2024 (6) TMI 1436 - HC - Income Tax

Exemption claimed u/sec 10(10AA)(ii) - petitioners in these cases are retired employees of different Public Sector undertakings and Scheduled Banks - HELD THAT - Similar issues have been considered and decided by this Court 2024 (6) TMI 1230 - KERALA HIGH COURT as held petitioners all stood retired before the latest notification which has been issued fixing the upper limit as Rs.25 lakhs for exemption from payment of earned leave income. The employer has also deducted the admissible tax above Rs.3 lakhs from the petitioners. At this distant point of time this Court considering the limitation on the power of the Court as well as the doctrine of separation of powers cannot issue a mandamus to the respondent Authorities to revise the upper limit of the encashment of earned leave for granting exemption from payment of the income tax with retrospective effect. Issuance of notification as provided in the provision is in the realm of the powers of the Executive. These writ petitions are disposed of with liberty to the petitioners to approach the Government for the reliefs sought for in these writ petitions and the Government may take a decisions on their representations.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the petitioners, retired employees of various Public Sector Undertakings and Scheduled Banks, are entitled to a revision of the income limit for tax exemption on encashment of earned leave salary under Section 10(10AA)(ii) of the Income Tax Act, 1961, with retrospective effect. Specifically, the issue is whether the Court can direct the Government to revise this limit for individuals who retired before the latest notification, effective from April 1, 2023.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework centers on Section 10(10AA)(ii) of the Income Tax Act, 1961, which pertains to the exemption from income tax on the encashment of earned leave salary. The provision allows the Government to set an upper limit for this exemption through notifications. The last notification was issued in 2002, setting the limit at Rs. 3 lakhs, and a subsequent notification in 2023 revised it to Rs. 25 lakhs.

The Court referenced a previous judgment dated January 29, 2024, in W.P.(C) No.16609 of 2022, which addressed similar issues. In that case, the Court emphasized the Government's prerogative to set the exemption limit and highlighted the separation of powers, restricting judicial intervention in executive decisions.

Court's interpretation and reasoning:

The Court reiterated that it is within the Government's exclusive domain to determine the income limit for tax exemption on earned leave encashment. The Court recognized that the Government had not revised the limit despite multiple pay revisions since 2002. However, the Court acknowledged its limitations in directing the Government to issue a retrospective notification, citing the doctrine of separation of powers.

Key evidence and findings:

The petitioners argued for a revision of the income limit based on the lack of updates since 2002, despite subsequent pay revisions. The Court noted that the Government's latest notification in 2023 set the limit at Rs. 25 lakhs, applicable from April 1, 2023. The Court also referenced a Delhi High Court case where the Government was directed to consider revising the limit, although the Government's action was not retrospective.

Application of law to facts:

The Court applied the legal principles of executive prerogative and separation of powers to the facts, concluding that it could not mandate a retrospective revision of the exemption limit. The petitioners, having retired before the 2023 notification, could not benefit from the updated limit.

Treatment of competing arguments:

The Court expressed sympathy for the petitioners' situation but maintained that the power to revise the exemption limit rests with the Executive. The Court acknowledged the petitioners' right to approach the Government for relief but emphasized that judicial intervention was not appropriate in this context.

Conclusions:

The Court concluded that it could not issue a writ of mandamus to compel the Government to revise the exemption limit retrospectively. The petitioners were granted the liberty to make representations to the Government, which could consider their requests.

SIGNIFICANT HOLDINGS

The Court reaffirmed the principle that setting the income limit for tax exemption on earned leave encashment is a policy decision within the Government's purview. The Court stated, "Unless the Government issues the notification fixing the limit of income for earned leave salary, an employee cannot claim exemption from payment of income tax on encashment of earned leave up to 300 days." This underscores the separation of powers and limits judicial intervention in executive matters.

The final determination was to dispose of the writ petitions, allowing the petitioners to seek relief from the Government, which may decide on their representations. The judgment emphasized the Court's role in respecting executive discretion and policy-making authority.