SUMMARY OF CASE LAW
The Income-tax Act exempts the gratuity amount to the extent of limit prescribed under the said Act; there is no distinction between the gratuity paid under the Payment of Gratuity Act, 1972 or otherwise
No doubt, section 192 of the Income-tax Act requires the employer to deduct the income-tax from the salary and the salary is defined under section 17 of the Income-tax Act, which includes wages, any annuity or pension, any gratuity, any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages, any advance of salary and other payments. However, section 10 of the Income-tax Act excludes certain amounts to be included in the total income. Section 10 sub-section (10) deals with the exclusion of the gratuity amount from the total income. The relevant provision for the purpose of this case is, section 10 sub-section (10) clause (iii) of the Income-tax Act, which reads as under :
“10.(10)(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service, calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf paying regard to the limit applicable in this behalf to the employee of that Government”.
By a reading of this provision, it is clear that, in all the cases of payment-of gratuity, an exclusion of gratuity amount is given from the total income, i.e., excluding the gratuity from the payment of tax to the extent of limit prescribed by notification issued in this behalf by the Central Government. It also makes it clear that the notification will be on par with the employees of the Government. It is brought to my notice that, by notification dated September 24,1997, the Central Government has fixed the limit of exclusion of gratuity to the extent of Rs. 3.5 lakhs from the purview of the total income. If the gratuity is payable under the provisions of the Act the protection is given to the gratuity under section 13 of the said Act, inter alia, no gratuity payable under this Act and no gratuity payable to an employee in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under section 5 shall be liable to attachment in execution of any decree or order of any civil, revenue or criminal court. This also makes it clear that the protection is given against the attachment, even for recovery of the revenue also. The Income-tax Act also excludes the gratuity amount from the total income up to the limit fixed. The contention of the learned counsel for the Corporation that, it is only in respect of payment of gratuity under the Act and not under the Regulations, I find that such a contention is not tenable and is not in consonance with the provisions of the Income-tax Act. The Income-tax Act excludes the gratuity amount to the extent of limit prescribed under the Income-tax Act. Hence, the deduction of income-tax by the Corporation is per se contrary to the provisions of section 10 sub-section (10) clause (iii) of the Income-tax Act. There is no distinction between the gratuity paid under the Act or otherwise. Accordingly, the contention that the gratuity amount is also liable for income-tax is rejected.