COL. (RETD.) CHANDRA KUMAR SHUKLA v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2007-LL-0504-3]

Citation 2007-LL-0504-3
Appellant Name COL. (RETD.) CHANDRA KUMAR SHUKLA
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 04/05/2007
Assessment Year 2004-05
Judgment View Judgment
Keyword Tags government employee • government servant • state government • leave encashment • monetary limit • earned leave • leave salary • time-limit
Bot Summary: Since the assessee had already availed an exemption in respect of leave encashment of 215 days in his service with the army the AO was of the view that the total period of leave encashment would be 395 days. The AO therefore proposed to restrict the claim for exemption under s. 10(10AA)(ii) for leave encashment in respect of 85 days and disallow the claim for exemption in respect of leave encashment for 95 days. The assessee submitted that while allowing exemption claimed under s. 10(10AA)(ii) of the Act the number of days for which leave encashment had been obtained while in army service should not be added and that the period of 300 days has to be computed with reference to the private employment with Microwave Communications Ltd. under s. 10(10AA)(ii) of the Act. Incomes not included in total income 10: In computing the total income of a Previous Year of any person, any income falling within any one of the clauses shall not be included: 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 the retirement on superannuation or otherwise; any payment of the nature referred to in sub-cl. Of section 10(10AA) is to ensure that a private emplo3 ee does not avail leave encashment of more than Rs. 3,00,000 by adopting the device of resignation from service under one employer and then joining another employer for the purpose of leave encashment. A private employee is entitled to encash up to ten months of his leave salary for the purpose of exemption from income-tax subject to a ceiling monetary limit of Rs. 3,00,000 notwithstanding the fact that such an employee might have encashed any period of his leave salary for the purpose of exemption from income-tax as a Government employee under s. 10(10AA)(i). While introducing the exemption the legislature categorized Government and Non- Government employees and in respect of the conditions to be present in a scheme of leave encashment had thought it fit to apply the parameters that were prevailing in the Government schemes as a condition even in respect of leave encashment scheme of employees other than Central and State Government.


This is appeal by assessee against order dt. 26th July, 2006 of CIT(A), Ghaziabad relating to asst. yr. 2004-05. assessee is individual. He filed his return of income for asst. yr. 2004-05 declaring total income of Rs. 5,62,280. assessee has claimed exemption of sum of Rs. 2,15,449 under s. 10(10AA)(ii) of Act. assessee had taken up premature retirement in army on 14th June, 1994. O n retirement from army, he had received sum of Rs. 81,378 being leave encashment of 215 days in asst. yr. 1995-96 assessee had claimed Rs. 81,370 as exemption under s. 10(10AA)(i) of Act. After his retirement from army assessee worked with M/s Microwave Communications Ltd. and resigned from this company in January, 2004. At time of his resignation from Microwave Communications Ltd. He received total sum of Rs. 6,89,448. Out of this he claimed that sum of Rs. 2,15,449 as exempt under s. 10(10AA)(ii) of Act. sum received during P.Y. represents leave encashment in respect of 180 days. AO was of view that under provisions of s. 10(10AA) of Act period of leave encashment cannot exceed more than 300 days as laid down in second proviso to s. 10(10AA)(ii) of Act. Since assessee had already availed exemption in respect of leave encashment of 215 days in his service with army AO was of view that total period of leave encashment would be 395 days (180 days + 215 days). AO therefore proposed to restrict claim for exemption under s. 10(10AA)(ii) for leave encashment in respect of 85 days and disallow claim for exemption in respect of leave encashment for 95 days. assessee submitted that while allowing exemption claimed under s. 10(10AA)(ii) of Act number of days for which leave encashment had been obtained while in army service should not be added and that period of 300 days has to be computed with reference to private employment with Microwave Communications Ltd. under s. 10(10AA)(ii) of Act. It is only for considering monetary limit of Rs. 3 lakhs as mentioned in Second proviso to s . 10(10AA)(ii) of Act that amount received as leave encashment from employment in army has to be considered and not period spent in employment of army i.e., with Government. AO however refused to accept plea of assessee. For following reasons AO disallowed claim for exemption to extent of Rs. 1,13,707. "The submissions made by assessee are not correct because it has been clarified in proviso that where any such payment or payments was or were received in any one or more earlier previous years also and whole of any part of amount of such payment or payments was or were not included in total income of assessee of such previous year or previous years, amount exempt from income-tax under this sub-clause shall not exceed limit s o specified as reduced by amount or as case may be aggregate amount not included in total income of any PY or PYs. Thus, assessee is not entitled to claim exemption more than period as provided in Act. Therefore, excess claim of assessee i.e., for 95 days is disallowed and only for 85 days out of current claim is allowed on pro rata basis of average salary of last 10 months i.e., Rs. 35,909 per month - Rs. 1,01,742 (35,909 divided by 30 days and multiplied by 85 days) and balance of Rs. 1,13,707 (Rs. 2,15,449 minus Rs. 1,01,742) is disallowed and added to income of assessee being excess claim under s. 10(10AA) of IT Act, 1961. Addition of Rs. 1,13,707." On appeal by assessee CIT(A) confirmed order of AO. Hence present appeal by assessee before Tribunal. We have heard t h e submissions of learned counsel for assessee and learned Departmental Representative provisions of s. 10(10AA) reads as follows: "10. Incomes not included in total income 10: In computing total income of Previous Year of any person, any income falling within any one of clauses shall not be included: (10AA) (i) any payment received by employee of Central Government or State Government as cash equivalent of leave salary in respect of period of earned leave at his credit at time of retirement (whether) on superannuation or otherwise; (ii) any payment of nature referred to in sub-cl. (i) received by employee, other than employee of Central Government or State Government, in respect of so much of period of earned leave at his credit at time of his retirement (whether) on superannuation or otherwise as does not exceed (ten) months calculated on basis of average salary drawn by employee during period of ten months immediately preceding his retirement (whether) on superannuation or otherwise (subject to such limit as Central Government may, by notification in Official Gazette, specify in this behalf having regard to limit applicable in this behalf to employees of that Government): Provided that where any such payments are received by employee from more than one employer in same previous year, aggregate amount exempt from income-tax under this sub-clause (shall not exceed limit so specified): Provided further that where any such payments or payments was or were received in any one or more earlier previous years also and whole or any part of amount of such payment or payments was or were not included in total income of assessee of such previous year or years, amount exempt from income-tax under this sub-clause (shall not exceed limit so specified), as reduced by amount or, as case may be, aggregate amount not included in total income of any such previous year or years." plain reading of above provisions clearly shows that in case of exemption payment received from Central Government in respect of period of Earned Leave is totally exempt under s. 10(10AA)(i) of Act, subject to monetary limit laid down in second proviso to s. 10(10AA)(ii),which is Rs. 3 lakhs. As far as exemption under s. 10(10AA)(ii) is concerned, time-limit of 10 months of leave encashment is overall ceiling limit for which exemption is allowed. This period of 10 months has to be construed with reference to employment of assessee other than as employee of Central Government or State Government. period of leave encashment as Government servant should not be added under s. 10(10AA)(ii). combined reading of sub-cls. (i) and (ii) of s. (10AA) clearly shows that maximum period of 20 months of leave i.e., 10 months as Government employee and 10 months as private employee may be encashed for purpose of exemption from income-tax at time of retirement or resignation subject to ceiling monetary limit of Rs. 3,00,000 in accordance with proviso to s. 10(10AA)(ii). Sub-cls. (i) and (ii) of s. 10(10AA) are independent provisions and, therefore, it does not mean that once Government employee avails his full period of leave encashment i.e., ten months under sub-cl. (i) he is debarred from encashing any period of leave salary under sub-cl. (ii). above interpretation would put Government employee to disadvantage when he takes up job in private sector and such consequence could not have been intention of legislature. two provisos appear under sub-cl. (ii) only and, therefore, these provisos control only that sub-clause as is evident from words "in this sub- clause" occurring in said two provisos. Hence any period of leave encashment availed of by Government employee should not be counted towards period of leave encashment availed of by him as private employee. object of two provisos inserted under sub-cl. (ii) of section 10(10AA) is to ensure that private emplo3 ee does not avail leave encashment of more than Rs. 3,00,000 by adopting device of resignation from service under one employer and then joining another employer for purpose of leave encashment. expression "at time of his retirement" occurring in sub-cl. (ii) of s. 10(10AA) refer to period of earned leave at credit of private employee and not at credit of Government employee which he might have encashed at time of his retirement. Therefore, private employee is entitled to encash up to ten months of his leave salary for purpose of exemption from income-tax subject to ceiling monetary limit of Rs. 3,00,000 notwithstanding fact that such employee might have encashed any period of his leave salary for purpose of exemption from income-tax as Government employee under s. 10(10AA)(i). learned counsel had placed reliance on following decisions. (a) R.K. Ambady vs. ITO (1991) 39 TTJ (Mad) 59: (1991) 36 ITD 315 (Mad). Wherein Chennai Bench of Tribunal had explained scheme of allowing exemption under s. 10(10AA). Prior to introduction of s. 10(10AA) even leave encashment on retirement from Government service was taxable. While introducing exemption legislature categorized Government and Non- Government employees and in respect of conditions to be present in scheme of leave encashment had thought it fit to apply parameters that were prevailing in Government schemes as condition even in respect of leave encashment scheme of employees other than Central and State Government. This also shows that both sub-cls. (i) and (ii) of s. 10(10AA) are mutually exclusive. (b) In case of CIT vs. N.J. Pavri (1999) 153 CTR (Bom) 134: (1999) 237 ITR 472 (Bom) Hon ble Bombay High Court has also taken view in t h e context of identical provisions of exemption in case of death-cum- retirement gratuity that second proviso was relevant only for calculating overall monetary ceiling limit. (c) Further reliance was placed on decision of Hon ble Supreme Court in case of Mahim Patram (P) Ltd. vs. UOI 2007 (3) SCALE 584 wherein Hon ble Supreme Court had emphasized need for strict construction of tax statutes and necessity of not subjecting person to tax without there being conditions existing for such liability within letter of law. We find that all aforesaid decisions support plea of assessee and interpretation of provisions of s. 10(10AA) as sought to be made by assessee which we have already extracted above and with which we agree. We therefore hold that assessee s claim for exemption under s. 10(10AA) as made has to be allowed. appeal of assessee is allowed. In result, appeal by assessee is allowed. *** COL. (RETD.) CHANDRA KUMAR SHUKLA v. ASSISTANT COMMISSIONER OF INCOME TAX
Report Error