Leave encashment exemption under Section 10(10AA) applies on cessation of service, not only superannuation retirement.

Leave encashment received on cessation of service can fall within the exemption for leave salary under Section 10(10AA) even where the employee did not retire by superannuation, provided the facts establish retirement from service within the statutory sense and the payment is within the prescribed limit. The text states that the employee had ceased service and left India for an ILO assignment, so the leave encashment related to retirement from service for the purposes of the provision. A contrary decision was treated as distinguishable because the employees there continued in service.

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Issues: Whether leave encashment received by an employee on leaving service was exempt under Section 10(10AA) of the Income-tax Act, 1961 even though the receipt was not shown to be on retirement by superannuation.

Analysis: The exemption under Section 10(10AA) applies to leave salary received at the time of retirement, including retirement otherwise than by superannuation, subject to the statutory limit. On the facts found, the assessee had ceased service with the employer and left India for an ILO assignment, and the leave encashment related to 58 and a half days. The factual position established retirement from service for the purposes of the provision, and the relied upon contrary decision was distinguishable because the employees there continued in service.

Conclusion: The leave encashment was held to be exempt under Section 10(10AA), and the Revenue's appeal failed.

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