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TMI Blog2020 (12) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... of consequential relief, the Petitioner prays for the refund of income tax that was deducted at source for the financial year 2018-19 on the gratuity paid to the Petitioner. 2. The Petitioner was an employee of the National Thermal Power Corporation (the NTPC). He worked in the said organization as an Engineer [Executive Cadre] and retired from service on 28.02.2018 after serving the organization for about 33 years. Upon retirement, his gratuity was paid in two tranches of Rs. 10 lakhs each. The second tranche was paid after deducting tax under Section 10 (10) (ii) of the Income Tax Act, 1961 [the Income Tax Act]. Pursuant thereto, Form-16 was issued in the month of June 2019. As a result of the deduction of income tax on gratuity, the Petitioner received only Rs. 16.7 lakhs instead of Rs. 20 lakhs. According to the Petitioner, the amount received by him as gratuity should have been completely exempt from income tax whereas he was required to pay income tax on the second tranche of Rs. 10 lakhs because he retired on 28.02.2018 and not on or after 29.03.2018, which is the appointed date under Notification S.O.1419(E) and Notification S.O. 1213(E) . 3. Section 10 of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations are unconstitutional inasmuch as employees who retired prior to 29.03.2018 are being discriminated against. The present writ petition is filed in these facts and circumstances. 5. We heard Mr.G.Srinivasan, the Petitioner, as a party-in-person; Mr.Venkatasamy Babu for the Respondents 1 and 2; and Mrs.Hema Muralikrishnan for the third Respondent. 6. Mr.Srinivasan stated that he worked in the NTPC as an engineer for about 33 years and retired on 28.02.2018. Upon retirement, as a first tranche, he received a sum of Rs. 10 lakhs as gratuity. Thereafter, he received the second tranche, as per the direction of BPE dated 10.07.2018, after deducting tax thereon. He further submitted that such tax deduction has resulted in the receipt of a sum of Rs. 16.7 lakhs as gratuity instead of Rs. 20 lakhs. According to Mr.Srinivasan, the levy of income tax on the amount received as gratuity is unconstitutional. In support of his submissions, Mr.Srinivasan referred to Section 10 (10) (ii) of the Income Tax Act, which exempts gratuity received under the Payment of Gratuity Act from the total income for the purpose of computing income tax subject to the maximum amount specified in Section 4(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to employees of the Central Government. Accordingly, the ceiling of gratuity was fixed at Rs. 20 lakhs for Central Government employees pursuant to the implementation of the VII Central Pay Commission Recommendations. Consequently, it was decided to amend the Payment of Gratuity Act. Accordingly, the Bill was introduced in Parliament on 23.10.2017 and Parliament passed the Bill on 22.03.2018. According to Mr.Srinivasan, the passage of the Bill was delayed in Parliament due to the un-cooperative attitude of the opposition parties. Otherwise, the Bill had been approved by the Cabinet in 2017. He also relied upon the judgment in Menaka Gandhi v. Union of India (1978) 1 SCC 248 so as to contend that the principle of reasonableness is an essential element of equality or non-arbitrariness under Article 14 of the Constitution and that Article 14 stands violated by the discrimination between persons who are similarly situated on the basis of the date of retirement. For all these reasons, he submitted that he is entitled to the relief prayed for. 9. On the contrary, the learned counsel for the third respondent submitted that the exemption from payment of income tax under Section 10 (10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act." 13. On perusal of Section 10 (10) (ii), it is evident that the exemption limit is as specified in sub section (2) and (3 )of Section 4 of the Payment of Gratuity Act. Therefore, one has to turn to the Payment of Gratuity Act to determine the exemption limit under Section 10 (10)(ii) of the Income Tax Act. As per Sub-section (2) of Section 4, an employee shall receive gratuity at the rate of 15 days wages for every completed year of service or part thereof based on the wages last drawn. Sub-section (1) thereof imposes an additional condition that such employee should have provided services for a continuous period of not less than five years. Therefore, Sub-section (2) deals with the manner of computation of the amount payable as gratuity. On the facts of this case, there is no dispute with regard to the computation of gratuity and the dispute is restricted to the ceiling on gratuity, which is dealt with in Section 4(3). The ceiling specified in Section 4(3) has been revised from time to time. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated the 11th June, 2010, except as respects things done or omitted to be done before such supersession, the Central Government, having regard to the maximum amount of any gratuity payable to employees, hereby specifies twenty lakh rupees as the limit for the purposes of the said sub-clause in relation to the employees who retire or become incapacitated prior to such retirement or die on or after the 29th day of March, 2018 or whose employment is terminated on or after the said date." Upon perusal of Notifications S.O. 1419 (E) and S.O. 1420(E), it is evident that the increase in ceiling limit under the Payment of Gratuity Act is with effect from 29.03.2018. Likewise, on examining the Notification S.O.1213 (E), it is abundantly clear that the increased exemption limit of Rs. 20 lakhs under the Income Tax Act is applicable to those who retire or die on or after 29.03.2018. As stated earlier, the Petitioner does not challenge Section 10(10) of the Income Tax Act or even Notification S.O. 1213 (E). Instead, he seeks a declaration whereby the amendments made by Parliament with effect from 29.03.2018 should be applied with retrospective effect from 01.01.2016. While Parliament has th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court concluded as follows in paragraphs 53 and 66.2 thereof: "53.After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. "66.2.When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue." 16. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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