Case Law Details
R. Jayakumar Vs Union of India (Kerala High Court)
In a recent ruling, the Kerala High Court addressed the case of R. Jayakumar vs Union of India, wherein retired employees sought a revision of the income limit for tax exemption on earned leave salary with retrospective effect. The petitioners, all of whom retired before April 1, 2023, argued that the income limit under Section 10(10AA)(ii) of the Income Tax Act, 1961, had not been revised since 2002, despite multiple pay revisions.
Background: The petitioners, retired employees of the 5th respondent, filed writ petitions seeking a directive for the respondent authorities to review and revise the income limit for tax exemption on earned leave salary. They contended that the limit, set at Rs. 3 lakhs in 2002, was outdated and did not reflect the subsequent pay revisions.
Legal Provisions: Section 10(10AA)(ii) of the Income Tax Act, 1961, deals with the tax exemption on earned leave salary for non-government employees. It allows an exemption for earned leave up to ten months, calculated based on the average salary drawn during the ten months preceding retirement. The income limit for this exemption is subject to government notification.
Petitioners’ Argument: The petitioners argued that the income limit for tax exemption on earned leave salary had not been revised since 2002, despite three pay revisions during this period. They highlighted that the latest notification in 2023 set the limit at Rs. 25 lakhs, reflecting the highest salary of a cabinet secretary. They asserted that the government should have periodically revised the limit to account for the pay revisions and inflation.
Government’s Position: The government’s counsel pointed out that notifications regarding the income limit for tax exemption on earned leave salary fall within the executive’s prerogative. The last revision occurred in 2002, with the latest notification in 2023 applying only prospectively from April 1, 2023. The government had not issued any notifications for the interim period despite pay revisions.
Court’s Observations: The Kerala High Court acknowledged the petitioners’ plight but emphasized the limitations of judicial intervention in executive policy decisions. The court observed that it could not direct the government to issue a notification with retrospective effect, as this fell within the executive’s domain. The court noted that the Delhi High Court had previously directed the government to consider revising the limit, leading to the 2023 notification.
Judgment: The Kerala High Court expressed sympathy for the petitioners but declined to issue a writ of mandamus to revise the income limit for tax exemption on earned leave salary retrospectively. The court recognized its limitations in interfering with executive decisions and emphasized the doctrine of separation of powers.
The court disposed of the writ petitions, granting the petitioners the liberty to approach the government with their grievances. It suggested that the government consider the petitioners’ representations and take appropriate action.
Conclusion
The Kerala High Court’s ruling in R. Jayakumar vs Union of India underscores the judiciary’s respect for the separation of powers and its limitations in directing executive actions. While the court acknowledged the petitioners’ concerns about outdated income limits for tax exemption on earned leave salary, it refrained from intervening in executive policy decisions. The judgment provides a pathway for the petitioners to seek relief through governmental channels, emphasizing the need for periodic revisions to reflect changing economic realities.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Heard the learned counsel appearing for the petitioners and also the respective learned counsel appearing for the respondents.
2. The petitioners are retired employees of the 5th respondent. All the petitioners retired before 01.04.2023. These writ petitions have been filed mainly seeking for a writ, order or direction in the nature of mandamus commanding the respondent Authorities to review the income limit for taxing purposes on earned leave salary under Section 10AA(ii) of the Income Tax Act 1961 with retrospective effect, inasmuch as after 2002 there has been no revision of the income limit for the purposes of exemption on encashment of earned leave salary under Section 10(10AA)(ii) of the Income Tax Act.
3. Section (10AA)(ii) of the Income Tax Act on reproduction reads as under:
“(10AA) (i) .. (ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government: Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this subclause shall not exceed the limit so specified: Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this subclause shall not exceed the limit so specified, as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years. Explanation.—For the purposes of sub-clause (ii),— the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired;”
4. It is the prerogative of the Government to fix the limit of income of encashment of earned leave salary for the purposes of exemption from payment of income tax. Unless the Government issues the notification fixing the limit of income for earned leave salary, an employee cannot claim exemption from payment of income tax on encashment of earned leave up to 300 days. The last notification was issued on 31.05.2002, and the Government did not thereafter issue a notification despite there having been three pay revisions. The latest notification is only in 2023, wherein the upper limit has been fixed as Rs.25 lakhs, taking the highest salary of the cabinet secretary, i.e., Rs.2.5 lakhs per month.
5. The Government should have revised the upper limit, which was fixed under the notification of 2002 as Rs.3 lakhs taking into consideration the three pay revisions. However, the Government has not done so. The petitioners all stood retired before the latest notification, which has been issued fixing the upper limit as Rs.25 lakhs for exemption from payment of earned leave income. The employer has also deducted the admissible tax above Rs.3 lakhs from the petitioners. At this distant point of time, this Court, considering the limitation on the power of the Court as well as the doctrine of separation of powers, cannot issue a mandamus to the respondent Authorities to revise the upper limit of the encashment of earned leave for granting exemption from payment of the income tax with retrospective effect. Issuance of notification, as provided in the provision, is in the realm of the powers of the Executive.
6. Learned Standing Counsel for the Revenue, submits that, in fact, in one of the cases, the Delhi High Court has directed the Government to consider revision of the upper limit. However, the Government has issued the notification only in the year 2023, which is applicable with effect from 01.04.2023.
7. In view thereof, the Court, though, has sympathy with the petitioners, but considering the limitation on powers of the Court, this Court is unable to issue a writ of mandamus commanding the respondents to revise the upper limit in respect of the employees who retired before 01.04.2023. This is in the realm of policy decision, which is to be taken by the Executive.
8. Thus, these writ petitions are disposed of with liberty to the petitioners to approach the Government for the reliefs sought for in these writ petitions, and the Government may take a decision on their representations.
Pending interlocutory application, if any, in these present writ petitions stands dismissed.
