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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-1’, NEW DELHI
Before: Sh. N. K. Saini
ITA Nos. 1574 to 1577, 1580 & 1581/Del/2016 2 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan : Asstt. Year : 2010-11 Sh. Kapoor Singh, Vs Income Tax Officer, H.No. 191, Sector-9 & 11, Ward-2, Hisar Hissar (APPELLANT) (RESPONDENT) PAN No. ADZPS6875P ITA No. 1581/Del/2016 : Asstt. Year : 2010-11 Sh. Ram Krishan Gupta, Vs Income Tax Officer, H.No. 502, Sector-9-11, Ward-3, Hisar Hissar (APPELLANT) (RESPONDENT) PAN No. AIXPS5980N Assessee by : Sh. Ved Jain & Pranjal Srivastava, Advs. Revenue by : Sh. V. R. Sonbhadra, Sr. DR Date of Hearing : 25.05.2016 Date of Pronouncement : 27.05.2016 ORDER These appeal by different assessees having common issues involved are directed against the separate orders of ld. CIT(A), Hisar each dated 29.01.2016.
Since the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.
ITA Nos. 1574 to 1577, 1580 & 1581/Del/2016 3 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan 3. At the first instance, I will take the case of Sh. B. S. Boora in ITA No. 1575/Del/2016. Following grounds have been raised in this appeal: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the appellant that the AO was not justified in reopening the assessment under section 147 read with Section 148 of the Act.
3. On the facts and circumstances of the case, the reassessment proceedings initiated by the learned A.O. are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are based merely on account of change of opinion.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the order of the AO, ignoring the contention of the assessee that no speaking order has been passed by the AO for disposing objections raised by the assessee against the reasons recorded by him in view of Supreme Court landmark judgment in the case of GKN Driveshafts (India) Ltd. 259 ITR 79 (SC).
5. (i)0n the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the order of the AO, despite the fact that to 1577, 1580 & 1581/Del/2016 4 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan the initiation of proceedings under section 147, read with section 148 are bad as the conditions and procedure prescribed under the statute have not been complied with. (ii) On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the order of the AO rejecting the contention of the assessee that the reason recorded for reopening of the assessment are bad in law and as such the reopening of the assessment is illegal and liable to be quashed so.
6. (i) On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.4,78,150/- made by AO on account of excess claim of gratuity. (ii) That the above addition has been confirmed rejecting the explanation and evidences brought on record by the assessee.
7. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the addition despite the fact that assessee being an employee of Local authority is covered under section 10(10)(i) of the Income Tax Act.
8. The appellant craves leave to add, amend or alter any of the grounds of appeal.”
4. At the very first instance, the ld. Counsel for the assessee argued Ground Nos. 6 & 7 which relates to the confirmation of addition made by the AO on account of excess claim of gratuity. to 1577, 1580 & 1581/Del/2016 5 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan
The facts related to this issue in brief are that the assessee was initially an employee of Haryana State Electricity Board, which later on, was bifurcated into 4 utilities including Dakshin Haryana Bijli Vitran Nigam Ltd. (DBVNL), whose 100% share capital was owned by the State Government. The assessee retired before 24.05.2010 and received additional amount of gratuity of Rs.8,28,150/-, the TDS was deducted on the said amount. The assessee was getting his salary as per State Rule and claimed deduction of full amount of gratuity. The assessee had made a claim that he was an employee of a local authority and therefore, covered by the provisions of Section 10(10)(i) of the Income Tax Act, 1961 (hereinafter referred to as the Act). However, the AO was of the view that the claim for exemption in respect of gratuity received by the assessee was covered u/s 10(10)(iii) of the Act and as per provisions of this Section, the gratuity was exempted upto the limit of 3,50,000/- for the employees who retired on or before 24.05.2010, thereafter the limit was enhanced to Rs.10,00,000/-. The AO accordingly made the addition of Rs.4,78,150/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who confirmed the action of the AO by observing in para 5.6 and 5.7 of the impugned order as under:
“5.6 There are following facts related to DHBVNL which are discussed below for the clarity on the issue to 1577, 1580 & 1581/Del/2016 6 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan under consideration. These facts clearly indicate that the employees of DHBVNL are neither government employees nor they are not holders of civil posts under the state a) DHBVNL is governed by the provisions of Electricity Act, 2003. The provisions of this Act prevail in preparing the accounts wherever there are inconsistency with the Companies Act, 1956. DHBVNL prepares its financial statement in accordance with the financial reporting framework prescribed under the Companies Act, 1956 which comprises of balance sheet, statement of profit and loss, cash flow statement and summary of significant accounting policies. Its accounts are audited as per the provisions of companies Act, 1956. It is obvious from these facts that DHBVNL is a company and follows the accounting principles as applicable to a company. b) HSEB was constituted under the Electricity Supply Act, 1948. Electricity Boards were constituted as semi autonomous bodies to administer the Grid System within the territorial limits of the provinces. Such Boards were in the nature of trading corporation within the meaning of entry 33 of the federal legislative list (as mentioned in the Electricity Supply Act, 1948). Therefore, it is obvious that electricity boards had its own administration and were not totally under the control of Government. c) DHBVNL is a company which has issued and allotted its substantial shares to the government of Haryana. Other shares are held by M/s. Haryana Vidyut Prasaran Nigam Ltd. The share holding of the to 1577, 1580 & 1581/Del/2016 7 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan Government in the company does not make the employees of the company as Government employees. d) The major portion of revenue in the case of DHBVNL is earning from sale of power. It receives subsidy as well as grant from the government. The major expense of DHBVNL includes cost of purchase of power, interest on loans, depreciation and employees benefit expenses etc. These employees benefit expenses include salaries, LTC, pension, leave and gratuity contribution. Hence salaries, pension, gratuity etc are paid to the employees of DHBVNL from its own corpus of funds and it is not from the consolidated funds of the State Government. The retirement benefits are being provided on actuarial valuation basis and as per the certificate of the Actuary in accordance with the provision of accounting standard 15. Government employees are paid salaries, pension and other benefits from the consolidated fund of India and so is not the case of employees of DHBVNL. e) Appointment to the board of Directors of DHBVNL is as per the provisions of section 31 and other provisions of Companies Act, 1956 which includes government officers as well as employees of DHBVNL and similar other corporations. f) Selection of the employees of DHBVNL is being made by Haryana Staff Selection Commission. HSSC is doing selection for not only for Government posts but it is doing selection and recruitment for various posts of Boards/ Corporation/PSUs. The service conditions of the employees of DHBVNL are governed by their own rules and regulations. The functions of to 1577, 1580 & 1581/Del/2016 8 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan the corporations are also governed by regulatory authority on commercial terms. g) DHBVNL has only adopted the Haryana government notification i.e. Haryana Civil Services ( Revised Pension ) Part 1 & Part 2 rules for Pension and pension related matters but it does not mean that by following the rules of State Government, the employees of DHBVNL becomes the Government employees. In light of the above facts, DHBVNL cannot be considered as local authority and its employees cannot be considered as holders of civil posts under a state. Therefore, they are not eligible for exemption u/s. 10(10)(i) of Income Tax Act. 5.7 Considering the above discussion, the employees of DHBVNL are held to be not eligible for' exemption u/s. 10(10)(i) of Income Tax Act. They are not covered by Section 10(10)(ii) as they are not receiving gratuity under the payment of gratuity Act, 1972. Hence, employees of the DHBVNL are covered U/s. 10(10)(iii) of I.T. Act for which there is limit on the gratuity amount allowable. CBDT has approved the notification of Rs. 10 lakhs on the maximum amount of gratuity u/s. 10(10)(iii) of Income Tax Act vide its notification no 43/2010 dated 11.06.2010. This notification is applicable to employees who retire on or after 24.05.2010. Before 24.05.2010 the exemption u/s. 10(10)(ii) was restricted to Rs. 3,50,000/-. Therefore, I hold that the appellant who retired before 24.05.2010 is eligible for exemption on gratuity to the extent of Rs. 3,50,000/- only. The addition made by AO of Rs. 4,78,150/- on account of excess claim of gratuity is upheld. The appeal on this ground is dismissed.”
ITA Nos. 1574 to 1577, 1580 & 1581/Del/2016 9 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan 7. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee was an employee of Haryana State Government and was working in Haryana State Electricity Board, which later on, was bifurcated into 2 utilities namely, Haryana Vidyut Prasaran Nigam Ltd. (HVPNL) and Haryana Electricity Regulatory Commission (HERC). The HVPNL was further reorganized on July 1, 1999 by two more corporations, namely Uttar Haryana Bijli Vitran Nigam Ltd. (UHBVNL) and Dakshin Haryana Bijli Vitran Nigam Ltd. (DHBVNL) with the responsibility of distribution and retail supply of power within their jurisdiction. The assessee was an employee of the State Government in DHBVNL who adopted the Haryana Government notification dated 17.04.2009 i.e. Haryana Civil Service (Revised Pension) Part-I, Rules 2009 and Haryana Civil Service (Revised Pension) Part-2, Rules, 2009. It was further submitted that as the assessee was an employee of the State Government, therefore, exemption was available u/s 10(10)(i) of the Act and the ld. CIT(A) was not justified in confirming the action of the AO who restricted the exemption on account of gratuity at Rs.3,50,000/-. It was further submitted that when the assessee alongwith another employee was transferred the Haryana to 1577, 1580 & 1581/Del/2016 10 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan Government Power Department issued a notification dated 14.08.1998 and Clause 11 of the said notification provided that if the pay, DA and allowances, pension, death-cum-retirement benefit and gratuity etc. shall not be less than those applicable before the date of transfer (copy of the said notification was furnished which is placed on record). It was accordingly submitted that the assessee was eligible for exemption of the whole of the amount received on account of gratuity u/s 10(10)(i) of the Act. It was also stated that the department itself has allowed the exemption to another employees while passing the assessment order u/s 147 r.w.s. 143(3) of the Act (copy of the one of such order dated 18.05.2012 in the case of Jai Dayal Singh of Faridabad, was furnished which is placed on record).
In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the assessee was not an employee of the Haryana State Government rather it was an employee of Dakshin Haryana Bijli Vitran Nigam Ltd. which was a corporation. It was also submitted that the assessee was eligible for exemption u/s 10(10)(iii) of the Act and wrongly claimed the exemption u/s 10(10)(i) of the Act. Therefore, the ld. CIT(A) was fully justified in confirming the action of the AO. to 1577, 1580 & 1581/Del/2016 11 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan 9. 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, ITA Nos. 1574 to 1577, 1580 & 1581/Del/2016 12 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan 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 to 1577, 1580 & 1581/Del/2016 13 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan 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 14.08.1998 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 ITA Nos. 1574 to 1577, 1580 & 1581/Del/2016 14 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan 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 18.05.2012 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 ld. Counsel of the assessee which is placed on record. Therefore, when the department itself had allowed the exemption on account of gratuity to the employees of the same category to which the assessee belongs then there to 1577, 1580 & 1581/Del/2016 15 Jagdeep, B.S. Boora, K.S. Pannu, Bhupinder, Kapoor, RamKrishan was no reason to deny the benefit to the assessee, in view of the principle of the consistency. I, therefore, considering the totality of the facts delete the addition made by the AO and sustained by the ld. CIT(A).
The facts of the another cases in 1576, 1577, 1580 & 1581/Del/2016 are similar to the facts involved in ITA No. 1575/Del/2016 (supra). Therefore, the findings given in former part of this order shall apply mutatis mutandis to all these appeals.
In the result, the appeals of the assessees are allowed. (Order Pronounced in the Court on 27/05/2016)