2005 (10) TMI 46 - HC - Income Tax

Gratuity - The first petitioner is the Gwalior Rayons Staff Association, represented by its joint secretary. The second petitioner is a member of staff as is also a member of the first petitioner-association. The prayer made in this original petition is to declare that the provisions of section 10(10)(iii) of the Income-tax Act to the extent it has allowed exemption based on the method of calculation as illegal and discriminatory and for other consequential reliefs. - In other cases not governed by section 10(10)(i) or section 10(10)(ii), section 10(10)(iii) applies which excludes the gratuity amount up to the rate of 15 days wages for every year of completed service subject to a maximum in this regard. Therefore, the gratuity that has been excluded and the prescription of the rate is irrespective of whether it is paid under the Gratuity Act or any other scheme. In this view of the matter, I do not find that the petitioners are inequally treated or that equals are treated inequally. Hence, there is no merit in this writ petition

Summary

Issues:
Challenge to the provisions of section 10(10)(iii) of the Income-tax Act for being discriminatory and illegal.

Analysis:
The petitioners, a staff association and a member of staff, sought a declaration that the provisions of section 10(10)(iii) of the Income-tax Act, allowing exemption based on a specific calculation method, were discriminatory and illegal. They argued that they were not governed by the Payment of Gratuity Act but by a settlement with the employer, which provided for gratuity rates higher than those prescribed under the Gratuity Act. The petitioners contended that the limit of 15 days' wages for every year of completed service, as per section 10(10)(iii), was discriminatory and violated article 14 of the Constitution.

The court noted that the provision in question had been in force for two decades and had stood the test of time. Section 10 of the Income-tax Act excluded certain amounts from the assessee's income for assessment purposes. While section 10(10)(i) provided for exclusion of death-cum-retirement gratuity under specific schemes, section 10(10)(iii) excluded gratuity payments up to 15 days' wages for every year of completed service, regardless of whether it was paid under the Gratuity Act or any other scheme. The court highlighted that the exclusion under section 10(10)(iii) was irrespective of the source of the gratuity payment.

The court found that the petitioners were not being treated unequally or discriminated against under the provisions of section 10(10)(iii). It concluded that there was no merit in the writ petition challenging the legality and alleged discrimination in the application of the said provision. Consequently, the petition was dismissed by the court.