2016 (6) TMI 687 - AT - Income Tax

Denial of exemption in respect of the amount received by the assessee towards arrears of gratuity - Held that - As the assessee is found to be an employee holding a civil post under a State, the provisions of section 10(10)(i) are fully attracted in this case entitling him to exemption for the amount under consideration. Once a case falls under clause (i) of section 10(10), the same cannot be brought within the purview of clause (iii) of section 10(10). Therefore, hold that the assessee is entitled to exemption u/s 10(10)(i) in respect of gratuity amount received in total upto ₹ 10 lac, which covers a sum of ₹ 6,50,000/- received during the year. Overturning the impugned order on this score, allow exemption u/s 10(10)(i) to the arrears of gratuity received by the assessee at ₹ 6,50,000/- during the instant year. Arrears of leave encashment - denial of benefit - Held that - As there is not much difference in the language of section 10(10)(i) and 10(10AA)(i) and the view taken in respect of arrears of gratuity u/s 10(10) should be followed for arrears of leave encashment u/s 10(10AA). The ld. DR supported this proposition. As both the sides are consensus ad idem on the position that the view taken in the context of section 10(10) as applicable to leave gratuity be followed here in the context of section 10(10AA) in the context of leave encashment, thus desisting from independently examining the later provision. In view of the fact it is held the assessee to be entitled to exemption u/s 10(10)(i) in respect of arrears of gratuity, following the same, I extend the benefit of exemption u/s 10(10AA)(i) in respect of arrears of leave encashment Appeal decided partly in favour of assessee

Summary

Issues involved:
1. Denial of exemption for arrears of gratuity and leave encashment under section 10(10) of the Income Tax Act.

Detailed Analysis:
1. The only issue in this appeal is the denial of exemption for the amount received by the assessee towards arrears of gratuity and leave encashment. The Assessing Officer (AO) initiated re-assessment proceedings as the assessee had claimed exemption under section 10(10) for these amounts. The AO held that the extended benefit of exemption was not available to the assessee as he retired before the cut-off date of 24.5.2010. The AO made additions towards the arrears of gratuity and leave encashment received. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the assessee was not eligible for exemption under section 10(10)(i) as he was not a government employee. The assessee challenged this denial of exemption.

2. The Tribunal analyzed the case separately for gratuity and leave encashment. Regarding gratuity, the Tribunal examined whether the case fell under section 10(10)(i) or section 10(10)(iii) of the Act. The Tribunal found that the assessee, as an employee of a State University, met the criteria of holding a civil post under a State, entitling him to exemption under section 10(10)(i) for the gratuity amount received. The Tribunal allowed the exemption under section 10(10)(i) for the arrears of gratuity received by the assessee.

3. For the arrears of leave encashment, the AO denied exemption under section 10(10AA)(i) and held it fell under section 10(10AA)(ii). The CIT(A) upheld this decision. The Tribunal, considering the similarity in language between sections 10(10)(i) and 10(10AA)(i), extended the benefit of exemption under section 10(10AA)(i) for the arrears of leave encashment, following its decision on gratuity. The Tribunal dismissed the challenge to the re-assessment initiation as it was not pressed seriously by the Department.

4. In conclusion, the Tribunal partly allowed the appeal, granting exemption under section 10(10)(i) for arrears of gratuity and under section 10(10AA)(i) for arrears of leave encashment. The judgment clarified the eligibility of the assessee for exemption under specific sections of the Income Tax Act based on the nature of the payments received and the relevant provisions.