Punjab-Haryana High Court
Avinash Chand Puri And Others vs Punjab School Education Board on 5 July, 2013
Author: Mahesh Grover
Bench: Mahesh Grover
CWP no. 23225 of 2010 (O&M)
and connected case 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
1. CWP no. 23225 of 2010 (O&M)
Avinash Chand Puri and others
....Petitioners
Versus
Punjab School Education Board
...Respondents
2.CWP no. 571 of 2011 (O&M)
Mukesh Chander Diwan and others
....Petitioners
Versus
Punjab School Education Board
...Respondents
Date of Decision : 05.07.2013
CORAM : HON'BLE MR.JUSTICE MAHESH GROVER
Present:- Mr. Raj Kumar Garg Advocate and
Mr. Saurabh Garg, Barrister at Law for the petitioners
Dr. B.M.Singh, Advocate for the respondent
MAHESH GROVER, J.
This order will dispose of two writ petitions bearing CWP nos.23225 of 2010 and 571 of 2011.
The petitioners are all retired employees of the Punjab School Education Board. On Superannuation they were entitled to gratuity under the provisions of the Payment of Gratuity Act and Regulations framed thereunder (hereinafter referred to as the 'Act' and the 'Regulations'). In Regulation 16 of 1989 it had been provided that anything not specially provided in these regulations, in the eventuality of not being specially Rekha Sihag provided, the Punjab Civil Services Rules on the question of gratuity shall 2013.07.29 10:28 I attest to the accuracy and integrity of this document High Court Chandigarh CWP no. 23225 of 2010 (O&M) and connected case 2 be applicable to the employees mutatis mutandis.
As per the prevailing provisions upon retirement the petitioners were held entitled to gratuity to the maximum limits of Rs.3.5 lakhs but after the applicability of the Fifth Pay Commission the maximum limit of payment of gratuity was increased from Rs.3.5 lakhs to Rs.10 lakhs. The petitioners were thus held entitled to the remaining amount of gratuity after deduction of Rs.3.5 lakhs which was duly paid by the Board. The issue of payment of the amount, therefore, is not in question. The grievance is only directed against the impugned notice issued to the petitioners which is on record as Annexure P-1 whereby the petitioners were directed to pay income tax on the balance amount paid to the petitioners on account of the subsequent increase of gratuity to Rs.10 lakhs after deducting the earlier amount of Rs.3.5 lakhs. In the impugned notice reference has been made to a notification issued by Ministry of Finance bearing no. 43/2010/F no.200/35/2009 ITA-1 dated 11.6.2010. The relevant of which is extracted herebelow:-
"S.O 1414 (E)- In exercise of the powers conferred by sub-clause (iii) of clause (10) of Section 10 of the Income Tax Act, 1961 (43 of 1961), and in supersession of Ministry of Finance, Department of Revenue, Notification no. S.O. 287 dated the 20th January, 1999 the Central Government having regard to the maximum amount of any gratuity payable to employee, hereby specified ten lakh rupees as the limit for the purpose of the said sub-clause in relation to the employees who retire or become incapacitated prior to such retirement or die on or after the 24th day of May, 2010 or whose employment is Rekha Sihag 2013.07.29 10:28 I attest to the accuracy and integrity of this document High Court Chandigarh CWP no. 23225 of 2010 (O&M) and connected case 3 terminated on or after the said date."
A bare perusal of the above would show that the said notification is completely silent about the taxable aspect of the gratuity to be paid to an employee. It however refers to Section 10 of the Income Tax Act. Section 10 of the Income Tax Act is also extracted herebelow for ready reference:-
Section 10 of the Income Tax Act, 1961 Incomes not included in total income - In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included.
(1) to (9) xxx xxx xxx (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 Rekha Sihag 2013.07.29 10:28 I attest to the accuracy and integrity of this document High Court Chandigarh CWP no. 23225 of 2010 (O&M) and connected case 4 calculated in accordance with the provisions of sub-sections (2) and (3) of Section 4 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, 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 188 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 Rekha Sihag 2013.07.29 10:28 I attest to the accuracy and integrity of this document High Court Chandigarh CWP no. 23225 of 2010 (O&M) and connected case 5 case may be, the aggregate amount not included in the total income of any such previous year or years."
It is evident from the reading of the aforesaid provision of law that the gratuity paid to the petitioners is not contemplated under the head of income so as to render it taxable.
During the course of proceedings repeated questions were put to the learned counsel for respondent to show any provision of law which may be used as a justification for such a demand as expressed in Annexure P-1. No such provision of law was shown to the Court despite persistent and sustained questions put to the learned counsel for the respondent. Opportunity was also given to him to seek instructions from the respondents in this regard but except for reiterating and repeating what has been stated in the reply and falling back on the notification, the extract of which has been given above, there was no justification or explanation that was worthy of any acceptance by this Court. Some of the officials of the Board who are present with the records then stated that legal advice has been solicited before such a course was adopted. The Court examined the record and finds that the advice was to the contrary. The department was categorically advised that gratuity does not fall within the taxable income. The relevant portion of legal opinion (taken on record today) is extracted herebelow :-
"8. In view of the foregoing discussion, I am of the considered opinion that no tax should be deducted from the payment made to the employees of the Punjab School Education Board who are to retire or who have already retired in case payment made to them has exceeded Rs.3,50,000/- but Rekha Sihag 2013.07.29 10:28 I attest to the accuracy and integrity of this document High Court Chandigarh CWP no. 23225 of 2010 (O&M) and connected case 6 has not exceeded Rs.10,00,000/- (Rupees ten lakh). However, the employees will have to pay tax if the payment of gratuity is above Rs.10,00,000/-. Now the exempted amount from tax is only Rs.10,00,000/-. If an employee of the Punjab Government receives an amount of gratuity upto Rs.10,00,000/- he will not have to pay any tax on this amount. This will apply to the employees of the Punjab School Education Board as well in view of Regulation 16 reproduced above. It is, however, clarified that if an employee receives Rs.11 lakh on account of gratuity, he will have to pay tax on Rs.one lakh. This is by way of illustration only. Such is not the case here.
It is further clarified that any arrears/payments of the retirees should not be withheld and the retiree may not be forced to pay any income tax on payment of gratuity upto Rs.10 lakh. The show cause notice if any issued may be revoked/dispensed with."
If that be so then the Court fails to understand as to why such a illegal stand was adopted by the respondents and thereafter a stubborn attitude displayed even when the Court tried to show reasons beyond the limits of its patience.
The Court is thus of the opinion that the respondents have unjustifiably resorted to issuance of demand notice and made an attempt to recover tax from the petitioners without any authority of law and have also demonstrated an attitude of extreme tenacity by clinging to stand which has no legs to stand on.
The impugned notices (Annexure P-1) are hereby quashed as Rekha Sihag 2013.07.29 10:28 I attest to the accuracy and integrity of this document High Court Chandigarh CWP no. 23225 of 2010 (O&M) and connected case 7 they are without any authority of law and sans any justification.
Since the respondents have forced the petitioners who are retirees to come to the Court without any logical reason and have continuously persisted with their stand despite reasons being shown to them during the course of proceedings, I am of the considered opinion that this has resulted in not only inconvenience to the petitioners in terms of financial implications but has also resulted in sheer wastage of the time of the Court. The respondents are thus burdened with costs of Rs.1 lakh which shall be deposited before the Mediation and Conciliation Centre of this Court within a period of two months from today. The costs shall be recovered from the personal pay of all the respondents proportionately.
July 05, 2013 (Mahesh Grover)
rekha Judge
Rekha Sihag
2013.07.29 10:28
I attest to the accuracy and
integrity of this document
High Court Chandigarh