2024 (10) TMI 412 - AT - Income Tax

Exemptions u/s 10(10A) and Section 10(10AA) - Classification of the Maharashtra State Power Generation Company and Maharashtra State Electricity Distribution Company as State Government entities for the purpose of these exemptions -assessees claim of having employer-employee relationship with the Maharashtra State Government since having employed with the then Maharashtra State Electricity Board - scope of grand-fathering clause in sec.133 of the Electricity Act HELD THAT - Revenue could hardly dispute that going by a conjoint reading of section(s) 131 r.w.s. 133 hereinabove, the services of all officers and employees of the erstwhile MSEB first stood vested in the State Government of Maharashtra on Reorganization of the Board , followed by the transfer to various transferee entities in generation, transmission and distribution company(ies) (supra). The same appears to be the most clinching fact herein since all these assessees had been assigned to their respective new employers after getting protection of their service conditions in light of sec.133(2) read with Proviso and Explanation thereto. Needless to state, these four assessees have also undergone the very reorganization finally culminating in their respective superannuation(s). It is thus concluded that not only these four assessees have to be held entitled for sec.10(10A) and sec.10(AA) as employees of MSEB but also they have to held eligible for the impugned exemptions in the newly set-up transferee entities (once their services vested in the State Government); which in turn, carried grand-fathering clause in sec.133 of the Electricity Act. The necessary corollary thereof is that these four assessees have to be invariably treated as employees of a State Government duly eligible for sec.10(10A) and sec.10(10AA) benefits; as the case may be. These four assessees identical sole substantive ground is accepted in very terms.

Summary

Issues Involved:

1. Entitlement of the assessees to claim exemptions under Section 10(10A) and Section 10(10AA) of the Income Tax Act, 1961.
2. Classification of the Maharashtra State Power Generation Company and Maharashtra State Electricity Distribution Company as "State Government" entities for the purpose of these exemptions.

Detailed Analysis:

1. Entitlement to Exemptions under Sections 10(10A) and 10(10AA):

The primary issue revolves around whether the assessees, who were employees of the Maharashtra State Electricity Board (MSEB) and later its successor entities, are entitled to claim exemptions under Sections 10(10A) and 10(10AA) of the Income Tax Act, 1961. Section 10(10A) pertains to exemptions on pensionary benefits, including gratuity, while Section 10(10AA) pertains to exemptions on leave encashment for employees of the "Central Government" or a "State Government."

The Revenue's stance was that these entities, being Public Sector Undertakings (PSUs), do not qualify as "State Government" under the said sections, thereby disqualifying the assessees from claiming these exemptions beyond the statutory limits applicable to non-government employees.

2. Classification of the Entities as "State Government":

The Tribunal examined whether the Maharashtra State Power Generation Company and Maharashtra State Electricity Distribution Company could be classified as "State Government" entities. The Tribunal referred to the precedent set by the Madras High Court in Dr. P. Balasubramanian vs. Chief Commissioner of Income Tax (TDS), which established that employees of entities constituted under a State Act are entitled to Section 10(10AA) benefits.

The Tribunal further analyzed the provisions of the Electricity Act, 2003, specifically Sections 131 to 133, which detail the vesting of the erstwhile State Electricity Board's assets, liabilities, and employees in the State Government. The Tribunal concluded that the services of the assessees were vested in the State Government during the reorganization of the Board, and they were subsequently transferred to the newly formed entities with protection of their service conditions.

Conclusion:

The Tribunal found no merit in the Revenue's argument that the assessees were not in an employer-employee relationship with the Maharashtra State Government. It was determined that the assessees' services, having been vested in the State Government and subsequently transferred to the new entities, entitle them to the exemptions under Sections 10(10A) and 10(10AA). The Tribunal emphasized the "grand-fathering" clause in Section 133 of the Electricity Act, which supports the notion that these employees should be treated as employees of a "State Government."

Thus, the Tribunal allowed the appeals of the four assessees, granting them the entitlement to claim the exemptions under Sections 10(10A) and 10(10AA), and ordered necessary computations to follow as per law. The decision was pronounced in open court on 19.04.2024.