Gratuity exemption ceiling applies cumulatively under section 10(10)(iii), so earlier exempt gratuity reduces later exemption.

Section 10(10)(iii) of the Income-tax Act, 1961 treated gratuities within that sub-clause as subject to a common exemption ceiling, and the second proviso was read as applying only to that sub-clause rather than to the entire clause. The amended scheme created separate exemption treatment for different gratuity categories and required earlier exempt gratuity from a former employer to be brought into account when computing the available ceiling for later gratuity from another employer. On that basis, the later gratuity was taxable to the extent it exceeded the remaining exemption limit.

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Issues: Whether gratuity received from a statutory corporation in an earlier year had to be aggregated with later gratuity for applying the ceiling under section 10(10)(iii) of the Income-tax Act, 1961, and whether the expression "this clause" in the second proviso extended to all sub-clauses of section 10(10).

Analysis: Section 10(10), as amended by the Finance Act, 1974, created three distinct classes of gratuity with separate exemption treatment and separate ceilings. The expression "this clause" in the second proviso was held to refer only to sub-clause (iii), not to the entire clause (10). The amended scheme was intended to remove anomalies between gratuities paid by statutory corporations and private employers and to subject all gratuities falling under sub-clause (iii) to a common monetary ceiling. For that reason, gratuity earlier received from Air India was liable to be taken into account when examining the later claim for exemption against gratuity received from Rallis India Limited.

Conclusion: The later gratuity was taxable to the extent it exceeded the available ceiling, and the assessee was not entitled to a further exemption beyond the amount already availed earlier.

Final Conclusion: The reference was answered against the assessee, holding that the statutory ceiling under section 10(10)(iii) governed the aggregate exemption available for gratuities received from more than one employer.

Ratio Decidendi: Under section 10(10)(iii) of the Income-tax Act, 1961, the second proviso applies only to gratuities falling within that sub-clause, and earlier exempt gratuity from a former employer must be reduced while computing the maximum exemption available on later gratuity from another employer.

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