Proportionate exemption for retirement benefits applies where qualifying service is partly with a State undertaking, subject to verification

Retirement benefits such as gratuity and leave encashment may be exempt on a proportionate basis where the employee's service was split between a State Government undertaking and a PSU, if the qualifying service can be clearly identified. The Tribunal followed its earlier view on similar facts and accepted the claim in principle, but only subject to verification of the assessee's computation and supporting details by the Assessing Officer. The operative relief therefore depends on establishing the proportion attributable to the qualifying period of service before exemption is granted.

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Issues: Whether the assessee was entitled to proportionate exemption in respect of gratuity and leave encashment received on retirement for the period of service rendered with the State Government undertaking, and whether the matter required verification of the working furnished by the assessee.

Analysis: The assessee had served first with Maharashtra State Electricity Board and thereafter with Maharashtra State Electricity Distribution Company Limited. The dispute concerned the taxability of the retirement benefits received as gratuity and leave encashment. The claim for exemption was founded on the distinction between the period of service rendered with the State Government undertaking and the subsequent period with the company. The record showed that the detailed computation of proportionate exemption furnished by the assessee had not been verified by the jurisdictional Assessing Officer. In these circumstances, the earlier view of the Tribunal on identical facts was followed, and the claim was held to be capable of allowance on a proportionate basis subject to verification of the working and supporting details.

Conclusion: The assessee was entitled to proportionate exemption for gratuity and leave encashment attributable to the period of service with the State Government undertaking, and the matter was remitted for verification before granting the relief accordingly.

Final Conclusion: The appeal succeeded to the extent that the assessee's claim was accepted in principle on a proportionate basis, but the exact relief was left to be worked out after verification by the Assessing Officer.

Ratio Decidendi: Where retirement benefits relate to service rendered partly with a State Government undertaking and partly with a PSU, exemption may be allowed on a proportionate basis for the qualifying service, subject to verification of the computation.

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