Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 08.11.2019
+ W.P.(C) 11846/2019
KAMAL KUMAR KALIA & ORS. ..... Petitioners
Through: Mr. Saju Jakob, Ms. Lily Thomas,
Ms. Nancy Shah and Mr. Ravinder
Kumar Singh, Advs.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Zoheb Hossain, Sr. Standing
counsel for Revenue with Mr. Deepak
Anand, Jr. Standing counsel for R-2.
Mr. Ravi Prakash, CGSC with
Mr.Farman Ali and Mr. Prashant
Rana,Advs. for R-1 and 3.
CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI
HON'BLE MR. JUSTICE SANJEEV NARULA
VIPIN SANGHI, J. (Oral):
1. The petitioner has preferred the present writ petition to seek the
following reliefs:
“ a) Issue a writ of Mandamus or a Writ of Certiorari and/or any
other appropriate Writ, Order or direction in the nature thereof
directing the Respondents to treat and declare the Petitioners,
the retirees of PSUs as government employees so as to attract the
provisions of Section 1 0(10 AA)(i) of IT Act, entitling them to
full tax exemption on leave encashment after
retirement/superannuation and not as non-government
employees falling under Section 10 (10 AA) (ii) subjecting them
to illegal and discriminatory treatment on taxation of leave
encashment which is illegal, arbitrary, ultra vires and in gross
violation of Art. 12, 13,14, 16, 19, 21 and 265 of our constitution.
W.P.(C) 11846/2019 Page 1 of 10
b) Issue a writ of Mandamus or a Writ of Certiorari and/or any
other appropriate Writ, Order or direction in the nature thereof
directing the Respondents to treat and declare the Petitioners,
the retirees of PSUs as government employees so as to attract the
provisions of Section 10(10AA)(i) of IT Act, entitling them to full
tax exemption on leave encashment after retirement/
superannuation and not as non-government employees falling
under Section 10 (10 AA) (ii) subjecting- them to illegal and
discriminatory treatment on taxation of leave encashment which
is illegal, arbitrary, ultravires and in gross violation of Art. 12,
13, 14, 16, 19, 21 and 265 of our constitution. Issue a writ of
Mandamus or a Writ of Certiorari and/or any other .appropriate
Writ, Order or direction in the nature thereof directing the
Respondents to make suitable amendments and modifications in
Section 10 (10 AA) and/ or to issue a notification in this respect
so as to quash the current tax assessment and to refund the
excess tax received from the Petitioners with interest of 10%
immediately to the Petitioners and /or
c) To issue appropriate notifications (as was done in the past up
to the year 2002) to update and enhance the upper limit of tax
exemption on leave encashment for the Petitioners in Public
Sector service, on parity with Central Government employees,
having regard to the maximum amount receivable by
Government employees and their tax exemption, considering
"highest salary of the highest official" of our Government in the
following manner:
a. Notification to raise exemption limit from 3 lacs to 9
lacs wef.1.1.2006.
b. Notification to raise exemption limit of tax on leave
encashment from 9 lacs to 25 lacs with effect from
1.1.2016.
d) To effect the said enhancement of tax exemption with
retrospective effect as mentioned in the prayer (b) and to direct
W.P.(C) 11846/2019 Page 2 of 10
the Respondents and income tax authorities to refund excess tax
received, with interest at 10% from the date of payment till date
of refund:
e) To issue an order for making effect of such changes with
immediate effect, till the Respondents make suitable
modifications/ notifications/ amendments .”
2. The case of the petitioner is that the petitioners are retired employees of
various nationalised banks. The grievance of the petitioners is that in respect
of the leave encashment amounts drawn by them upon their retirement, they
are subject to payment of income tax except to the extent the same is
exempted under Section 10 (10 AA) of the IT Act. Sub-section 10AA of
Section 10 of the Income Tax reads as follows:
“( 10AA ) (i) any payment received by an employee of the Central
Government or a State Government as the cash equivalent of the
leave salary in respect of the period of earned leave at his credit
at the time of his retirement [whether] on superannuation or
otherwise;
(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
W.P.(C) 11846/2019 Page 3 of 10
employee from more than one employer in the same previous year,
the aggregate amount exempt from income-tax under this sub-
clause [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 sub-clause [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 ;”
3. The submission of the petitioners is that the employees of the Public
Sector Undertaking and Nationalised Banks are discriminated against vis a
vis Central Government and State Government employees since the Central
Government and State Government employees are granted complete
exemption in respect of the cash equivalent of the leave salary for the period
of earned leave standing to their credit at the time of their retirement -
whether on superannuation or otherwise. However, all others, including the
employees of the Public Sector Undertaking and Nationalised Banks are
granted exemption only in respect of the amount of leave salary payable for
a period of 10 months, subject to the limit prescribed. He submits that the
government has issued a notification in terms of Clause (ii) of sub-section
10AA of Section 10 whereby the limit to which such income is exempted is
W.P.(C) 11846/2019 Page 4 of 10
prescribed as Rs.3 lacs. The submission of the petitioner is that the last such
notification was issued on 31.05.2002 which reads as follows:
“ S.0.588 (E). – In exercise of the powers conferred by sub-
clause (ii) of clause (10AA) of section 10 of the Income Tax Act,
1961 (43 of l961), the Central Government, having regards to
the maximum amount receivable by its employees as cash
equivalent of leave salary in respect of the period of earned
leave at their credit at the time of their retirement, whether
superannuation or otherwise, hereby specifies the amount of
rupees 3,00,000(Rupees three lakhs only) as the limit in relation
to employees mentioned in that sub-clause who retire, whether
on superannuation or otherwise after the 1st day of April, 1998.
[Notification No.123/2002(F. No.200/23/98-ITA-I)]
I.P.S BINDRA, Under Secy .”
4. The grievance of the petitioners is that on one hand, the retired
employees from the Public Sector Undertaking and Nationalised Banks are
discriminated against vis-a-vis the Central Government and State
Government employees, on the other hand, the limit for exemption has
remained static and has not been enhanced since 1998, even though,
multiple Pay Commissions have come into force and have been
implemented/adopted since then, even in respect of Public Sector
Undertakings and Nationalised Banks.
5. So far as the challenge to provisions of Section 10 (10AA) of the Act on
the ground of discrimination is concerned, we are of the view that there is no
merit therein. This is for the reason that employees of the Central
Government and State Government form a distinct class and the
classification is reasonable having nexus with the object sought to be
W.P.(C) 11846/2019 Page 5 of 10
achieved. The Central Government and State Government employees enjoy
a „status‟ and they are governed by different terms and conditions of the
employment. Reference here may be made to the decision in Roshan Lal
Tandon v Union of India AIR 1967 SC 1889, wherein it was held by the
Supreme Court that the legal position of a Government servant is more one
of status than of Contract. The relevant extract from the said judgment reads
as under:
―6. We pass on to consider the next contention of the petitioner
that there was a contractual right as regards the condition of
service applicable to the petitioner at the time he entered Grade
‗D‘ and the condition of service could not be altered to his
disadvantage afterwards by the notification issued by the
Railway Board. It was said that the order of the Railway Board
dated January 25, 1958, Annexure 'B', laid down that promotion
to Grade 'C' from Grade 'D' was to be based on seniority-cum-
suitability and this condition of service was contractual and
could not be altered thereafter to the prejudice of the petitioner.
In our opinion, there is no warrant for this argument. It is true
that the origin of Government service is contractual. There is an
offer and acceptance in every case. But once appointed to his
post or office the Government servant acquires a status and his
rights and obligations are no longer determined by consent of
both parties, but by statute or statutory rules which may be
framed and altered unilaterally by the Government. In other
words, the legal position of a Government servant is more one
of status than of contract . The hallmark of status is the
attachment to a legal relationship of rights and duties imposed
by the public law and not by mere agreement of the parties. The
emolument of the Government servant and his terms of service
are governed by statute or statutory rules which may be
unilaterally altered by the Government without the consent of the
employee. It is true that Article 311 imposes constitutional
restrictions upon the power of removal granted to the President
and the Governor under Article 310. But it is obvious that the
relationship between the Government and its servant is not like
W.P.(C) 11846/2019 Page 6 of 10
an ordinary contract of service between a master and servant.
The legal relationship is something entirely different,
something in the nature of status. It is much more than a
purely contractual relationship voluntarily entered into between
the parties. The duties of status are fixed by the law and in the
enforcement of these duties society has an interest. In the
language of jurisprudence status is a condition of membership of
a group of which powers and duties are exclusively determined
by law and not by agreement between the parties concerned. The
matter is clearly stated by Salmond and Williams on Contracts as
follows:
―So we may find both contractual and status-obligations
produced by the same transaction. The one transaction may
result in the creation not only of obligations defined by the
parties and so pertaining to the sphere of contract but also
and concurrently of obligations defined by the law itself,
and so pertaining to the sphere of status. A contract of
service between employer and employee, while for the most
part pertaining exclusively to the sphere of contract,
pertains also to that of status so far as the law itself has
seen fit to attach to this relation compulsory incidents, such
as liability to pay compensation for accidents. The extent to
which the law is content to leave matters within the domain
of contract to be determined by the exercise of the
autonomous authority of the parties themselves, or thinks fit
to bring the matter within the sphere of status by
authoritatively determining for itself the contents of the
relationship, is a matter depending on considerations of
public policy. In such contracts as those of service the
tendency in modern times is to withdraw the matter more
and more from the domain of contract into that of status.‖
(Salmond and Williams on Contracts, 2nd Edn. p. 12).‖
(Emphasis added)
Thus, government employees enjoy protection and privileges under the
Constitution and other laws, which are not available to those who are not
W.P.(C) 11846/2019 Page 7 of 10
employees of the Central Government and State Governments.
6. The submission of the counsel for the petitioner is that the employees of
the Public Sector Undertaking and Nationalised Banks are also rendering
services for the government, and such organisations are covered by Article
12 of the Constitution of India as „State‟.
7. We do not find any merit in this submission either. Merely because Public
Sector Undertaking and Nationalised Banks are considered as „State‟ under
Article 12 of the Constitution of India for the purpose of entrainment of
proceedings under Article 226 of the Constitution and for enforcement of
fundamental right under the Constitution, it does not follow that the
employees of such Public Sector Undertaking, Nationalised Banks or other
institutions which are classified as „State‟ assume the status of Central
Government and State Government employees. It has been held in multiple
decisions that employees of Public Sector Undertakings are not at par with
government servants ( Ref : Officers & Supervisors of I.D.P.L. v Chairman
& M.D. I.D.P.L. AIR 2003 SC 2870). In the noted case of A.K.Bindal v
Union of India (2003) 5 SCC 163, while considering the issue of revision of
the pay scales of employees of government companies/PSUs at par with
government employees, it was held that the employees of government
companies cannot claim the same legal rights as government employees.
The relevant extract from the said judgment reads as under:
―17. The legal position is that identity of the government
company remains distinct from the Government. The government
company is not identified with the Union but has been placed
under a special system of control and conferred certain
W.P.(C) 11846/2019 Page 8 of 10
privileges by virtue of the provisions contained in Sections 619
and 620 of the Companies Act. Merely because the entire share
holding is owned by the Central Government will not make the
incorporated company as Central Government. It is also equally
well settled that the employees of the government company are
not civil servants and so are not entitled to the protection
afforded by Article 311 of the Constitution (Pyare Lal Sharma v.
Managing Director (1989) 3 SCC 448 ). Since employees of
government companies are not government servants, they have
absolutely no legal right to claim that the Government should
pay their salary or that the additional expenditure incurred on
account of revision of their pay scale should be met by the
Government. Being employees of the companies it is the
responsibility of the companies to pay them salary and if the
company is sustaining losses continuously over a period and
does not have the financial capacity to revise or enhance the pay
scale, the petitioners cannot claim any legal right to ask for a
direction to the Central Government to meet the additional
expenditure which may be incurred on account of revision of pay
scales. It appears that prior to issuance of the office
memorandum dated 12.4.1993 the Government had been
providing the necessary funds for the management of public
sector enterprises which had been incurring losses. After the
change in economic policy introduced in the early nineties, the
Government took a decision that the public sector undertakings
will have to generate their own resources to meet the additional
expenditure incurred on account of increase in wages and that
the Government will not provide any funds for the same. Such of
the public sector enterprises (government companies) which had
become sick and had been referred to BIFR, were obviously
running on huge losses and did not have their own resources to
meet the financial liability which would have been incurred by
revision of pay scales. By the office memorandum dated
19.7.1995 the Government merely reiterated its earlier stand and
issued a caution that till a decision was taken to revive the
undertakings, no revision in pay scale should be allowed. We,
therefore, do not find any infirmity, legal or constitutional in the
two office memorandums which have been challenged in the writ
W.P.(C) 11846/2019 Page 9 of 10
petitions.‖
(Emphasis supplied)
We therefore, reject the present petition, insofar as the petitioners‟
challenge to the provisions of Section 10 (10AA) is concerned.
8. We are however of the, prima facie, view that the grievances of the
petitioner with regard to exemption limit under Clause (ii) of Section 10
(10AA) not being raised since 1998, appears to be justified. This is so
because over the decades, the pay-scales admissible to government servants,
and even employees of the Public Sector Undertaking and Nationalised
Banks and all others have been upwardly revised, keeping in view, the
financial growth in the country as well as on account of rising inflation. The
last drawn salaries have increased manifold since time and notification
issued under Clause (ii) of Section 10 (10AA) was lastly issued, as taken
note of hereinabove, on 31.05.2002. We therefore, issue notice to the
respondents limited to this aspect.
9. Issue notice. Learned counsel for the respondents accepts notice.
Respondents should file counter affidavits be filed within six weeks.
Rejoinder thereto, if any, be filed before the next date.
10. List on 04.05.2020.
VIPIN SANGHI, J
SANJEEV NARULA, J
Pallavi
NOVEMBER 08, 2019/
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