Commuted pension under rule 37A is fully exempt where absorption replaces ordinary pension commutation.

Lump sum received on absorption under rule 37A of the Central Civil Services (Pension) Rules, 1972, was treated as a single integrated commuted pension under a scheme analogous to the ordinary commutation regime. The Delhi High Court reasoned that the statutory exemption in section 10(10A)(i) extends to commuted pension paid under such a scheme, and the internal bifurcation in rule 37A for calculation purposes did not permit splitting the payment into exempt and taxable parts. On that basis, the entire lump sum payable under rule 37A(1) was exempt from income-tax, and no tax was deductible at source.

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Issues: Whether the lump sum received on absorption under rule 37A of the Central Civil Services (Pension) Rules, 1972, was wholly exempt from tax under section 10(10A)(i) of the Income-tax Act, 1961.

Analysis: The scheme under rules 37 and 37A permitted a Government servant, on absorption in a public sector undertaking, to opt for a lump sum in lieu of pension. The Court construed the scheme as an alternative to the ordinary commutation regime and held that the payment under rule 37A was a single integrated commuted pension under a scheme similar to the Civil Pensions (Commutation) Rules. The bifurcation in rule 37A into components for calculation purposes did not justify treating one part as exempt and the balance as taxable. The statutory exemption in section 10(10A)(i) was intended to cover commuted pension received under a similar scheme where the employee was not governed by the ordinary commutation rules.

Conclusion: The entire lump sum payable under rule 37A(1) was exempt from income-tax, and no tax was deductible at source.

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