2017 (6) TMI 165 - AT - Income Tax

Tribunal grants full exemption for gratuity and leave encashment to state university employee

The Tribunal overturned the decision of the Assessing Officer and the Commissioner of Income Tax (Appeals) by allowing full exemption to the assessee for ... Denial of exemption u/s 10(10) - amount received by the assessee towards arrears of gratuity and on account of arrears of leave encasement - Held that:- Respectfully following the order in the case of Ram Kanwar Rana Vs ITO (2016 (6) TMI 687 - ITAT DELHI) the impugned order is set aside and the AO is directed to allow the claim of the assessee on account of gratuity & leave encashment as held the assessee is found to be an employee holding a civil post under a State, the provisions of section 10(10)(i) are fully attracted in this case entitling him to exemption for the amount under consideration. Once a case falls under clause (i) of section 10(10), the same cannot be brought within the purview of clause (iii) of section 10(10). Therefore, hold that the assessee is entitled to exemption u/s 10(10)(i) in respect of gratuity amount received and arrears of leave encasement - Decided in favour of assessee. Issues Involved:1. Denial of exemption under Section 10(10) of the Income Tax Act, 1961 for arrears of gratuity.2. Denial of exemption under Section 10(10) of the Income Tax Act, 1961 for arrears of leave encashment.Detailed Analysis:1. Denial of Exemption for Arrears of Gratuity:The primary issue in this case concerns the denial of exemption under Section 10(10) of the Income Tax Act, 1961 for the amount received by the assessee towards arrears of gratuity amounting to Rs. 6,50,000. The assessee, an employee of Choudhary Charan Singh Haryana Agricultural University, Hisar, received this amount as death-cum-retirement gratuity. The Assessing Officer (AO) restricted the exemption to Rs. 3,50,000, contending that the university employees are covered under Section 10(10)(iii) of the Act, and not under Section 10(10)(i) or (ii). The AO's rationale was that the employees of the university cannot be termed as government employees since they are not under the control of the Haryana Government nor is their pay debited to the consolidated funds of the state.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that university employees are not holders of civil posts under a state and are thus not eligible for exemption under Section 10(10)(i). The CIT(A) further noted that the exemption limit under Section 10(10)(iii) was Rs. 3,50,000 before 24.05.2010, and since the appellant retired before this date, the exemption was correctly limited to Rs. 3,50,000.2. Denial of Exemption for Arrears of Leave Encashment:The second issue pertains to the denial of exemption for arrears of leave encashment amounting to Rs. 2,82,232. Similar to the gratuity issue, the AO did not allow the exemption claimed by the assessee, and this decision was also upheld by the CIT(A).Tribunal's Findings:The Tribunal noted that similar issues had been adjudicated by various benches of the ITAT New Delhi in favor of the assessee in cases with identical facts. Specifically, the Tribunal referred to the case of Sh. Ram Kanwar Rana Vs ITO, Ward-3, Hisar, where it was determined that the assessee, being an employee of a state university, held a civil post under a state. Therefore, the provisions of Section 10(10)(i) were applicable, entitling the assessee to full exemption for the gratuity amount received.The Tribunal highlighted that the CCS Haryana Agricultural University was established by an Act of Parliament and is funded by the State Government, thus qualifying as a 'State' under Article 12 of the Constitution of India. Consequently, the assessee was deemed to hold a civil post under a state, making him eligible for the exemption under Section 10(10)(i).Regarding the leave encashment, the Tribunal extended the same rationale, following the consensus that the view taken for gratuity under Section 10(10) should apply similarly to leave encashment under Section 10(10AA).Conclusion:The Tribunal set aside the impugned order and directed the AO to allow the exemptions claimed by the assessee for both gratuity and leave encashment. The additions made by the AO and sustained by the CIT(A) were deleted, and the appeal of the assessee was allowed.