2020 (12) TMI 134 - HC - Income Tax

Exemption u/s 10(10) - Total Sum received in excess of amount specified in Section 4(3) of the Payment of Gratuity Act. - Refund of income tax as deducted at source (TDS) on the gratuity paid to the Petitioner - Enhanced limit for Central government employees versus for employees of PSUs HELD THAT - In this case, it is expressly stated that the amendment to Section 4(3) of the Payment of Gratuity Act would take effect from 29.03.2018. As a corollary, the increased exemption limit in the Income Tax Act is made applicable only to persons who retire on or after 29.03.2018. In the absence of a challenge to Section 10(10) of the Income Tax Act, in our view, the relief prayed for cannot be granted. Extensive arguments were advanced to the effect that the stipulation of 29.03.2018 as the appointed date for the amendment to Section 4(3) is unconstitutional; therefore, the said contention is examined. The said amendment applies in respect of receipt of gratuity under the Payment of Gratuity Act. As between recipients of gratuity under the Payment of Gratuity Act, there is no discrimination as regards the date of entry into force of the increased ceiling. The party-in-person alleges that the impugned notifications are discriminatory on the basis that Central Government employees and employees of public sector undertakings should be treated on a par. In our view, this contention cannot be countenanced. The terms and conditions of employment vary significantly as between employees of the Central Government and those of public sector undertakings and, indeed, even as between different public sector undertakings. Therefore, these classes of employees do not constitute a single homogeneous class. Consequently, the contention that employees of public sector undertakings, such as the Petitioner, should be treated in the same manner as regards gratuity as the employees of the Central Government is rejected. Petitioner is seeking exemption from the payment of income tax. As per the settled legal position in this regard, an exemption provision or exemption notification is required to be construed strictly and ambiguity, especially as regards applicability, is required to be resolved in favour of the revenue. Section 10(10)(ii) of the Income Tax Act exempts amounts received as gratuity from the income of the assessee to the extent specified in Section 4 (3) of the Payment of Gratuity Act. The undoubted position is that Section 4(3) of the Payment of Gratuity Act specified the limit of ₹ 10 lakhs as on the date of retirement of the Petitioner. This limit was increased to ₹ 20 lakhs by an amendment which admittedly came into force only on 29.03.2018. As a corollary, the exemption limit was raised to ₹ 20 lakhs by an amendment to the Income Tax Act only in respect of persons who retired or died on or after 29.03.2018. Upon perusal of the amendment notifications, we find that the Petitioner has completely failed to make out a case that the amendments should be implemented with retrospective effect from 01.01.2016. In our view, the judgment of the Hon'ble Supreme Court in D.S.Nakara case 1982 (12) TMI 151 - SUPREME COURT does not come to the aid of the Petitioner inasmuch as the said judgment dealt with a cut-off date with regard to the payment of pension. In this case, we are concerned with the date of entry into force of an amendment to the Payment of Gratuity Act. The said amendment is pursuant to an Act of Parliament which admittedly entered into force only on 29.03.2018. As such, the endeavour by the Petitioner to enforce the said amendment from 01.01.2016 is liable to be rejected.

Issues Involved:
1. Constitutionality of the appointed date in Notification S.O.1419(E) and Notification S.O.1213(E).
2. Discrimination against employees who retired before 29.03.2018.
3. Retrospective application of the amendment to the Payment of Gratuity Act and the Income Tax Act.
4. Exemption from income tax on gratuity received by the petitioner.

Issue-wise Detailed Analysis:

1. Constitutionality of the appointed date in Notification S.O.1419(E) and Notification S.O.1213(E):
The petitioner challenged the constitutionality of the appointed date specified in Notification S.O.1419(E) and Notification S.O.1213(E), arguing that these dates should be 01.01.2016 instead of 29.03.2018. The court examined the amendments to Section 4(3) of the Payment of Gratuity Act and Section 10(10)(iii) of the Income Tax Act, which increased the gratuity limit to ?20 lakhs effective from 29.03.2018. The court concluded that the legislature's intent to legislate with retrospective effect must be expressly stipulated, which was not the case here. Therefore, the appointed date of 29.03.2018 was upheld as constitutional.

2. Discrimination against employees who retired before 29.03.2018:
The petitioner argued that the notifications were discriminatory as they differentiated between employees who retired before and after 29.03.2018. The court referenced the Supreme Court's judgment in D.S. Nakara v. Union of India, which held that discrimination in pension payment based on retirement dates was unconstitutional. However, the court distinguished this case, stating that the terms and conditions of employment vary significantly between Central Government employees and public sector undertakings. Thus, these classes of employees do not constitute a single homogeneous class, and the differentiation based on retirement dates was not unconstitutional.

3. Retrospective application of the amendment to the Payment of Gratuity Act and the Income Tax Act:
The petitioner sought a declaration that the amendments should apply retrospectively from 01.01.2016. The court noted that while Parliament has the power to legislate retrospectively, such intent must be clearly expressed. The amendments in question explicitly stated their effective date as 29.03.2018. The court emphasized that an exemption provision or notification must be construed strictly, resolving any ambiguity in favor of the revenue. Since there was no ambiguity in the amendments' effective date, the court rejected the petitioner's request for retrospective application.

4. Exemption from income tax on gratuity received by the petitioner:
The petitioner contended that his entire gratuity amount of ?20 lakhs should be exempt from income tax, as he would have benefited if he had retired on or after 29.03.2018. The court examined Section 10(10)(ii) of the Income Tax Act, which exempts gratuity received under the Payment of Gratuity Act to the extent specified in Section 4(3) of the Payment of Gratuity Act. As of the petitioner's retirement date on 28.02.2018, the exemption limit was ?10 lakhs. The court reiterated that the exemption limit was increased to ?20 lakhs effective from 29.03.2018, and this limit could not be applied retrospectively. Consequently, the court upheld the income tax deduction on the second tranche of ?10 lakhs received by the petitioner.

Conclusion:
The court dismissed the writ petition, concluding that the petitioner failed to make a case for the retrospective application of the amendments to the Payment of Gratuity Act and the Income Tax Act. The court found no unconstitutionality or discrimination in the appointed date of 29.03.2018 and upheld the income tax deduction on the gratuity received by the petitioner. No costs were awarded, and the connected miscellaneous petition was closed.

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