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Commissioner of Income-tax, Gujarat-ii, Ahmedabad Vs. Savitaben N. Amin - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 217 of 1976
Judge
Reported in[1986]157ITR135(Guj)
ActsIncome Tax Act, 1961 - Sections 10(10)
AppellantCommissioner of Income-tax, Gujarat-ii, Ahmedabad
RespondentSavitaben N. Amin
Appellant Advocate R.P. Bhatt, Adv.
Respondent Advocate J.P. Shah, Adv.
Excerpt:
- .....appointment under the agreement executed in 1967 came to a termination on january 1, 1971, under a fresh agreement the assessee was appointed again as managing director, which fresh agreement also contained a clause as to gratuity. in this circumstance, the income-tax officer took the view that the assessee's services had not been terminated and, if so, no gratuity will be due, gratuity being payable only on retirement and consequently section 10(10) will not apply. the claim for exemption was not permitted. but, in appeal, the appellate assistant commissioner took a different view and that was confirmed in appeal by the income-tax appellate tribunal. it is thereupon that the commissioner has come up to this court by way of reference of the question above mentioned. 3. section 10(10), as.....
Judgment:

P.S. Poti, C.J.

1. The question referred to this court reads :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the amount of Rs. 9,625 being part of Rs. 21,000 received by the assessee under the agreement dated February 27, 1967 is exempt as gratuity under section 10(10) of the Income-tax Act, 1961 ?'

2. For the assessment year 1971-72 for which the corresponding previous year is that ended March 31, 1971, the assessee, who is an individual, functioned as the managing director of M/s. Jyoti Limited, a public limited company. This was under an agreement dated February 27, 1967, which was to be operative from January 1, 1966, for a term of five years. Clause 5(viii) of that agreement provided for payment of gratuity to the managing director at one month's salary per year for each year of the tenure of appointment calculated on the basis of the last salary drawn by the managing director at the time of the termination of appointment. The validity of the agreement is not in dispute. In fact, it was approved by the Company Law Board. In the year of account relevant to the assessment year, the assessee was paid a gratuity of Rs. 21,000 in accordance with clause 5(viii) of the agreement. The assessee claimed that under section 10(10) of the Income-tax Act, a sum of Rs. 9,625 out of the gratuity of Rs. 21,000 received was exempt from income-tax. It appears that though the appointment under the agreement executed in 1967 came to a termination on January 1, 1971, under a fresh agreement the assessee was appointed again as managing director, which fresh agreement also contained a clause as to gratuity. In this circumstance, the Income-tax Officer took the view that the assessee's services had not been terminated and, if so, no gratuity will be due, gratuity being payable only on retirement and consequently section 10(10) will not apply. The claim for exemption was not permitted. But, in appeal, the Appellate Assistant Commissioner took a different view and that was confirmed in appeal by the Income-tax Appellate Tribunal. It is thereupon that the Commissioner has come up to this court by way of reference of the question above mentioned.

3. Section 10(10), as it stood at the relevant time, reads thus :

'Section 10(10) any death-cum-retirement gratuity received under the Revised Pension Rules of the Central Government or under any similar scheme of a State Government, a local authority or a corporation established by a Central, State or Provincial Act or any payment of retiring gratuity received after the 1st day of June, 1953, under the New pension Code applicable to the members of the Defence Services; or any others gratuity not exceeding one-half month's salary for each year of completed service, calculated on the basis of the average salary for the the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of twenty-four thousand rupees or fifteen months' salary so calculated, whichever is less.'

4. The section applies to 'any other gratuity' and the limit of the gratuity claimable as exempt is also indicated in the provision.'Gratuity' is a term which is not defined in the Income-tax Act and has necessarily, therefore, to be understood as understood in common parlance. The assessee's case was that the amount vas claimable as gratuity in accordance with the terms of the agreement and the only answer to this by the Revenue was that the petitioner not having retired at the time the gratuity was paid to her, it cannot be said to be gratuity falling within section 10(10) of the Act.

5. As generally understood, gratuity is no doubt a retirement benefit. It is also payable in the event of retirement on superannuation unless it be that death has intervened and by that time the deceased has earned his gratuity or the assessee has prematurely retired after earning the right to claim gratuity. It is no doubt true that in all these cases, it is a payment made on cessation of employment, but at the same time it does not mean that the assessee, who ceased to be an employee, cannot seek employment again. It is possible that an assessee retires, obtains the benefit of gratuity, joins another employer, serves and again earns gratuity. It is equally possible that an employee retires, earns gratuity and the same employer offers such employees a job under a fresh agreement. It is also possible that under the fresh agreement parties provide for payment of gratuity. That would in no way militate against the concept of gratuity if such gratuity is paid on the first retirement. Retirement, in the case of a managing director, would be a matter of contract, the company having agreed to the appointment of the managing director for a specified term. The agreement may provide for payment of gratuity on the expiration of the term for which the person concerned is appointed as managing director. In such a case, irrespective of what happens to the managing director thereafter - whether the managing director is appointed for a fresh term under a fresh agreement or not - the earlier agreement works itself out and consequently when the managing director retires, he or she would be entitled to whatever gratuity is contemplated as payable under the agreement. If parties have stipulated for payment of gratuity, any such payment made pursuant thereto would be gratuity due to the managing director on retirement under the terms of the agreement and in accordance with the terms of the same agreement. The fact that such a person is employed again under a fresh contract without any break need make no difference, for it will not alter the character of the earlier payment made pursuant to the agreement. Essentially, the question is whether parties had agreed to make available a benefit under the terms of employment on the termination of the employment. If parties have so agreed and that agreement operates to confer the benefit of such gratuity on the termination of the employment, irrespective of the question whether the same employee was again employed under a fresh agreement entered into between the same parties, the earlier payment will be a payment of gratuity. We, therefore, see no reason to differ from the view taken by the Tribunal on this question. We hold that section 10(10) enables the assessee to claim that the payment made by way of gratuity under the terms of the agreement made in 1967 is a payment which falls within section 10(10) of the Act to the extent permissible under that section. Consequently, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.

6. A copy of this judgment shall be sent under the seal of this court and the signature of the Registrar to the Income-tax Appellate Tribunal, Ahmedabad Bench 'C'.


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