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2022 (8) TMI 1232 - HC - Income Tax


Issues Involved:
1. Whether the petitioners, employees of Tamil Nadu Agricultural University (TNAU), are considered government servants for the purpose of Section 10(10AA) of the Income Tax Act, 1961.
2. The applicability of tax exemption on surrender of leave salary (SLS) for TNAU employees.

Issue-wise Detailed Analysis:

1. Classification of TNAU Employees as Government Servants:
The petitioners, employees of TNAU, challenged audit objections requiring them to remit income tax on SLS due to non-deduction at source as per the Income Tax Act, 1961. The petitioners argued that TNAU, being constituted under a State Act, should treat its employees as government servants, thereby exempting their SLS from tax under Section 10(10AA)(i) of the Act. The Income Tax Department, however, clarified that there are no instructions or notifications from the CBDT treating university employees as government employees. The Department's stance was that TNAU employees fall under Section 10(10AA)(ii), which limits the tax exemption for non-government employees.

2. Applicability of Tax Exemption on SLS:
Section 10(10AA) has two clauses: Clause (i) exempts SLS for Central/State Government employees from tax, while Clause (ii) imposes a pecuniary limit on SLS for other employees. The petitioners contended that TNAU employees should be treated similarly to government employees due to their employment conditions, payment of gratuity, and provident fund being akin to those applicable to government servants. They cited several decisions of the Income Tax Appellate Tribunal supporting the view that employees of agricultural universities should be considered state government employees.

Court's Observations and Decision:
The court noted that TNAU is a statutory body under a State Act, with its employees' conditions of service, including pension, gratuity, and provident fund, governed by state rules. The State exercises significant control over TNAU, including funding and management, making it an extension of the State. The court distinguished TNAU from Public Sector Undertakings (PSUs) and nationalized banks, emphasizing the pervasive control and funding by the State in TNAU's case.

The court referenced various judicial precedents and observed that TNAU employees are entitled to the same benefits as government servants due to the statutory and regulatory framework governing their employment. Consequently, the court concluded that TNAU employees are government servants for the purposes of Section 10(10AA)(i) of the Income Tax Act, entitling them to tax exemption on their SLS.

Conclusion:
The court held that the petitioners, as employees of TNAU, are government servants entitled to the benefit of tax exemption under Section 10(10AA)(i) of the Income Tax Act. The impugned circular and communications requiring tax on SLS were set aside, and the writ petitions were allowed with no costs.

 

 

 

 

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