1986 (5) TMI 81 - AT - Income Tax

Summary

Issues:
- Exemption under section 10(10AA) of the Income Tax Act for encashment of earned leave upon resignation.

Analysis:
The appellant contested the disallowance of exemption for Rs. 11,000 received upon encashment of earned leave at the time of resignation from the former employer, M/s Chic International Pvt. Ltd. The Income Tax Officer (ITO) and the Appellate Authority Commissioner (AAC) had rejected the claim, prompting the appeal. The appellant argued that the amount falls under the exemption of section 10(10AA), citing that the term "retirement" includes resignation as per the Payment of Gratuity Act, 1972. Additionally, the appellant relied on precedents from the Tribunal supporting similar cases in favor of the assessee.

The Departmental Representative contended that the term "retirement" in the context of exemption under section 10(10AA) refers only to superannuation retirement and does not encompass resignation followed by employment elsewhere, post-amendment in 1984. The amendment specified that exemption applies to normal retirement, not resignation scenarios.

Upon considering the arguments, the Tribunal analyzed section 10(10AA) which exempts payments for earned leave upon retirement, whether on superannuation or otherwise. The Tribunal noted that the provision includes cases where employees withdraw from employment, including resignations, and join another employer. The Tribunal referred to the Finance Bill (1982) to emphasize that the exemption extends to employees retiring from successive employers in different years, not just one employer. The Tribunal concluded that the term "retirement" in section 10(10AA) encompasses resignation scenarios, supported by precedents from other Tribunal Benches. Consequently, the Tribunal allowed the appeal, ruling in favor of the assessee.

In summary, the Tribunal interpreted section 10(10AA) broadly to include cases of resignation followed by employment elsewhere for exemption of encashed earned leave amounts. The decision emphasized the legislative intent to extend the exemption to employees transitioning between employers, irrespective of the reason for leaving the previous employment.