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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per: Anikesh Banerjee, JM: The instant appeal of the assessee was filed against the order of the ld. NFAC, Delhi, (in brevity ‘the CIT (A)’) order passed u/s 250 of the Income-tax Act, 1961 (in brevity the Act) for assessment year 2021-22. The impugned order was emanated from the order of the CPC, Bengaluru, (in brevity the ld. AO) order passed u/s 154/143(1) of the Act.
2. The assessee has taken the following grounds:
“1. That on the facts and in thecircumstancesof thecase and in law, the learnedCIT(A) erred in rejecting the full claim of leave encashment on his retirement from the Punjab Government Company in which Punjab Government has 100% equity.
That on the facts and in thecircumstancesof thecase and in law, the learnedC1T(A) has not passed a speaking order. So, his order is liable to be quashed.
3. That on the facts and in thecircumstancesof thecase and in law, the learnedCIT(A) should have followed the recent decision by the National Faceless Appeal Centre in the case of Kulwant Lai Sharma, Amritsar on this issue vide Appeal No. NFAC/2017-18/10086845 Dated 26.11.2022 for Assessment Year 2018-19 as a judicial discipline.
4. That on the facts and in the circumstances of the case and in law, the employercompany (Punjab State Power Corporation Ltd.) of the assessee is a State within the meaning of Article 12 of the Constitution of India, 1950. So, the whole of the amount received on account of leave encashment is exempt instead of Rs. 300000/- u/s 10(AA)(i) of the Act.
5. That on the facts and in the circumstances of the case and in law, the employercompany is a statutory corporation w.e.f. 16.04.2010. So, full claim of leave encashment u/s 10(AA)(i) of the Act should have been allowed.
6. That on the facts and in the circumstances of the case and in law, the learnedCIT(A) should have given the personal hearing via video conference so as to make oral submissions in the interest of justice and law as per new the provisions of Faceless Appeal Scheme 2021 notified on 28.12.2021.
That any other relief may kindly be granted to the assessee to whom he is foundentitled at the time of hearing of appeal.”
Brief fact of the case is that the assessee is an employee in Punjab Electricity Board, Patiala. After the superannuation, assessee received leave encashment amount of Rs.7,25,230/-. During filing of return the assessee claimed exemption amount to Rs.3 lac u/s 10(AA) (i) of the Act. The assessee further claimed that the claim of leave encashment u/s 10 was wrongly lower amount. Accordingly, the rectification was made and the full amount of leave encashment amount to Rs.7,25,230/- was claimed in revised way. The ld. AO allowed the claim of exemptionamount to Rs.3 lac and amount to Rs.4,25,230/- was rejected and added back with the total income of the assessee. Therefore, the assessee filed a rectification petition u/s 154 before the ld.AO. But it was rejected. Being aggrieved assessee filed an appeal before the ld. CIT(A) by challenging the order passed u/s 154/143(1) of the Act. But the assessee remained unsuccessful. Being aggrieved assessee filed an appeal before us.
The ld. AR for the assessee filed written submissions which are kept in the record. The ld. AR argued that that Punjab State Electricity Board is 100% subsidy by the Punjab State Government, and it will be treated as the Government entity. Accordingly, the exemption u/s 10 (AA) will be applicable to the assessee in full amountas the assessee is to be treated as the employee of the State Government. The ld. AR submitted that the entire leave encashment will be exempted which was duly received during superannuation.
The ld. DR vehemently argued and first invited our attention in appeal order page 3 to 4 which are reproduced as below:
“4. Decision;
In this case, the appellant filed an appeal against the order dated 14.03.2023 passed under section 154 of Income-Tax Act, 1961 by the DCIT/ACIT, CPC, Bangalore for the A.Y. 2021-22 with disallowance of Earned Leave encashment of Rs. 4,25,230/-. The submissions and arguments have been taken on record and in consideration.
4.1 The only issue involve in this appeal is about to disallowance of Rs. 4,25,230/- on account of Earned Leave encashment received by the appellant on retirement. During the appellate proceedings, the appellant has claimed that the Leave Encashment amount of Rs. 4,25,230/- was the amount received at the time of retirement from service, which is fully exempted u/s 10(10AA)(i) of the Income Tax Act, 1961.
4.2 Incomes which do not form part of total income as per the provisions of section 10 (10AA) of the income tax act. The relevant portion of section 10 (10AA) are as under:-
(10AA) (i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement [whether] on superannuation or otherwise;
(ii) any payment of the nature referred to in sub- clause (i) received by. an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement [whether] on superannuation or otherwise as does not exceed [ten] months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement [whether] on superannuation or otherwise, "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 such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income- tax under this sub- clause shall not exceed the limit so specified]
Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income- tax under this sub- clause 1 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:
Explanation. - For the purposes of sub- clause (ii),- 3 ] the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired;
4.4 I considering the above facts and circumstances of the case and conditions of the aforesaid section 10 (10AA)(i) of the income tax act, 1961 it is clear that, if Leave salary encashment is received by any employee while in employment or received at the time of termination, then it is fully taxable in the hands of employee whereas, if leave encashment is received in case of retirement or superannuation or resignation, in case of Central government or State government employee (excluding employees of a local authority or statutory corporation) then leave salary encashment is fully exempt.
4.5 In this case, the appellant has clearly mentionedthat he was an employee of Punjab State Power corporation Ltd. and has received leave encashment of Rs.7,25,230/- during the his retirement from Punjab State Power corporation Ltd. Punjab State Power corporation Ltd. is a PSU, hence, section 10(10AA)(ii) is applicable in this case and as per provision this section 10(10AA)(ii) of the Income Tax Act 3 lakh can be exempted. Therefore, the disallowance of Rs.4,25,230/- made by the AO on account of leave encashment is correct and the same is upheld. Thus, the appeal of the appellant is dismissed.”
5.1 The ld. DR further relied on the order of the High Court of Delhi in the case of Kamal Kumar Kalia vs. Union of India (2019) 111 taxmann.com 409 (Delhi)
“7. 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:
"17. 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.”
We heard the rival submission and considered the documents available in the record. In argument, the ld. AR try to establish that the assessee is an employee of State Government. But revenue has treated the assessee has employee of PSU not the government employee. Accordingly, the exemption allowed Rs. 3 lacs as per rule provided in the Income Tax Rule 1962. We respectfully relied on the order of the Kamal Kumar Kalia (supra). In our considered view, no intervention is required in the order of the ld. CIT(A) and it is well described the criteria for claiming full exemption u/s 10(AA) of the Act.
Accordingly, the appeal of the assessee is dismissed. In the result, the appeal of the assessee bearing 7. dismissed. Order pronounced in the open court on 21.08.2023