justified.
11. That interest U/s 234B of the Income Tax Act, 1961 has been wrongly and illegally charged and has been wrongly worked out. & 906/Del/2017 4 Dev Raj Sood & Anand Singh Bangarwa
12. The Appellant craves leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing.”
4. From the above grounds, it is gathered that the main grievance of the assessee relates to the addition made by the AO and sustained by the ld. CIT(A) on account of arrears of gratuity and leave encashment added u/s 10(10)(iii) and 10(10AA)(iii) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) respectively.
The facts of the case in brief are that the assessee was an employee of Chaudhary Charan Singh Haryana Agricultural University, Hisar and retired from service before 24.05.2010. Return for the previous year relevant to the assessment year under consideration declaring total income of Rs.6,97,180/- was filed on 07.07.2010, which was processed u/s 143(1) of the Act. During the course of assessment proceedings, the AO noticed that the assessee in the computation of income annexed with the return of income furnished details of arrear on gratuity amounting to Rs.10,00,000/- and arrear of leave encashment amounting to Rs.2,61,031/- and claimed the same amount as exempt u/s 10(10) of the Act. The assessee also filed the detailed note on payments of gratuity, leave encashment and LTC etc. on superannuation alongwith the return of income. The AO made the impugned addition by observing as under: “In view of the finding given in the foregoing paras, the employee of the CCS HAU cannot be termed as Govt. employee as neither they are under the control of Haryana & 906/Del/2017 5 Dev Raj Sood & Anand Singh Bangarwa Govt. nor their pay is debited to the consolidated funds of the state. Application of CSR Vol. II does not confer vice-versa status as Govt. employee under any rule/authority as claimed by the assessee. Hence, it is clear that university employees are covered u/s 10(10)(iii) of the Income-tax Act, 1961 because neither sec. 10(10)(ii) applies as they are not receiving gratuity under the payment of gratuity Act, 1972 nor from the gratuity funds mentioned u/s 10(10)(i) of the Act. In view of these facts, the exemption allowable to the assessee in respect of gratuity and leave encashment is only 3.5 lacs and Rs.3,00,000/- respectively which has already been claimed/allowed. Thus, the claim of the assessee for exemption of gratuity received in arrear of Rs.6,50,000/- and arrear of leave encashment of Rs.2,61,031/- is not in order and is added back to the income of the assessee.”
6. Being aggrieved the assessee carried the matter to the ld. CIT(A) who echoed the view taken by the AO that the assessee was not a holder of civil post under the State Government’ and hence not eligible for exemption u/s 10(10)(i) of the Act. Further, the assessee was held to be not covered u/s 10(10)(ii) of the Act as he did not receive any gratuity under the Payment of Gratuity Act, 1972. That is how, he held that the employees of the Chaudhary Charan Singh Haryana Agricultural University, Hisar were covered u/s 10(10)(iii) of the Act, for which there is a limit on the exempt gratuity amount, which stood exhausted by the assessee in earlier year. Since the assessee was employed before 24.5.2010, the Notification issued by the CBDT enhancing the limit of Rs.10 lac on gratuity u/s 10(10)(iii) of the Act was held to be not & 906/Del/2017 6 Dev Raj Sood & Anand Singh Bangarwa applicable. The assessee is aggrieved against the confirmation of denial of exemption made by the ld. CIT(A).
7. Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that these issues are squarely covered in favour of the assessee by the various decision of the ITAT. The copy of the order dated 18.10.2016 in for the assessment year 2010-11 in the case of Anoop Singh, Hisar Vs ITO, Ward-1, Hisar and in ITA No. 1307/Del/2016 for the assessment year 2010-11 in the case of Ram Kanwar Rana, Hisar Vs ITO, Ward-3, Hisar were furnished which are placed on record.
8. In his rival submissions the ld. DR although supported the orders of the authorities below but could not controvert the aforesaid contention of the ld. Counsel for the assessee.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that an identical issue relating to the gratuity, having similar facts has already been adjudicated by the ITAT Delhi Benches, ‘SMC- II’, New Delhi in for the assessment year 2011- 12 in the case of Dharam Jeet Dahiya Vs ITO, Ward-1, Hisar, wherein the relevant findings have been given in paras 7 & 8 of the order dated 26.10.2016 which read as under:
ITA Nos. 905 & 906/Del/2017 7 Dev Raj Sood & Anand Singh Bangarwa “7. It is noticed that an identical issue relating to the gratuity, having similar facts has already been adjudicated by the ITAT Delhi Benches ‘SMC-1’, New Delhi in for the assessment year 2010-11 in the case of Ram Kanwar Rana Vs ITO, Ward-3, Hisar, wherein the relevant findings have been given in paras 4 to 10 of the order dated 16.06.2016 which read 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)…..
(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 Notification u/s 10(10)(iii) issued on 24.5.2010 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 & 906/Del/2017 9 Dev Raj Sood & Anand Singh Bangarwa 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 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 assessee’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 & 906/Del/2017 10 Dev Raj Sood & Anand Singh Bangarwa 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, two independent agricultural universities in place of the hitherto Punjab Agricultural University, were established. Section 5 of 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, the Chief 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’.
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). I, therefore, hold that the assessee is entitled to exemption u/s ITA Nos. 905 & 906/Del/2017 11 Dev Raj Sood & Anand Singh Bangarwa 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.
9. 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 ld. 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 ld. 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.”
8. Since the facts of the assessee’s case are identical to the facts involved in the aforesaid referred to case of Sh. Ram Kanwar Rana. So, respectfully following the order dated 16.06.2016 in the case of Ram Kanwar Rana Vs ITO (supra), the impugned order is set aside and the AO is directed to allow the claim of the & 906/Del/2017 12 Dev Raj Sood & Anand Singh Bangarwa assessee on account of gratuity & leave encashment. Accordingly the additions made by the AO and sustained by the ld. CIT(A) are deleted.”
10. Since the facts of the assessee’s case are identical to the facts involved in the aforesaid referred to case of Sh. Dharam Jeet Dahiya. So, respectfully following the order dated 26.10.2016 (supra), the impugned order is set aside and the AO is directed to allow the claim of the assessee on account of gratuity & leave encashment. Accordingly the additions made by the AO and sustained by the ld. CIT(A) are deleted.”
The facts in the case of Anand Singh Bangarwa, Hisar Vs ITO, Ward-1, Hisar in are identical to the facts involved in the case of Sh. Dev Raj Sood Vs ITO, Ward-1, Hisar (supra), the only difference is in the figures involved. Therefore, the findings given therein in the former part of this order shall apply mutatis mutandis.
In the result, the appeals of the assessees are allowed. (Order Pronounced in the Court on 30/05/2017)