Leave encashment exemption does not extend to voluntary resignation from contract service under section 10(10AA).

Section 10(10AA) was construed as exempting leave encashment only where the payment arises on retirement after completion of service, including retirement otherwise than on superannuation. Voluntary resignation from contract service was treated as distinct from retirement, and the expression "otherwise than on superannuation" was not read to extend the exemption to a case where the employee left service before retirement benefits became due under the service conditions. On that construction, leave encashment received on resignation was not exempt from tax.

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Issues: Whether leave encashment received on resignation from private employment was exempt under section 10(10AA) of the Income-tax Act, 1961 as retirement on superannuation or otherwise.

Analysis: The exemption provision was construed as covering retirement after completion of service, including retirement otherwise than on superannuation, but not resignation from contract service. Retirement and resignation were treated as distinct concepts, and the words "otherwise than on superannuation" were held not to extend the exemption to a case where the employee voluntarily resigned before retirement benefits became due on the contemplated service conditions.

Conclusion: Resignation from contract service is not covered by section 10(10AA) of the Income-tax Act, 1961, and the leave encashment was not exempt.

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