Commuted pension exemption under income tax law bars deduction at source from a non-taxable retirement payment.

Commuted pension received by a retiring Government employee was treated as exempt under section 10(10A)(i) of the Income-tax Act, 1961, because it fell within the statutory exemption for commutation of pension on retirement. The Court also noted that the contrary administrative instruction had been withdrawn following acceptance of the Delhi High Court view. As the amount was not chargeable to tax, no direction could validly be issued for deduction of tax at source from it, and such a direction was without authority of law.

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Issues: Whether commutation of pension received by a retiring Government employee was exempt from tax under section 10(10A)(i) of the Income-tax Act, 1961, and whether the Accountant-General had authority to direct deduction of tax at source from that amount.

Analysis: The payment was commutation of pension received on retirement from Government service and fell within the exemption contemplated by section 10(10A)(i). The Court also noted the administrative acceptance of the Delhi High Court view and the CBDT circular withdrawing the contrary instruction. Once the amount was not chargeable to tax under the Act, no direction could be issued for deduction of tax at source.

Conclusion: The commuted pension was exempt from tax, and the direction to deduct tax at source was without authority of law and liable to be quashed.

Ratio Decidendi: Commuted pension falling within section 10(10A)(i) of the Income-tax Act, 1961 is exempt from tax, and no deduction at source can be ordered in respect of a sum not chargeable to tax.

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