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R.D. Chadha, Y.D. Sehgal, S.N. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1982)2ITD592(Delhi)
AppellantR.D. Chadha, Y.D. Sehgal, S.N.
RespondentCommissioner of Income-tax
Excerpt:
.....each of the assessees received from the central government diverse amounts on account of commuted value of one-third pension due to each one of them plus terminal benefit calculated at twice the amount of the commuted value of the pension. when the said payments were made to each of the assessees, no income-tax was deducted from the amount paid to him in respect of the commuted value of one-third pension. tax was, however, deducted from the amount of terminal benefit paid to each one of the said assessees.3. in the income-tax returns filed by the assessees for the years concerned under consideration, each one of them in addition to the income from salary received from the food corporation of india in the year concerned returned the amount of the terminal benefit as part of the.....
Judgment:
1. These appeals by the assessees, Shri R.D. Chadha [IT Appeal No. 340 of 1979], Shri Y.D. Sehgal [IT Appeal No. 341 of 1979], Shri S.N. Sikka [IT Appeal No. 342 of 1979] and Shri P.C. Sachdev [IT Appeal No. 343 of 1979], directed against different orders of the Commissioner, Delhi-I, and Commissioner, Agra, under Section 263 of the Income-tax Act, 1961 ('the Act'), respectively, dated 28-11-1978, 29-11-1978, 2-12-1978 and 25-11-1978, have been consolidated, heard together and are being disposed of by a common order for the sake of convenience. The years of assessments involved in these appeals are 1972-73 in the case of the assessee, Shri R.D. Chadha, 1975-76 in the case of the assessee, Shri Y.D. Sehgal, 1976-77 in the case of the assessee, Shri S.N. Sikka, and 1975-76 in the case of the assessee, Shri P.C. Sachdev for which the respective previous years ended 31-3-1972, 31-3-1975, 31-3-1976 and 31-3-1975.

2. The assessees are the employees of the Food Corporation of India, a public sector undertaking of the Central Government. The assessees were working in different departments of the Government of India and they retired from the Government service on account of their respective permanent absorptions in the Food Corporation of India. The assessee, Shri R.D. Chadha, retired with effect from 30-12-1971, the assessee, Shri Y.D. Sehgal, retired in 1972, the assessee, Shri S.N. Sikka, retired with effect from 9-4-1975 and the assessee, Shri P.C. Sachdev, retired in 1974. On their retirement from the Central Government, each of the assessees received from the Central Government diverse amounts on account of commuted value of one-third pension due to each one of them plus terminal benefit calculated at twice the amount of the commuted value of the pension. When the said payments were made to each of the assessees, no income-tax was deducted from the amount paid to him in respect of the commuted value of one-third pension. Tax was, however, deducted from the amount of terminal benefit paid to each one of the said assessees.

3. In the income-tax returns filed by the assessees for the years concerned under consideration, each one of them in addition to the income from salary received from the Food Corporation of India in the year concerned returned the amount of the terminal benefit as part of the total income. On the basis of these returns, the ITO concerned completed the assessments of the assessees under Section 143(1) of the Act on the basis of the returns filed. Later on, on the applications made by the assessee under Section 154 of the Act, the ITO concerned passed rectification orders under Section 154 wherein it was held that the entire value of the commuted pension and the terminal benefit paid to each of the assessees was exempt from inclusion in their respective total incomes.

4. Later on, the Commissioners concerned being satisfied that the aforesaid orders passed by the ITO under Section 154 were erroneous in so far as they were prejudicial to the interests of the revenue, issued show cause notices to the assessees as to why the said orders be not revised under Section 263. After cause was shown and the assessees concerned were heard, the Commissioners passed the respective orders under Section 263, wherein it was held that the orders of the ITO under Section 154 were clearly erroneous and prejudicial to the interests of the revenue. Under the powers vested in them the Commissioners under Section 263 cancelled the orders of the ITO under Section 154 and thereby restored the original assessment orders passed by the ITO against the assessees.

5. In the appeals before the Tribunal, the arguments both by the learned counsel for the assessee, Shri S.D. Mongia, and the departmental representative have proceeded on the same lines as were canvassed before the Delhi High Court in the case of C.K. Karunakaran v. Union of India [1981] 127 ITR 136. As in the present case, the assessee before the Delhi High Court was an officer of the Government of India who retired from the Government service and was simultaneously absorbed in the public sector undertaking-Oil and Natural Gas Commission. Pursuant to his retirement like the assessee before us, Mr.

Karunakaran had received an amount representing one-third of the commuted pension and twice the amount of the commuted value of the pension as terminal benefit. On these facts, their Lordships of the Delhi High Court have held that rules 37 and 37A of the Central Civil Services (Pension) Rules, 1972, outlined a scheme of commutation of pension similar to but different from that provided in the Civil Pensions (Commutation) Rules. The two clauses of Rule 37A(1) should not be separated and considered as standing on different footing. The lump sum received under Rule 37A(1) should be considered as one integral whole and is entirely exempt under Section 10(10A)(i) of the Act.

Therefore, the terminal benefit received by a civil servant on his retirement from the Government service and absorption in a public sector corporation under Rule 37A(1)(6) of the Central Civil Services (Pension) Rules, equal to twice the amount of the commuted value of one-third of his pension in addition to the lump sum amount under Rule 37(1A)(a) of the commuted value or one-third of his pension, is exempt from tax under Section 10(10A)(i). This decision of the Delhi High Court has since been accepted by the CBDT vide Circular No. 286, dated 17-11-1980, now reported in 127 ITR (St.)6. Since the factual position in the present cases is similar to that in the case of Karunakaran (supra) and since the decision of the Delhi High Court in Karunakaran's case (supra) has been accepted by the CBDT, we, respectfully, following the aforesaid decision of the Delhi High Court, hold that the terminal benefit received by each of the assessees before us on his retirement from the Central Government Service and absorption in the public sector corporation, namely, Food Corporation of India, under Rule 37A(1)(b) of the Central Civil Services (Pension) Rules, equal to twice the amount of the commuted value of one-third of his pension in the case of each assessee. is exempt from tax under Section 10(10A)(i).


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