Section 10(10A)(i) of the Income-tax act, 1961--Commutation of pension--Extent of exemption--Clarification regarding - Income Tax - 286/1980

Section 10(10A)(i) of the Income-tax act, 1961--Commutation of pension--Extent of exemption--Clarification regarding Circular No. 286 Dated 17/11/1980 Attention is invited to Board's Instruction No.1191 dated 1st July, 1978, on the above subject. Para. 5 of the said Instructions clarify that in the case of a Government servant absorbed in a public undertaking on or after July 24, 1971, the amount that would qualify for tax exemption under the provisions of section 10(10A)(i) of the Income-tax Act, 1961, would only be the amount representing the commuted value of 1/3rd of the pension. The remaining two-thirds amount received by the person by way of terminal benefit would be includible in the total income subject to relief under section 89(1) of the Income-tax Act, 1961, read with rule 21A of the Income-tax Rules, 1962. 2. The issue has been recently decided by a Division Bench of the Delhi High Court (vide C.K. Karunakaran v. Union of India Ors., LPA No.83 of 1979 decided by Division Bench on April 30, 1980, against order of single judge reported in [1980] 121 ITR 757--to be reported in this volume shortly). The High Court, while allowing a writ petition, relied upon rule 37A of the Pension Rules, 1972, which provides for payment of lumpsum amount to persons absorbed in public sector Corporations. It has been held that rule 37A provides for payment of lumpsum in lieu of the pension. The lumpsum was bifurcated into two component parts under clauses (a) and (b) of rule 37A(i) but the fact that it is bifurcated into two parts neither alters the nature of the payment nor does it cease to be a payment in lieu of pension. Therefore, by virtue of the language of section 10(10A)(i) which speaks of any payment under any similar scheme applicable to the members of the civil services of the Union, the entire commutation was held to be exempt under section 10(10A)(i). 3. The Board have been advised that the decision of the Delhi High Court is to be accepted. 4. In view of the above, Instruction No.1191 stands withdrawn with immediate effect. All appeals/revision petitions/reference applications on this point may be conceded/withdrawn in the light of this circular. 5. This may be brought to the notice of all the officers working in your charge. Yours faithfully, (Sd.) V.B. Srinivasan, Secretary, Central Board of Direct Taxes. [F.No.174/79/80-IT(AI)]