2023 (3) TMI 768 - AT - Income Tax

Exemption of leave encashment u/s 10(10AA)(ii) - rectification order u/s 154 passed wherein exemption claimed on leave encashment was reduced to the extent of Rs. 3 lakh only - assessee had been in service under the Department of Telecommunication, Govt. of India and his stamps of appointment and pay-scale were governed by the Central Govt. Rules and assessee was absorbed in MTNL, a Govt. of India Undertaking, w.e.f 01.10.2000 vide order dated 19.01.2004 - HELD THAT - Identical to the issue raised before coordinate bench of Mumbai ITAT in case of Shri Babul Patel vs. ITO 2019 (2) TMI 2069 - ITAT MUMBAI where the issue was decided in favour of the assessee by observing as under As per the provisions of section 10(10AA)(i) of the Act, the assessee is entitled for exemption on the amount of leave encashment of leave earned during the period before absorption in MTNL as per section 10(10AA)(i) of the Act as applicable to Central Govt. because before that date he was employee of Govt. of India that the Central Government. The amount of leave encashment in respect of leave accrued after absorption in MTNL will be governed by the exemption as per section 10(10AA)(ii) of the Act - facts are clearly in favour of assessee and for 263 days of leave as on the date of absorption was available to the assessee, which was earned and unutilized from Government service i.e. Central Government and will be governed by 10(10AA)(i) of the Act. The balance 37 days of leave earned is from MTNL and will be governed as per the provisions of section 10(10AA)(ii) of the Act. Accordingly, allow the appeal of the assessee and direct the AO to re-compute the exemption proportionately as directed above Before us, no material has been placed on record either by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before me, no material was placed on record to point out any distinguishing feature in the facts of the case of the assessee and case mentioned above. Thus, respectfully following the order the Mumbai Tribunal as mentioned/discussed above, we hereby directed the AO to allow 100% exemption of leave encashment received on account of employment with Department of telecommunication i.e. Rs. 6,85,115/- under the provision of section 10(10AA)(i) of the Act whereas for remaining amount the AO is directed to calculate the exemption as per the provision of section 10(10AA)(ii) of the Act. Thus, the ground of appeal raised by the Assessee is hereby partly allowed.

Summary

Issues:
The judgment involves the issue of exemption under section 10(10AA)(i) and section 10(10AA)(ii) of the Income Tax Act, 1961 in the context of leave encashment received by an individual upon retirement from a PSU after being absorbed from the central government.

Summary:

Issue 1: Exemption under section 10(10AA)(i) and section 10(10AA)(ii)
The appeal was filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) regarding the restriction of exemption on leave encashment to Rs. 3 lakh instead of the claimed Rs. 7,31,440. The assessee contended that the entire amount should be exempted under section 10(10AA)(i) based on the employment history with the Department of Telecommunication and BSNL. The learned CIT(A) upheld the restriction citing the assessee's eligibility as a PSU employee, not a government employee, and referred to a relevant judgment. The Appellate Tribunal, after considering the facts and the Mumbai Tribunal's decision in a similar case, directed the AO to allow 100% exemption for the leave encashment earned during government service and calculate the exemption proportionately for the remaining amount as per section 10(10AA)(ii). The appeal was partly allowed in favor of the assessee.

In conclusion, the Appellate Tribunal directed the AO to allow 100% exemption for the leave encashment received on account of employment with the Department of Telecommunication under section 10(10AA)(i) and calculate the exemption as per section 10(10AA)(ii) for the remaining amount. The judgment was pronounced on 15/03/2023 at Ahmedabad.