SECTION 10(10A) – COMMUTED PENSION

70. Exemption of commuted pension – Extent thereof under clause (10A)(i)

1. Attention is invited to Board’s Instruction No. 1191 [F. No. 174/29/77-IT(A-I)], dated 1-7-1978 on the above subject. Para 5 of the said Instructions clarify that in the case of a Government servant absorbed in a public undertaking on or after 24-7-1971, the amount that would qualify for tax exemption under the provisions of section 10(10A)(i ), would only be the amount representing the commuted value of one-third of the pension. The remaining two-thirds amount received by the person by way of terminal benefit would be includible in the total income subject to relief under section 89(1) read with rule 21A of the Rules.

2. The issue has been recently decided by a Division Bench of the Delhi High Court in the case of C.K. Karunakaran v. Union of India [1980] 4 Taxman 178. The High Court, while allowing a writ petition, relied upon rule 37A of the Pension Rules, 1972, which provides for payment of lump sum amount to persons absorbed in public sector corporations. It has been held that rule 37A provides for payment of lump sum in lieu of the pension. The lump sum was bifurcated into two component parts under sub-clauses (a) and (b) of rule 37A( i) but the fact that it is bifurcated into two parts neither alters the nature of the payment nor does it cease to be a payment in lieu of pension. Therefore, by virtue of the language of section 10( 10A)(i) which speaks of any payment under any similar scheme applicable to the members of the civil services of the Union, the entire commutation was held to be exempt under section 10(10A)(i ).

3. The Board have been advised that the decision of the Delhi High Court is to be accepted.

4. In view of the above, Instruction No. 1191 stands withdrawn with immediate effect. All appeals/revision petitions/reference applications on this point may be conceded/withdrawn in the light of this circular.

Circular : No. 286 [F. No. 174/79/80-IT(A-I)], dated 17-11-1980.

JUDICIAL ANALYSIS

EXPLAINED IN – In S. Ranganatha Rao v. Accountant General [1981] 129 ITR 130 (Kar.), the abovesaid circular was explained with the following observations :

“. . .  In para 3 of the said circular it is stated that the Board has been advised that the decision of the Delhi High Court is to be accepted and thereafter, it is further stated that in that view of the matter instruction No. 819 stands withdrawn with immediate effect.  It is, therefore, clear that the petitioner’s commuted pension is not liable to tax at all and if he is not liable to tax under the Act, then the Accountant-General has no jurisdiction to order deduction of the tax at source . . . .” (p. 132)

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