TaxTMI 
TaxTMI 
2024 (3) TMI 313
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....cap has not been placed on the amount receivable as leave encashment at the time of retirement in respect of government employees, as ultra vires to the Constitution of India and remove the unconstitutional part by applying the Doctrine of Severability so that the beneficial portion of the enactment is saved, the intent of the Legislature to provide relief to the retirees in their twilight days is not frustrated and the enactment after severance does not suffer from unconstitutionality as prayed for by the petitioner. 2. The facts leading to the writ petition are as follows: 3. The petitioner joined the State Bank of India (henceforth for short 'the S.B.I.') in the year 1981 and after putting in more than 36 years of service retired on 31.08.2017. 4. According to the writ petition filed prior to his retirement, he made a case that once retired, he was entitled to Rs. 6,70,000/- but after deduction of income tax he will be getting only a sum of Rs. 4,70,000/- approximately as rest of the amount will be liable to tax. However, had he been in the State or Central Government Services, no deduction on account of income tax would have been made from the leave salary payable to the pet....
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....f sub-clause (ii),- the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired;" 6. The contention of the petitioner is that the impugned section 10(10AA) of 'the Act' does not place any cap on the period of leave and amount of leave salary which will be out of income tax net at the time of retirement in the case of government employees whether they are in Central or State Services, whereas in the case of employees of other establishments, the period of leave is capped at 10 months and the maximum amount exempted from income tax is subject to such limit as the Central Government may notify in the Official Gazette the same being in the year 2017 to be Rs. 3.00 lakh which means that any amount which is in excess of Rs. 3.00 lakh will be liable to tax. 7. The further contention is that the leave salary rules are framed as per different service rules applicable to employees of different organizations whereas as per the Central Civil Services (Leave) Rules, 1972 (henceforth for short 'the Rules') encashment of Earned Leave standing at the credit of a reti....
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.... laws. Leaving aside Article 31(2) that the provisions of a tax law within legislative competence could be impugned as offending Article 14 is exemplified by such decisions of this Court as Suraj Mall Mohta & Co. v. A.V. Vishvanatha Sastri (AIR 1954 SC 545: (1955) 1 SCR 448) and Meenakshi Mills Ltd. v. A.V. Visvanatha Sastri (AIR 1955 SC 13: (1955) 1 SCR 787). In K.T. Moopil Nair v. State of Kerala (AIR 1961 SC 552) the Kerala Land Tax Act was struck down as unconstitutional as violating the freedom guaranteed by Article 14. It also goes without saying that if the imposition of the tax was discriminatory as contrary to Article 15, the levy would be invalid." 12. A taxing statute, however, enjoys a greater latitude. An inference in regard to contravention of Article 14 would. however, ordinarily be drawn if it seeks to impose on the same class of persons or occupations similarly situated or an instance of taxation which leads to inequality. The taxing event under the Andhra Pradesh State Entertainment Tax Act is on the entertainment of a person. Rate of entertainment tax is determined on the basis of the amount collected from the visitor of a cinema theatre in terms of the ent....
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.... no merit therein. This is for the reason that employees of the Central Government and State Government form a distinct class and the classification is reasonable having nexus with the object sought to be achieved. The Central Government and State Government employees enjoy a status and they are governed by different terms and conditions of the employment. Reference here may be made to the decision in Roshan Lai Tandon v Union of India AIR 1967 SC 1889, wherein it was held by the Supreme Court that the legal position of a Government servant is more one of status than of Contract. The relevant extract from the said judgment reads as under: "6. We pass on to consider the next contention of the petitioner that there was a contractual right as regards the condition of service applicable to the petitioner at the time he entered Grade D and the condition of service could not be altered to his disadvantage afterwards by the notification issued by the Railway Board. It was said that the order of the Railway Board dated January 25, 1958, Annexure 'B', laid down that promotion to Grade 'C' from Grade 'D' was to be based on seniority-cum-suitability and this conditi....
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.... to attach to this relation compulsory incidents, such as liability to pay compensation for accidents. The extent to which the law is content to leave matters within the domain of contract to be determined by the exercise of the autonomous authority of the parties themselves, or thinks fit to bring the matter within the sphere of status by authoritatively determining for itself the contents of the relationship, is a matter depending on considerations of public policy. In such contracts as those of service the tendency in modern times is to withdraw the matter more and more from the domain of contract into that of status." (Salmand and Williams on contracts, Lord Edn. Para (2). (emphasis added) Thus the Government employees enjoy protection and privileges under the Constitution and other laws, which are not available to those who are not the employees of the Central Government and State Governments. 16. Learned A.S.G. submits that merely because the Public Sector Undertakings and Nationalized Banks are considered as State under Article 12 of the Constitution of India for the purpose of entertainment of proceedings under Article 226 of the Constitution and for enforcement of fu....
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....ir own resources to meet the additional expenditure incurred on account of increase in wages and that the Government will not provide any funds for the same. Such of the public sector enterprises (government companies) which had become sick and had been referred to BIFR, were obviously running on huge losses and did not have their own resources to meet the financial liability which would have been incurred by revision of pay scales. By the office memorandum dated 19.7.1995 the Government merely reiterated its earlier stand and issued a caution that till a decision was taken to revive the undertakings, no revision in pay scale should be allowed. We, therefore, do not find any infirmity, legal or constitutional in the two office memorandums which have been challenged in the writ petitions. 18. Learned Senior Counsel submits that enhancing the exemption limit for leave encashment for other employees has been considered by the Central Government from time to time and effective 01.04.2023, it has now been raised to Rs. 25.00,000/-. 19. As regards the constitutionality of the provisions under section 10 (10AA) vis-à-vis Article 14 of the Constitution of India as raised by the p....
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.... over others so long as they are not singled out for special treatment. In substantia, the differentia required is that it must be real and substantial, bearing some just and reasonable relation to the object of the legislation. 21. Learned Senior Counsel concluded by submitting that the petitioner has failed to show how Section 10 (10AA) of 'the Act' is arbitrary and as such the writ petition deserves dismissal. 22. The counter-affidavit of the State Bank of India states that the Income Tax Act is a Central legislation and Central Government has the power to enact a law within the periphery of the constitution which can be implemented in its letter and spirit, unless it is declared ultra vires by the competent court. 23. We have gone through the materials on record as well as the submissions put forward by the respective counsels. The sum and substance of the case of the petitioner is that the employees of the Bank as also the Public Sector Undertakings cannot be treated differently holding the equality clause of Article 14 of the Constitution of India. The said contention is unfounded and fit to be rejected as two different set of employees who are not situated equally and fo....