RAM DHAN BHUTANI,HISAR vs. ITO, HISAR

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “SMC-1”, NEW DELHI BEFORE N.K. SAINI, ACCOUNTANT MEMBER ITA No.5379/Del/2016 Assessment Year: 2010-11 Ram Dhan Bhutani, ITO, H. No. 1534, Urban Estate-II, Ward-3, Aayakar Bhawan, Vs. Hisar Sector-14, Hisar PAN-ABQPB8764M (Appellant) (Respondent)

Appellant by : Sh. V. Raja Kumar Respondent by : Sh. Ramanjaneyulu, Sr. DR Date of hearing : 31-11-2016 Date of pronouncement 23-02-2017 O R D E R PER N.K. SAINI, A.M. : This is an appeal by the assessee against the order dated 23.12.2015 of CIT (A), Hisar. Following grounds have been raised in this appeal:- 1. Initiating proceedings u/s 147 of the Income Tax Act, 1961 and completing assessment u/s 147/143(3) of the Act at an income of Rs. 11, 36,480/- against the returned income in a sum of Rs. 2, 91,710/-. 2. Initiating proceedings u/s 147 of the Act on the basis of change of opinion without there being any reason to believe that income has escaped assessment. 3. Passing order u/s 147 of the Act without disposing of the objection to reopening by speaking order. 4. Making an addition of Rs. 6,50,000/- on account of arrear of gratuity received from the State Government after retirement by restricting the exemption claimed u/s 10(10)(i) of the Act to Rs. 3,50,000/- 5. Making an addition of Rs. 1,94,770/- on account of arrear of leave encashment received from the State Government after retirement by restricting the exemption claimed u/s 10(10AA)(i) of the Act.

2 ITA No.5973 /Del/2016 6. That Commissioner of Income Tax (Appeals), Hisar has not issued notice before hearing of appeal, which is illegal. Hence order of the Commissioner of Income Tax (Appeals) and order of the Assessing Officer, must be quashed. 2. Ground nos. 1 to 3 were not pressed so these grounds are dismissed as not pressed.

“The appellate Order from the Commissioner of Income Tax (Appeals), Hisar was received on 11-01-2016. The appeal in this case was required to be filed by 10- 03-2016. The same is being done today. There is delay of 207 days in so doing. The reason for the delay is that due to the serious illness i.e. Cancer to my wife Sudesh Kumari and I was disturbed and busy in treatment of my wife. Hence, matter could not be attended. The second reason for the delay is that the impugned order of fhe Ld. CIT(A) was passed even without serving the mandatory notice for hearing on me. Since that was not done I had advisedly made an application to the Ld. CIT(A) on 26.02.2016 in which I had stated this fact and had sought the recall of the order by him for de novo hearing and disposal. The Ld. CIT(A) took no action in that application. Once again I made the same prayer to the Ld. CIT(A) in terms of a reminder dated 23-07-2016. To that also there was no reply by the Ld. CIT(A). I was, therefore, advised on contacting a professional at Delhi who is conversant with such matters that I ought to appeal to the Hon'ble ITAT on the same. Being a simple and a salaried person I have never had any occasion either to appeal or to file further appeals before any higher forum all my life. I was unaware of the procedure for so doing. In order to do the needful I had sought professional assistance. It is in so doing all that time was spent and thus 200 days’ delay occurred in toto in filing this appeal. Since, this delay in filing the appeal is due to a reasonable and plausible cause, the same may please be condoned and the appeal be taken on record for consideration and adjudication.”

3 ITA No.5973 /Del/2016 The learned DR in his rival submissions opposed the delay of condonation by stating that there is no valid reason for delay in filing the appeal. 5. I have considered the submissions of both the parties and gone through the material available on the record. In the present case, the main contention of the assessee for delay in filing the appeal was that his wife was suffering from cancer and he was busy in her treatment. The said contention was not rebutted. I, therefore, considering the above fact condone the delay and the appeal is admitted. 6. The main grievance of the assessee relates to the sustenance of addition on account of arrears of gratuity and the arrears of leave encashment received from the State Government after retirement. 7. The facts of the case in brief are that the assessee was an employee of the Chaudhary Charan Singh Haryana Agricultural University, Hisar and retired on 31.12.2006. After retirement, the assessee received arrears of gratuity amounting to Rs. 6,50,000/- and claimed the same as exempt u/s 10(10) of the Income Tax Act, 1961 (hereinafter referred to as the Act). The assessee also received a sum of Rs. 1,94,770/- on account of arrears of leave encashment which was claimed as exempt u/s 10(10AA)(i) of the Act. 8. The AO did not allow the claim of the assessee 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 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

4 ITA No.5973 /Del/2016 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 Rs. 3,50,000/- 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. 1,94,770/- is not in order and is added back to the income of the assessee”.

5 ITA No.5973 /Del/2016 the relevant findings have been given in paras 7 & 8 of the order dated 26.10.2016 which read as under: “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 ITA No. 1307/Del/2016 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

6 ITA No.5973 /Del/2016 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 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. 6. 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

7 ITA No.5973 /Del/2016 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. 7. 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, 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’. 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

8 ITA No.5973 /Del/2016 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 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. 10. 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 assessee on account of gratuity & leave encashment. Accordingly the additions made by the AO and sustained by the ld. CIT(A) are deleted.”

9 ITA No.5973 /Del/2016 12. 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.”

Sd/- (N.K. SAINI) ACCOUNTANT MEMBER Dated : 23.02.2017 SH Copy of order to: 1) The Appellant; 2) The Respondent; 3) The CIT; 4) The CIT(A)-, New Delhi; 5) The DR, I.T.A.T., New Delhi; By Order //True Copy// Assistant Registrar ITAT, New Delhi