The Income Tax Appellate Tribunal (ITAT), Chandigarh, ruled that the appellant who had served the PSEB being an undertaking of the Punjab Government for a period November 18, 1983 to April 16, 2010 is entitled to the leave encashment of Rs. 13.02 lacs, but, not entitled to any relief when he served with the Punjab State Power Corporation Limited.
The ruling came while explaining that the Electricity Distribution Company, namely Punjab State Power Corporation Limited (PSPCL), cannot be treated as the state government or an undertaking of the state government within the ambit of Section 10(10A) of the Income Tax Act.
Reference was made to the plain and literal interpretation of Section 10(10A) which makes it evident that the exemption is available only to employees of the central or state government or of a local authority or other specified bodies.
A Single Bench of Laliet Kumar (Judicial Member) observed that the provision of Section 10(10A) is a beneficial provision, intended to extend relief to employees who have rendered long service to the Government. Merely because, by operation of a state restructuring scheme, the appellant-taxpayer was compulsorily transferred from PSEB to PSPCL, he cannot be deprived of the benefit accrued or earned during his qualifying government service up to the date of restructuring.
The Bench said the law cannot be read to inflict undue hardship or unintended consequences on employees who had no choice in the restructuring process. Therefore, the exemption under section 10(10A) must be allowed to the extent of the service rendered under the Punjab State Electricity Board up to April 16, 2010, while the portion relatable to the subsequent service with PSPCL shall remain taxable.
Briefly, the appellant had rendered long service with the Punjab State Electricity Board (PSEB) from November 18, 1983 to April 16, 2010, after which PSEB was restructured and its operations were transferred to a newly formed entity, Punjab State Power Corporation Limited (PSPCL). As a result of the State Government’s restructuring scheme, the appellant-taxpayer was compulsorily transferred to PSPCL and continued in service there until his retirement. Upon retirement, he received leave encashment, and claimed exemption under Section 10(10AA).
The AO and the CIT(A) rejected the claim on the ground that PSPCL employees were not “State Government employees” and therefore the exemption under section 10(10AA)(i) (full exemption for Government employees) was not available. They took the view that the appellant retired from PSPCL, a corporation, and hence could claim exemption only to the limited extent applicable for non-government employees.
Appearances:
Advocate Tej Mohan Singh, for the Appellant/ Taxpayer
Sr DR Priyanka Dhar, for the Respondent/ Revenue
