1969 (12) TMI 29 - HC - Income Tax

Whether the gratuity received by the assessee, on his retirement from the Life Insurance Corporation of India, in accordance with the Staff Regulations of 1960, is exempt from tax by virtue of the proviso to Explanation 2 of sub-section (1) of section 7 of the Indian Income-tax Act, 1922 - Held, yes

Summary

Issues:
1. Whether the gratuity received by the assessee is exempt from tax under the Indian Income-tax Act, 1922?

Analysis:
The judgment pertains to a reference made to the Andhra Pradesh High Court regarding the tax exemption status of a gratuity received by an individual upon retirement from the Life Insurance Corporation of India. The primary issue was whether the gratuity of Rs. 11,250 received by the assessee was exempt from tax under the proviso to Explanation 2 of sub-section (1) of section 7 of the Indian Income-tax Act, 1922. The assessee, in accordance with the Staff Regulations of the Life Insurance Corporation of India, received the retirement gratuity, which was taxed by the Income-tax Officer initially. However, the assessee contended that the gratuity should be exempt from tax, leading to a series of appeals and ultimately a reference to the High Court.

The court examined the relevant provisions of the Act that exempt certain gratuity payments from taxation, specifically focusing on the scheme under which the gratuity was paid by the Life Insurance Corporation of India. The court compared this scheme with the Revised Liberalised Pension Rules of the Central Government to determine if the gratuity received by the assessee qualified for exemption. Detailed comparisons were made between the two schemes in terms of eligibility criteria, quantum of gratuity, and other relevant factors to assess the similarity between the schemes.

The court analyzed the meaning of "similar" in legal context, citing various precedents and interpretations to conclude that two schemes can be considered similar if their basic objectives and purposes align, even if there are minor differences in details. In this case, the court found that both the scheme of the Life Insurance Corporation of India and the Revised Liberalised Pension Rules of the Central Government served the same purpose of providing gratuity to honest and permanent employees upon retirement. Despite minor variations in the computation of gratuity, the court deemed the schemes to be similar, thereby entitling the assessee to the tax exemption claimed.

Ultimately, the court answered the question in the affirmative, ruling in favor of the assessee and directing the department to pay the costs. The judgment highlights the importance of assessing the fundamental objectives of schemes to determine their similarity for tax exemption purposes, emphasizing that minor differences in details do not necessarily negate the overall similarity of the schemes.