1979 (11) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 10(10A) of the Income-tax Act, 1961.
2. Interpretation of Rule 37 and Rule 37A of the Central Civil Services (Pension) Rules, 1972.
3. Tax exemption on commuted pension and lump sum payment.

Issue-wise Detailed Analysis:

1. Applicability of Section 10(10A) of the Income-tax Act, 1961:
The core issue revolves around whether the entire commuted pension received by the petitioner is exempt from income tax under Section 10(10A) of the Income-tax Act, 1961. The petitioner contended that the payment made in commutation of his pension falls under a scheme similar to the Civil Pension (Commutation) Rules of the Central Government, thereby qualifying for full exemption. The interpretation of "any similar scheme applicable to the members of the civil services of the Union" under Section 10(10A) was pivotal. The court concluded that the petitioner was governed by Rule 37A, which is a distinct scheme from the Civil Pensions (Commutation) Rules, and thus, the entire amount received should be exempt under Section 10(10A).

2. Interpretation of Rule 37 and Rule 37A of the Central Civil Services (Pension) Rules, 1972:
The petitioner was absorbed into Hindusthan Aeronautics Ltd. under Rule 37A, which provides for a lump sum payment in lieu of pension. Rule 37A(1)(b) stipulates that a government servant who opts for this scheme surrenders the right to two-thirds of his pension in exchange for a terminal benefit. The court interpreted that the combined effect of Rule 37A(1)(a) and (b) results in a lump sum payment in lieu of the entire pension, thus qualifying as a commutation of pension under Section 10(10A). The court emphasized that Rule 37A was specifically designed for government servants permanently absorbed in public undertakings, differentiating it from the Civil Pensions (Commutation) Rules.

3. Tax exemption on commuted pension and lump sum payment:
The Accountant-General had directed that two-thirds of the commuted pension amounting to Rs. 87,833.20 was subject to income tax, arguing that only one-third of the commuted pension was exempt. The petitioner argued that the entire commuted amount should be exempt as it was received under a scheme similar to the Civil Pension (Commutation) Rules. The court found that the payment received by the petitioner was under Rule 37A, which qualifies as a similar scheme under Section 10(10A). Therefore, the entire amount of Rs. 1,31,749.80 received by the petitioner was exempt from income tax. The direction to deduct tax on two-thirds of the amount was deemed unwarranted and was quashed.

Conclusion:
The court ruled in favor of the petitioner, holding that the entire commuted pension amount received under Rule 37A is exempt from income tax under Section 10(10A) of the Income-tax Act, 1961. The direction to deduct income tax on two-thirds of the commuted pension was quashed, and each party was ordered to bear their own costs.