State Electricity Board employees transferred under statutory reorganisation may qualify for retiral benefit exemption as State Government employees.

Employees originally serving a State Electricity Board and later absorbed into successor power companies under the Electricity Act, 2003 could be treated as State Government employees for retiral benefit exemptions where the statutory reorganisation vested the Board's assets, liabilities and personnel in the State framework and preserved continuity of service conditions. On that basis, the bar applicable to non-Government employees did not apply, and the exemption under section 10(10A) and section 10(10AA) of the Income-tax Act, 1961 was available.

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Issues: Whether employees of the erstwhile State Electricity Board and its successor power companies were entitled to exemption under section 10(10A) and section 10(10AA) of the Income-tax Act, 1961 as employees of the State Government.

Analysis: The assessees had initially served the erstwhile State Electricity Board and later stood absorbed in the reorganised generation and distribution entities under the Electricity Act, 2003. The statutory scheme under sections 131 to 133 of the Electricity Act, 2003 showed vesting of the Board's property, rights, liabilities, and personnel in the State Government and thereafter transfer to successor companies, with protection of service conditions. The decisive factor was that the employment origin was with a State-controlled statutory body and the transfer arrangement preserved the character of service so as to bring the assessees within the scope of State Government employee benefits. On that basis, the restriction applicable to non-Government employees could not be applied to deny the claimed exemption.

Conclusion: The assessees were entitled to exemption under section 10(10A) and section 10(10AA) of the Income-tax Act, 1961, and the Revenue's denial of such benefit was incorrect.

Ratio Decidendi: Employees whose services are vested and transferred under a statutory reorganisation scheme from a State statutory board to successor entities, with continuity and protection of service conditions, may be treated as State Government employees for the purpose of exemption provisions governing retiral benefits.

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