2016 (8) TMI 1155 - AT - Income Tax

Denial of exemption in respect of the amount received by the assessee towards arrears of gratuity and arrears of leave encashment - Held that - Both the sides are in agreement that the facts and circumstances of the instant appeal are mutatis mutandis similar to those of the appeal in the case of Ram Kanwar Rana 2016 (6) TMI 687 - ITAT DELHI allowing exemption in respect of the arrears of gratuity and arrears of leave encashment and dismissing the ground about the initiation of re-assessment. Following the view, extend the benefit of exemption to the instant assessee also in respect of arrears of gratuity and arrears of leave encashment u/s 10(10)(i) and 10(10AA)(i).

Summary

Issues:
Denial of exemption for arrears of gratuity and leave encashment under sections 10(10)(i), 10(10)(iii), and 10(10AA)(ii).

Analysis:
The appeal was filed against the CIT(A)'s order regarding the denial of exemption for arrears of gratuity and leave encashment received by the assessee. The AO initiated reassessment proceedings as the assessee had claimed exemption under section 10(10) for these amounts. The AO contended that since the assessee retired before the cutoff date of 24.5.2010, the extended exemption limit was not applicable. The AO held that the correct sections applicable were 10(10)(iii) and 10(10AA)(ii) instead of 10(10)(i). The CIT(A) upheld this view, stating that the assessee was not a government employee and did not receive gratuity under the Payment of Gratuity Act, 1972. Therefore, the assessee was covered under section 10(10)(iii) with a limited exempt gratuity amount, which had been exhausted in an earlier year. The Notification enhancing the gratuity limit to ?10 lakhs under section 10(10)(iii) was deemed inapplicable as the assessee retired before 24.5.2010.

The Tribunal referred to similar cases where exemption was allowed for arrears of gratuity and leave encashment. Citing cases like Shri Ram Kanwar Rana vs. ITO and Raghubir Singh Panghal vs. ITO, the Tribunal extended the benefit of exemption to the present assessee under sections 10(10)(i) and 10(10AA)(i) for arrears of gratuity and leave encashment. The Tribunal dismissed other grounds, including the initiation of reassessment proceedings, as they were not pressed by the assessee's representative. As a result, the appeal was partly allowed, granting exemption for the arrears of gratuity and leave encashment.

This judgment highlights the interpretation of sections 10(10)(i), 10(10)(iii), and 10(10AA)(ii) concerning the exemption of arrears of gratuity and leave encashment for employees retiring before a specific date. It emphasizes the application of relevant provisions based on the employment status and retirement date of the assessee. The Tribunal's decision to grant exemption based on precedents underscores the importance of consistency and judicial interpretation in tax matters.