Bindumadavan Prakash Vs ITO (ITAT Bangalore)
Full Exemption of Leave Encashment Allowed – Government Service Character Prevails Over PSU Status
The Bangalore ITAT held that leave encashment received on retirement is fully exempt u/s 10(10AA)(i) where such leave pertains to period of service under the Central Government, even if the employee was later absorbed in a PSU like BSNL.
The AO had restricted exemption to ₹3 lakh under Section 10(10AA)(ii) (applicable to non-government employees) by treating the assessee as a BSNL employee at retirement. The CIT(A) upheld this view.
However, the Tribunal observed:
- The assessee originally served in the Department of Telecommunication (Government of India).
- The leave encashment related to leave accumulated during government service, supported by BSNL certification.
- Subsequent absorption in PSU does not alter the intrinsic character of the leave.
The ITAT emphasized that:
- The nature and source of leave is determinative, not the employer status at retirement.
- Leave earned under government service retains its character, even after transfer to PSU.
Further, the Tribunal noted that:
- The issue involved interpretation and factual verification, and hence rectification u/s 154 was not valid as it is not a “mistake apparent on record.”
Accordingly, the disallowance of ₹4.26 lakh was deleted, granting full exemption of leave encashment.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
