Per Shri R. Rangayya, Accountant Member - In this appeal the appellant objects to the inclusion of an amount of Rs. 11,000, being a sum received by him on encashment of earned leave to his credit at the time of his resignation from his service from a former employer Chic International (P.) Ltd.
2. The appeal was originally heard by a Bench consisting of Shri S.O. Vyas and Shri B. Gupta and was dismissed by them. Later, on consideration of miscellaneous application, the earlier order was recalled and the matter was reposted for hearing.
3. The assessee was an employee of Chic International (P.) Ltd. up to 30-6-1981, when he resigned and took up a job with another company, namely, Indo Euro Chemicals Ltd. At the time he left the service from the former employer, he received a sum of Rs. 11,000 towards encashment of his accumulated leave. The ITO disallowed the assessee’s claim for exemption of this amount under section 10(10AA) of the Income-tax Act, 1961 which action was confirmed by the AAC. Hence, the present appeal.
4. Shri Vohra, the learned representative appearing for the appellant, contends that the amount of Rs. 11,000 received by the assessee is clearly covered by exemption under section 10(10AA) and the authorities below were not correct in rejecting his claim. Though section 10(10AA) speaks of any payment received by an employee in respect of so much period of earned leave in his credit at the time of retirement whether on superannuation or otherwise, it covers also the case of an employee who withdraws from his earlier employer either by retirement, resignation or for any other reason as the case of resignation also will be covered by the word ‘retirement’. It is stated that the word ‘retirement’ is defined under the Payment of Gratuity Act, 1972,as meaning termination of service of an employee otherwise on superannuation. It is pointed out that the ordinary dictionary meaning of ‘retirement’ also covers cases of withdrawal or retraction and so withdrawal by the assessee from the earlier employer by resignation will also be retirement. Support was also sought to be had from the wording of the first and second provisos to section 10(AA) which speaks of such payments received from more than one employer. Reliance was also placed on the decisions of the Tribunal in the cases of Vijay Kumar Gupta [IT Appeal Nos. 2381 and 2382 (Delhi) of 1984, dated 14-12-1984] and ITO v. A.M. Khurana IT Appeal No. 4445 (Delhi) of 1985, dated 16-8-1985] and [IT Appeal No. 3899 (Delhi) of 1984, dated 20-2-1986], wherein similar issues were decided by various Benches of the Tribunal in favour of the assessee.
5. The departmental representative claims that the word ‘retirement’ in normal sense means retirement on superannuation only and does not include case of resignation, when the person may take up another job after such resignation. It is further stated that after the amendment made by the Taxation Laws (Amendment) Act, 1984, with effect from 1-4-1978 by introducing the word ‘whether’ in section 10(10AA)(ii ), qualifying the word retirement as ‘retirement whether on superannuation or otherwise’ clearly pointed out that exemption will be available only in cases of normal retirement not in the cases of resignation.
6. We have considered the rival submissions of the parties. Section 10(10AA) provides that any payment received by an employee in respect of so much of the period of earned leave at his credit at the time of retirement whether on superannuation or otherwise as does not exceed 6 months, calculated on the basis of the average salary drawn by the employee during the period of 10 months immediately preceding his retirement whether on superannuation or otherwise, or Rs. 30,000, whichever is less, is exempt. First proviso to that clause provides that in case where any such payments are received by an assessee from more than one employer in the same previous year, the aggregate amount exempt shall not exceed Rs. 30,000. Second proviso further stipulates that where any such payment or payments was/were received in any one or more earlier previous years also and the whole or any part of the amount of such payment was exempt, the total exemption from income-tax under this clause for all the years put together shall not exceed Rs. 30,000. The memorandum explaining the provisions of the Finance Bill, 1982 explains the scheme of the second proviso in the following words :
"Where the cash equivalent of unutilised earned leave is received by an employee from two or more employers in the same year, the maximum amount exempt from tax will not exceed Rs. 25,500. In cases where an employee who has received any cash equivalent of unutilised earned leave in any earlier year, from his former employer or employers receives cash equivalent of unutilised earned leave from his present employer in a later year, the ceiling limit specified above will be reduced by the amount of cash equivalent of unutilised earned leave which has been exempted in any earlier year or years." [Emphasis supplied] - [1982] 134 ITR (St.) 136.
The clarification given in the memorandum explaining the Finance Bill, clearly brings out the intention of the Government to extend the exemption not only to the case of employees who have retired from one employer but also to those who have retired from successive employers in different years. It is provided that the total exemption that can be allowed in respect of such benefit received by such employee from different employers in different years should not exceed Rs. 30,000. Thus, it is clear that section 10(10AA) takes into its fold not only the cases of employees who have retired once for all from his employment but also cases of employees who retire from different employers in different years. Such a situation is possible only if the employee leaves one employment and joins another either by resignation or otherwise. Further, as pointed out by Shri Vohra the dictionary meaning of the word ‘retirement’ as also definition of that word in the Payment of Gratuity Act clearly points out that the word ‘retirement’ also takes into its fold cases of resignation of employees who join a new employment. Thus, in our opinion, the exemption under section 10(10AA) will be allowable not only in cases of retirement on superannuation but also to cases where an employee retires or withdraws from his employment either by resignation or otherwise and takes up another employment. This decision of ours is also supported by the decisions of other Benches in Delhi which have been referred to above in which it was held that the benefit of section 10(10AA) will be available even in the cases of persons who receive such cash equivalent of earned leave after resignation from service. In this view of the matter we hold that the AAC is not correct in rejecting the assessee’s claim for exemption under section 10(10AA) in respect of the sum of Rs. 11,000.
7. The appeal is accordingly allowed.
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