2024 (6) TMI 1230 - HC - Income Tax

Leave Encashment - Exemption u/s 10AA - Review of income limit for taxing purposes on earned leave salary u/s 10AA (ii) with retrospective effect by retired employees - HELD THAT - Petitioners all stood retired before the latest notification which has been issued fixing the upper limit as Rs. 25 lakhs for exemption from payment of earned leave income. The employer has also deducted the admissible tax above Rs. 3 lakhs from the petitioners. At this distant point of time this Court considering the limitation on the power of the Court as well as the doctrine of separation of powers cannot issue a mandamus to the respondent Authorities to revise the upper limit of the encashment of earned leave for granting exemption from payment of the income tax with retrospective effect. Issuance of notification as provided in the provision is in the realm of the powers of the Executive. The Court though has sympathy with the petitioners but considering the limitation on powers of the Court this Court is unable to issue a writ of mandamus commanding the respondents to revise the upper limit in respect of the employees who retired before 01.04.2023. This is in the realm of policy decision which is to be taken by the Executive. Thus these writ petitions are disposed of with liberty to the petitioners to approach the Government for the reliefs sought for in these writ petitions and the Government may take a decision on their representations. Pending interlocutory application if any in these present writ petitions stands dismissed.

Summary

Issues:
Retirement benefits - Tax exemption on earned leave salary - Revision of income limit for taxing purposes under Section 10AA (ii) of the Income Tax Act 1961 with retrospective effect.

Analysis:
The petitioners, retired employees, sought a mandamus to review the income limit for taxing purposes on earned leave salary under Section 10AA (ii) of the Income Tax Act 1961 with retrospective effect. The provision allows for exemption on encashment of earned leave salary, subject to the limit specified by the Central Government. The last notification regarding this limit was issued in 2002, and despite subsequent pay revisions, no further notifications were issued until 2023, setting the upper limit at Rs. 25 lakhs. The petitioners retired before this latest notification and had tax deducted above the previous limit of Rs. 3 lakhs. The Court acknowledged the sympathy for the petitioners but held that the power to issue such notifications lies with the Executive, not the judiciary. The Court cited the doctrine of separation of powers and the limitation on its powers in refraining from mandating the revision of the upper limit retrospectively.

The Revenue's Standing Counsel mentioned a case where the Delhi High Court directed the Government to consider revising the upper limit, but the notification was only issued in 2023, effective from 01.04.2023. The Court expressed its inability to issue a writ of mandamus to revise the upper limit for employees who retired before the latest notification, emphasizing that such policy decisions fall within the Executive's jurisdiction. The Court disposed of the writ petitions, granting the petitioners the liberty to approach the Government for the sought reliefs, leaving the decision to the Executive. Any pending interlocutory applications were dismissed in light of the judgment.