DILIP SINGH YADAV, JAIPUR V. Income Tax Officer, Ward 1(3), Jaipur, Jaipur

ITA 385/JPR/2022

AI Insights

The case involves Sh. Dilip Singh Yadav, who retired from the National Insurance Co. Ltd. and received Rs. 11,97,796 as earned leave encashment for 240 days. He claimed full exemption under Section 10(10AA)(ii) of the Income Tax Act, which was partially allowed by the CPC, Bengaluru, exempting only Rs. 3,00,000 and adding the balance to his income. The CIT(A) upheld this decision, leading to the appeal before the ITAT. The Tribunal dismissed the appeal, citing the lack of a revised notification increasing the exemption limit since 2002, despite the ongoing judicial review and proposed legislative changes.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132272 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 24-04-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 27-10-2022
• Other Referred Cases: Kamal Kumar Kalia & Others vs Union of India & Others, W.P (C ) 11846/2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 27; 154; 10(10AA); 143(1); 205

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 385/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2020-21 Sh. Dilip Singh Yadav H. No. 82/15, Neelgiri Marg, Mansarovar, Jaipur cuke Vs. ITO, Ward 1(3), Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAPY 6516 H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Vishal Gupta (CA) jktLo dh vksj ls@ Revenue by : Smt Monisha Choudhary (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 26/04/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 10/05/2023 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 29/08/2022 [here in after (NFAC)] for assessment year 2020-21 which in turn arise from the order dated 19.10.2021 passed under section 143(1) of the Income Tax Act, by the CPC. 2. In this appeal, the assessee has raised following grounds: - 2 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO “1. On the facts and circumstances of the case, the ld. CIT(A) grossly erred in law and facts by approving the action of CPC of restricting the exempted income claimed by the assessee under section 10(10AA) to Rs. 300000.00 on the basis of erroneous interpretation of statute. Such an action of Ld. CIT(A) is unjust and against the provisions of the law. It is hereby prayed for allowing full exemption as claimed by the assessee. 2. That the appellant craves the leave to add, alter, substitute and withdraw any or all ground of appeals at the time of or before the date of hearing.” 3. Succinctly, the fact as culled out from the records is that the assessee retired on 30.09.2019 from National Insurance Co. Ltd. which is a company wholly owned by central government. Assessee received Rs. 11,97,796 as earned leave encashment of 240 days. Assessee filed Income tax return on 14.09.2020 for assessment year 2020-21 and claimed exemption for leave encashment received in full as per provision of section 10(10AA)(ii). In the proceeding before CPC the assessee contended that leave encashment amount received at the time of retirement is exempt from tax to the extent of eligibility of leave encashment exemption to the highest paid employee in the central government and at present it is Rs. 29.25 lacs. The assessee further contended that he has received lessor amount and claimed exemption on the entire amount of leave encashment received. After considering the reply of the assessee CPC allowed exemption to the extent of Rs. 3,00,000/- and balance amount of leave encashment added in the income of the assessee to the extent of Rs. 8,97,796/- and return of income 3 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO of the assessee was processed by CPC making adjustment u/s 143(1)(a) on 30.08.2021. 4. Aggrieved from the order of the AO, CPC assessee preferred appeal before the ld. CIT(A). A propose to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below: “4.1 All the grounds of appeal in the instant case pertain to the action of the CPC in restricting the claim of exemption on account of leave Encashment amounting to Rs. 11,97,796/- to Rs. 3,00,000/-. The appellant has submitted that he filed the Return of Income on 14.09.2020 which was later revised on 28.07.2020. The appellant submitted that the intimation u/s 143(1) dated 19.10.2021 was received by him in which a tax demand of Rs. 140170 was raised vide intimation u/s 143(1) dated 19.10 2021 after allowing exemption to the extent of Rs. 300000 and adding balance amount of LE in income Rs. 897796. In the instant appeal, the appellant has relied upon the provisions of Section 10(10AA) of the Income Tax Act and therefore has disputed the action of the CPC in restricting the exemption of Rs. 3,00,000/-. 4.2 The order of the CPC u/s 154 has been seen and the contention of the appellant has been considered. As per the provisions of Section 10(10AA) of the Income Tax Act, for private employees as is the case in this appeal, the exemption on account of Leave Encashment Income is applicable to the lowest of the below amount.- i. Rs. 3,00,000/- ii. Actual Leave Encashment amount ill. Average Salary (Basic Salary+DA) of the last 10 months before the date of retirement. iv. Cash equivalent of pending Leave days. 4.3 The limit of exemption u/s10(10AA) of private sector employees who retire, whether on superannuation or otherwise, after 01.04.1998 has been fixed at Rs 3.00.000/- by notification no. S.O. 588(E) dtd. 31.05.2002 and the said notification is valid as on today. 4 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO 4.4 For reasons above, it is held that the action of the CPC in restricting the claim of exemption u/s 10(10AA) to Rs 3,00,000/- is as per the provisions of the Income Tax Act and notifications issued under authority of the Act and hence is upheld 4.5 In the result the grounds of appeal are dismissed and the appeal is dismissed.” 5. Feeling dissatisfied with the order of the ld. CIT(A) the assessee has preferred this appeal before this tribunal on the grounds as raised by the assessee as reiterated here in above para 2. To support the various grounds so raised by the assessee, the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below; “We have submitted a paper book separately. The paper book so submitted is prayed for being considered as part of this submission. With this prayer, we start our reply which is as under: Brief Facts of the case are as under: The assessee is an individual and was serving with National Insurance Company Limited which is a company wholly owned by the Central Government. The assessee filed his return of income on 14.09.2020 where certain amount received by him at the time of retirement were claimed as exempt in accordance with law. Same included amount of Rs 1197796.00 received as Earned Leave Encashment for 240 days which was claimed as exempt under Section 10(10AA). The copy of acknowledgement of return of income filed by the assessee is enclosed as a part of paper book vide Page No. 1. The CPC, Bengaluru issued a notice dated 30.08.2021 proposing disallowance of exemption claimed under section 10(10AA) which was in excess Rs 300000.00. Same was replied by assessee in response column to notice as well as by e mail. The copy of said notice is enclosed as Page No’s 2-4 of paper book and the replies thereto are enclosed as page No’s 5-12 of paper book (Two replies). The CPC finally processed the return and an intimation was issued on 19.10.2021, a copy of which is attached as Page No’s 13-18 of paper book submitted by us. However, while processing the return of the assessee, it allowed an exemption of only Rs 300000.00 on the basis of reasoning that assessee is other than government employee. Aggrieved by the said intimation / order, 5 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO the assessee preferred an appeal before the H’ble CIT(Appeals) who passed his order on 29.08.2022 rejecting the claim of full exemption of the assessee. The order was a non speaking order where no reason as such was offered for non acceptance of interpretation of law of assessee. We draw the attention of Ld. members to Para 4.2 of the order where the said decision has been made. The copy of Form 35 filed by the assessee as well as reply furnished by the assessee to Ld. CIT(Appeals) are enclosed as Page No’s 19-28 & page No’s 29-31 of paper book respectively. Further, a copy of order of the Ld. CIT(Appeals) is attached as Page No’s 32-35 of paper book submitted by us. Aggrieved by the said order of Ld. CIT(Appeals), the assessee is in appeal before the H’ble ITAT, Jaipur bench. Now we hereby submit ground wise reply as under: Ground No. 1 On the facts and circumstances of the case, The Ld. CIT(A) has grossly erred in law and facts by approving the action of CPC of restricting the exempted income claimed by the assessee under Section 10(10AA) to Rs 300000.00 on the basis of erroneous interpretation of statute. Such an action of Ld. CIT(Appeals) is unjust and against the provisions of the law. It is hereby prayed for allowing full exemption as claimed by the assessee. 1. We reproduce the relevant section as under for the perusal of the H’ble members: Section 10(10AA) In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— 13 [ 14 (10AA) (i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary 15 in respect of the period of earned leave at his credit at the time of his 15 retirement 16 [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 15 at the time of his retirement 16 [whether] on superannuation 15 or otherwise as does not exceed 17 [ten] months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement 16 [whether] on superannuation or otherwise, 18 [subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to 6 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO the limit 19 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 sub-clause 20 [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 21 [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. 22 [***] Explanation.—For the purposes of sub-clause (ii),— 23 [***] 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 ; 24 [***] We now draw the attention of the H’ble bench to portion of the sub section (ii) marked in bold which are again reproduced hereunder: 18 [subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit 19 applicable in this behalf to the employees of that Government] Thus, it can be clearly seen that the intention of legislature was very clear while drafting the above Section. Whether a strict interpretation is given or a liberal one i.e whether the language of the law is read or the intention behind is considered, in both the cases, it can be seen that the limit for persons other than government employees have to be decided on the basis of limit applicable in this behalf to the employees of Central government. To have a clear understanding of intent of law, Para 25 of memorandum explaining the provisions in the Finance Bill, 1982 by which this section came into existence is reproduced hereunder: 7 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO Exemption of amounts received by way of encashment of unutilised earned leave by retiring employees - Section 10(10AA) Under the existing provisions of the Income-tax Act, any amount received on retirement from service by way of cash equivalent of unutilised earned leave is chargeable to income-tax under the head "Salaries". With a view to avoiding hardship to retiring employees, the Finance Act has inserted a new clause (10AA) in section 10 of the Income-tax Act to exempt such payment from income-tax in the case of employees of the Central Government or a State Government. In the case of other employees, the exemption will be determined with reference to the leave to his credit at the time of retirement, subject to a maximum of 6 months’ leave. For this purpose, the entitlement to leave, shall not exceed 30 days for every year of service. The exemption will be limited to the amount payable for such unutilised leave on the basis of the average salary of the employee for 6 months or Rs. 30,000, whichever is less. In the case of employees retiring before January 1, 1982, the monetary ceiling limit will be Rs. 25,500. The average salary shall be determined on the basis of the salary drawn for the 10 immediately preceding months. In relation to non-Government employees, who retire on superannuation or otherwise after December 31, 1981, the Central Government is being empowered by notification in the Official Gazette, to raise the aforesaid monetary ceiling of Rs. 30,000 keeping in view the maximum amount which will qualify for exemption in the case of Government servants. 2.. Now, we want to discuss the mode in which such notification was required to be issued and in fact have been issued in the past by the CBDT. For same, kindly refer to Notification No. S.O 553 E, dated 08.06.1988 where the wordings used are as follows: Notification: S.O.553(E) Section(s) Referred: 10 ,10(10AA) ,10(10AA)(ii) Statute: INCOME TAX Date of Issue: 8/6/1988 In exercise of the powers conferred by sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government, having regard 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 on superannuation or otherwise, hereby specifies the amount mentioned in column (2) of the Table below as the limit in relation to employees mentioned in that sub-clause who retire, whether on superannuation or otherwise, within the period mentioned in the corresponding entry in column (3) of the said Table : 8 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO TABLE ------ Sl. Amount Period of retirement No. (Rs.) ------ (1) (2) (3) ------- 1. 73,400 1st July, 1986 to 31st December, 1986. 2. 75,600 1st January, 1987 to 30th June, 1987. 3. 77,760 1st July, 1987 to 31st December, 1987. 4. 79,920 1st January, 1988 onwards. ------ By this notification, limit for the purpose of this sub section were defined for various periods. This notification was succeeded by notification dated 26.03.1996 and then by notification dated 27.11.1998 increasing the said limits from time to time. The language used by the said notifications (marked in bold above) was same in all these notifications and they itself exhibit the intention of law which is a self admitted fact by the CBDT and require no more comprehension. The latest notification dated 31.05.2002 extended the said limit to Rs 300000.00, however wef 01.04.1998 [Notification No. 123/2002(F.No. 200/23/98-ITA-I)]. This clearly shows that the skipping has been made good by this retrospective notification and also by earlier notifications issued on subject matter. The fact which is noteworthy is that almost all these notification as mentioned above on the subject matter has increased the limit from some retrospective period and with the object to bring parity in the exemption amount with the central government employees. The copy of some of these notifications are attached as a part of paper book vide Page No.’s 36-38. Further, it is pertinent to note that the amount which is considered while issuing notification is based on highest salary of Central Government employee. i.e Chief Secretary. A copy of office notes of the CBDT obtained by the assessee from one of his friends who in turn acquired same by RTI is attached as Page No’s 39-45 of paper book where the mode of fixing limit is explained in details. Kindly refer to para 3 and 4 of the said office note on Page 39 of paper book where it has been clearly mentioned that the period of 8 months was increased to 10 months as the same was also enhanced for central and State government employees. Kindly also refer Page 44 of paper book where in Para 3 to 5, the manner of fixing limit of Rs 300000.00 has been discussed which is same as is mentioned here in our submissions. As the then salary of maximum basic pay admissible to a government servant was Rs 30000.00, the limit of Rs 300000.00 was fixed (Rs 30000.00 * 10 months) . At present, that is the period when assessee retired from his service, the Basic Pay of highest paid employee in Government who happens to be Cabinet Secretary is Rs 2.50 Lacs per month and for 10 months same is worked out at Rs 25 lacs. As an evidence, we enclose vide Page 9 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO No. 46-56 of paper book the copy of resolution of Ministry of Finance where it can be clearly seen on Page 49 of paper book that the salary of highest paid government employee if Rs 2.50 lakhs. By perusal of the above office note as well as the past notifications, it can be clearly seen that the basis of amount has always been as per the intention of law and language of act, both being similar. It is also noteworthy that inspite of subsequent pay revisions for government servants, the said limit has not been increased since 2002 inspite of duty casted on the board by the legislation. We also draw attention of the H’ble bench to the DTL(Amendment) Act, 1987, the relevant extracts of which are reproduced hereunder. The relevant portion which we want to bring to notice of the Ld. Members are made bold with bigger fonts. It has been clearly indicated in said amendment act that the only purpose of keeping the requirement of notification in law was to avoid frequent changes in law as the salary of government employees keep changing. It also proves our point that the requirement of issuing notification was not discretionary but rather contingent upon increase in salary of government employees and when that increase is witnessed, it becomes duty of CBDT to issue the requisite notification increasing the limit. DTL (Amendment) Act, 1987-IV - Circular No. 551, Dated 23-1-1990 Amendment of provisions relating to exemption of the amount received by an employee as cash equivalent of leave salary to his credit on his retirement [clause (10AA)] 3.16 Clause (10AA), which exempts from tax the cash equivalent of leave salary in respect of earned leave to the credit of an employee, received by him at the time of retirement covers two classes of employees as follows: (i) Sub-clause (i) deals with employees of Central Government or a State Government. (ii) Sub-clause (ii) deals with employees other than employees of the Central Government or a State Government. 3.17 Under the old provisions of sub-clause (ii) of the said clause (10AA), any payment received by an employee, other than an employee of the Central Government or a State Government, as cash equivalent of leave salary in respect of the period of earned leave to his credit at the time of his retirement was exempt from tax. Further, the maximum amount of exemption was limited to six months' leave salary, calculated on the basis of average salary drawn during the 10 months immediately preceding his retirement or Rs. 30,000, whichever was less. 3.18 This limit applicable to non-Government employees was required to be raised as a result of the higher amount getting exemption in the case of Central Government 10 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO employees as a result of the recommendations of the Fourth Pay Commission. To achieve this objective and also to rationalize the provisions, the Amending Act, 1987 has made the following amendments in the said sub-clause (ii) :— (i) The maximum amount that would now be exempt is the equivalent of 8 months' leave salary instead of six months' leave salary as was the case under the old provisions. (ii) The maximum limit of exemption, namely, Rs. 30,000, is not specified in the sub-clause. Instead, it is now provided that the limit may be specified by the Central Government by way of a notification in the Official Gazette having regard to the limit applicable to the Central Government employees. This would avoid frequent changes in the Income-tax Act for the same reasons as explained in the case of amendment of clause (10) relating to gratuities [refer para 3.11 ante]. 3.19 The old clause (10AA) also had four provisos similar to the four provisos in clause (10) relating to the gratuities. The Amending Act, 1987 has made consequential changes in the first and second provisos and has omitted the third and fourth provisos of clause (10AA) for the same reasons as was done in the case of four provisos of clause (10) [refer paras 3.12 and 3.13 ante]. The Amending Act, 1987 has also omitted clause (ii) of the Explanation to sub-clause (ii) of clause (10AA), which defined the term "salary" as the definition is now given in the Explanation at the end of clause (10) for purposes of both the clauses (10) and (10AA) [refer para 3.14 ante]. 3.20 Since the amendments to clause (10AA) were necessitated as a result of the recommendations of the Fourth Pay Commission in the case of Central Government employees, which became effective from 1-7-1986, the said amendments have also been made effective retrospectively from 1-7-1986. We further reproduce the relevant extracts of Finance Act, 1999 in support of our contention that the basis of increase in limit has always been the revision by various pay commissions. Finance Act, 1999 - Circular No. 779, Dated 14-9-1999 Exemption limit of leave salary of non-Government employees revised to salary of ten months 6.1 The amount of encashment of earned leave up to a period of eight months was exempt under section 10(10AA) of the Income-tax Act. Pursuant to recommendations of the Fifth Pay Commission, the limit has been raised to leave encashment of ten months in cases of employees of the Central or State Government. 11 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO 6.2 With a view to bring parity for non-Government employees, the Act enhances the existing exemption limit applicable to such employees from eight months to ten months. 6.3 This amendment will take effect retrospectively from 1st April, 1998 and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. 3.. It is to further bring to notice of the H’ble members that the H’ble Finance Minister in her budget speech for Finance bill 2023 has proposed to increase this amount to 2500000.00 for which notifications are awaited and it is well expected that like past years same will be increased in phase wise mode retrospectively depending upon increase in pay of central govt. employees. A copy of relevant extract of budget speech is enclosed as Page No 56 of paper book. It is also reproduced hereunder: “151. Lastly, the limit of ` 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was ` 30,000/- pm. In line with the increase in government salaries, I am proposing to increase this limit to 25 lakh” We further submit that as discussed above, the extraordinary increase in limit from Rs 300000.00 to Rs 2500000.00 is not extraneous but based on certain facts and figures and considering the increase in salary of Govt. employees from time to time. We again draw the attention of the H’ble members to the fact that as the maximum salary at present of Central govt. employee is Rs 2.5 Lakhs, liit has been proposed to Rs 25 Lakhs. We thus pray the H’ble bench that due to the inaction of CBDT, burden cannot be imposed upon the assessee and other non government employees. The intention of the legislation was clear to maintain parity for exemption both for government as well as non government employees and also simultaneously put a check on the private employers to avoid misuse of this exemption by making salary structures in such a way so as to enable their employees to claim any superfluous amount as exemption 4.. The matter is also sub judice with H’ble Delhi High Court in the case of Kamal Kumar Kalia & Others vs Union of India & Others, W.P (C ) 11846/2019. The interim decision dated 08.11.2019 is enclosed as a part of paper book vide page no’s 57-66. The petitioners here mainly raised two grounds. First claim was to treat employees of PSU’s as a government employee or at par with them and second was to issue notification specifying increased periodical limits as were issued till 2002. The first contention was rejected by the H’ble court but in respect of second contention, following observations were made: 12 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO “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 Nationalized 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.” It can be seen that even in above observations of H’ble High Court, the contention of the assessee has been accepted. 5.. Further, in apprehension of the claim of department that may arise that the requirement to issue notification was a choice and not duty owing to the use of word “May” in The Income Tax Act,1961 , we hereby submit that similar wordings have been issued in Section 48, the relevant extract of which are mentioned hereunder: 3[(v) ―Cost Inflation Index , in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the 4[Consumer Price Index (urban)] for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.]] It can be noted that this notification is issued from time to time inspite of use of word “may’ as the requirement of issuing notification arises on a contingent event i.e average rise in consumer price index. Thus, here also the word may partakes the character of shall on happening of the event as discussed above. Similarly, we draw the attention of the ld. Members to sub section 10 of Section 10, the relevant extracts of which are reproduced hereunder: (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, 3[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 having regard to the limit applicable in this behalf to the employees of that Government]: 13 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO Latest Notification dated 08.03.2019 for this section is reproduced below: Limits specified under section 10(10)(iii)- In exercise of the powers conferred by sub- clause (iii) of clause (10) of section 10 of the Income-tax Act, 1961, and in supersession of Ministry of Finance, Department of Revenue, notification number S.O. 141(E), dated the 11th June, 2010, except as respects things done or omitted to be done before such supersession, the Central Government, having regard to the maximum amount of any gratuity payable to employees, hereby specifies twenty lakh rupees as the limit for the purposes of the said sub-clause in relation to the employees who retire or become incapacitated prior to such retirement or die on or after the 29th day of March, 2018 or whose employment is terminated on or after the said date—Notification : No. SO 1213(E), dated 8-3-2019. Notification dated 08.03.2019 has been issued superseding the notification dated 11.06.2010 and the limit has been increased from 10 to 20 lakhs. Also notification dated 11.06.2010 superseded the notification dated 20.01.1999 and increased the limit from 3.5 lacs. It can be noted by my lords that the genesis of both Section 10(10) and 10(10AA) is same, that is, drawing distinction between govt. and non govt. employees yet keeping the exemption same. The logic of keeping the exemptions as notification oriented has already been explained by us. Further, it can be seen in this section also that the notifications have been issued from time to time though the language has been used as “may’. We draw the attention of the H’ble members to the following decisions of the higher courts where it has been held that when ‘may’ has to be treated as ‘shall’ and vice versa to attain the objectives behind the law: a. We rely on the judgement of H’ble Apex Court in the case of Official Liquidator vs Dharti Dhan (P) Ltd 1977 AIR 740 where h’ble court held as under: “In other words the word" used before "stay" in section 442 of the Act really means may and not "must" or "shall" in such a context. In fact it is quite accurate to say that the word "may" by itself, acquires the meaning' of "must" or "shall" sometimes. This word however, always signifies a conferment of power. That power may, having regard to the context in which it occurs, and the requirements contemplated for its exercise, have annexed to it an obligation which compels its exercise in a certain way on facts and circumstances from which the obligation to exercise it in that way arises. In other words, it is the context which can attach 14 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO the obligation to the power compel- ling its exercise in a certain way. The context, both legal and factual, may impart to the power that obligatoriness. Thus, the question to be determined in such cases always is,whether the power conferred by the use of the word "may" has, annexed to it, an obligation that, on the fulfilment of certain legally prescribed conditions, to be shown by evi- dence, a particular kind of order must be made. If the statute leaves no room for discretion the power has to be exercised in the manner indicated by the other legal provi- sions which provide the legal context. Even then the facts must establish that the legal conditions are fulfilled: A power is exercised even when the Court rejects an applica- tion to exercise it in the particular way in which the applicant desires it to be exercised. Where the power is wide enough to cover both an acceptance and a refusal of an application for its exercise, depending upon facts, it is directory or discretionary. It is not the conferment of a power which the word "may" indicates that annexes any obligation to its exercise but the legal and factual context of it. This, as we understand it, was the principal laid down in the case cited before us: Frederic. Guilder Julius v. The Right Rev. The Lord Bishop of Oxford; The Rev. Thomas Thellusson Carter. Dr. Julius, in the case mentioned above, had made an application to the Bishop of Oxford against the Rector of a parish, asking the Bishop to issue a commission under the Church Discipline Act to enquire against certain unautho- rised deviations from the ritual in a Church by the. Rector. The relevant statute merely conferred a power by laying down that "it shall be lawful" to issue a commission. The Courts of Queens Bench and of Appeal in England had differed on the question whether a mandamus from the Court could go to the Bishop commanding him to. issue a commission for the purpose of making the enquiry. The House of Lords held that the power to issue the commission was not coupled with a duty to exercise it in every case although there may be cases where duties towards members of the public to exercise a power may also be coupled with a duty to exercise it in a particular way on fulfilment of certain specified conditions. The statute considered there had not specified those condi- tions. Hence, it was a bare power to issue or not to issue the commission. Lord Blackburn said: (at p. 241 ): "I do not think the words 'it shall be lawful' are in themselves ambiguous at all. They are apt words to express that a power is given; and as, prima facie, the donee of a power may either exercise it or leave it unused, it is not inaccurate to say that, prima facie, they are equivalent to saying that the donee may do it; but if the object for which the power is conferred is for the purpose of enforcing a right, there may be a duty cast on the donee of the power, to exer- cise it for the 15 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO benefit of those who have that right, when required on their behalf. Where there is such a duty, it is not inaccu- rate to say that the words conferring the power are equivalent to saying that the donee must exercise it. It by no means fol- lows that because there is a duty cast on the donee of a power to exercise it, that mandamus lies to enforce it: that depends on the nature of the duty and the position of the donee". The principle laid down above has been followed consist- ently by this Court whenever it has been contended that the word "may" carries with it the obligation to exercise a power in a particular manner or direction. In such a case, it is always the purpose of the power which has to be exam- ined in order to determine the scope of the discretion conferred upon the donee of the power. If the conditions in which the power is to be exercised in particular cases are also specified by a statute then, on the fulfilment of those conditions, the power conferred becomes annexed with a duty to exercise it in that manner. This is the principle we deduce from the cases of this Court cited before us: Bhaiya Punjalal Bhagwandin v. (1) 5 A.C. 214. Dave Bhagwatprasad Prabhuprasad,(1) State of Uttar Pradesh v. Jogendra Singh,(2) Sardar Govindrao & Ors. v. State of M.P.,(3)) Shri A. C.Aggarwal. Sub-Divisional Magistrate, Delhi & Anr, v. Smt. Ram Kali etc.,(4) Bashira v. State of U.P.,(5) and Prakash Chand Agarwal & Ors. v. M/s. Hindustan Steel Ltd.(6) In the statutory provision under consideration now before us the power to stay a proceeding is not annexed with the obligation to necessarily stay on proof of certain conditions although there are conditions prescribed for the making of the application for stay and the period during which the power to stay can be exercised. The question whether it should, on the facts of a particular case, be exercised or not 'will have to be examined and then decided by the Court to which the application is made. If the applicant can make out, on facts, that the objects of the power conferred by ss. 442 and 446 of the Act, can only be carried out by a stay order, it could perhaps be urged that an obligation to do so has become annexed to it by proof of those facts. That would be the position not because the word "may" itself must be equated with "shall" but because judicial power has necessarily to be exercised justly, properly, and reasonably to enforce the principle that fights created must be enforced. In the case before us, the only right which could be said to have been created is the right to get speedier adjudication from the Court where the winding up proceeding is taking place. That is the object of the provisions. On facts disclosed in this case, we find that the application seems to have been made with the object of delaying deci- sions on claims made. In such a case, there could be no doubt that the application should be rejected outright as the learned Company Judge did. 16 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO Secondly, an attempt was made to urge that the power to grant or not to grant or to grant a stay upon certain condi- tions, assuming the power to be discretionary, is to be exercised by the Courts in which that discretion is vested, this Court should not interfere with the exercise of discre- tion by the Division Bench to which an appeal from the order of the Company Judge lay. The effective answer to this contention is that, where the learned Company Judge had himself exercised his discretion on a correct appreciation of the object of the provisions of ss. 442 and 446 of the Act, even though he did not state the object or refer to all the facts, the Appellate Court should not have interfered by granting a conditional stay without giving sufficient reasons to over-ride the discretion of the learned Company Judge to refuse stay. We think that a question of general (1) [19631 3 S.C.R. 312. (2) [1964] 2 S.C.R. 197. (3) [1965] 1 S.C.R. 678. (4) [1968] 1 S.C.R. 205. (5) [1969] 1 S.C.R. 32. (6) [1972] 1 S.C.R. 405. 14--206SCI/77 principle arises in this case which has to be clarified so that an interference by this Court under Article 136 of the Constitution, in order to vindicate a correct principle and to meet the ends of justice, is called for. Thirdly, learned counsel for the respondent submitted that the order under appeal before us is not final so that we need not interfere under Art. 136 of the Constitution for this reason. It is true that, this Court does not, as a rule, interfere with interlocutory orders. It is not necessary for us to embark on this occasion on a discussion of the meaning of a "final" order. That is certainly a question fraught with difficulties. It is sufficient for us to observe that our powers of interference under Art. 136 of the Constitution are not confined to those in respect of final orders, although finality of an order is a test which this Court generally applies in considering whether it should interfere under Art. 136 of the Constitution with it. We think that we have indicated sufficiently why, despite the fact that an order staying proceedings under s. 442(b) of the Act may not, strictly speaking, be final, yet, a question of general principle of wide application, as to the circumstances in which an apparently discretionary power may become annexed with a duty to exercise it in a particular way, having arisen here, we consider this to be a fit case for interference under Article 136 of the Constitution. Consequently, we allow this appeal and set aside the judgment and order of the Division Bench and restore that of the learned Company Judge. The parties will bear their own costs.” b. We further refer to decision of H’ble Apex court in the case of Sarla Goel & Ors vs Kishan Chand, Civil Appeal No. 4162/2009 where the H’ble court held as under: 17 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO “It is well settled that whether the word "may" shall be used as "shall", would depend upon the intention of the Legislature. It is not to be taken that once the word "may" is used by the Legislature in Section 27 of the Act, would not mean that the intention of the Legislature was only to show that the provisions under Section 27 of the Act was directory but not mandatory. 16. In other words, taking into consideration the object of the Act and the intention of the Legislature and in view of the discussions made herein earlier, we are of the view that the word "may" occurring in Section 27 of the Act must be construed as a mandatory provision and not a directory provision as the word "may" , in our view, was used by the Legislature to mean that the procedure given in those provisions must be strictly followed as the special protection has been given to the tenant from eviction. Such a cannon of construction is certainly warranted because otherwise intention of the Legislature would be defeated and the class of landlords, for whom also, the beneficial provisions have been made for recovery of possession from the tenants on certain grounds, will stand deprived of them.” c. We also rely on decision of H’ble Apex court in the case of Mohan Singh and Ors. Vs. International Airport Authority of India and Ors. 1997 (9) SCC 132 where the Court while dealing with the intention of the Legislature to use the word "may" or "shall" observed in paragraph 17 as follows :- "The distinction of mandatory compliance or directory effect of the language depends upon the language couched in the statute under consideration and its object, purpose and effect. The distinction reflected in the use of the word "shall" or "may" depends on conferment of power. In the present context, "may" does not always mean may. May is a must for enabling compliance of provision but there are cases in which, for various reasons, as soon as a person who is within the statute is entrusted with the power, it becomes duty to exercise. Where the language of statute creates a duty, the special remedy is prescribed for non- performance of the duty. In "Raise on Statute Law" (7th Edn.) it is stated that the Court will, as a general rule presume that the appropriate remedy by common law or mandamus for action was intended to apply. General rule of law is that where a general obligation is created by statute and statutory remedy is provided for violation, statutory remedy is mandatory. The scope and language of the statute and consideration of policy at times may, however, create exception showing that Legislature did not intend a remedy (generality) to be exclusive. Words are the skin of the language. The language is the medium of expressing the intention and the object that particular provision or the Act seeks the achieve. Therefore, it is necessary to ascertain the intention. The word "shall" is not always decisive. 18 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO Regard must be had to the context, subject matter and object of the statutory provision in question in determining whether the same is mandatory or directory. No universal principle of law could be laid in that behalf as to whether a particular provision or enactment shall be considered mandatory or directory. It is the duty of Court to try to get at the real intention of the Legislature by carefully analysing the whole scope of the statute or section or a phrase under Consideration. As stated earlier, the question as to whether the statute is mandatory or directory depends upon the intent of the Legislature and not always upon the language in which the intent is couched. The meaning and intention of the Legislature would govern design and purpose the Act seeks to achieve. In "Sutherland Statutory Construction" (3rd Edn) Volume I at page 81 in paragraph 316, it is stated that although the problem of mandatory and directory legislation is a hazard to all governmental activity, it is peculiarly hazardous to administrative agencies because the validity of their action depends upon exercise of authority in accordance with their charter of existence the statute. If the directions of the statute are mandatory, then strict compliance with the statutory terms is essential to the validity of administrative action. But if the language of the statute is directory only, the variation from its direction does not invalidate the administrative action. Conversely, if the statutory direction is discretionary only, it may not provide an adequate standard for legislative action and the delegation. In "Crawford on the Construction of Statutes" at page 516, it is stated that: The question as to whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The meaning and intention of the Legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other...." d. We further rely on decision of H’ble Apex Court in the case of Shri A.C Aggarwal vs Mst. Ram kali, etc, 1968 AIR 1 1968 SCR (1) 205 wherein it was held by H’ble court as under: “Under s.190(1)(b) of the Code of Criminal Procedure, the magistrate is bound to take cognizance of any cognizable offence brought to his notice. The words "may. take cogni- zance" in the context means "must take, cognizance". He has no discretion in the matter, otherwise that section will be violative of Art. 14.” We thus hereby pray the Ld. authority to allow this ground raised by the assesse and also impose cost upon the responsibles for not following the law as drafted by legislature. 19 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO Alternatively, we also pray the H’ble members that as the operation of the decision of H’ble Delhi High Court in the case of Kamal Kumar Kalia & Others vs Union of India & Others, W.P (C ) 11846/2019 is pending and also owing to the fact that notifications in response to budget speech of H’ble Finance Ministers are awaited, some time may be granted to the assessee before making any final decision in the matter (if against the assessee) as same may not be in interest of justice. Thus, the assessee prays that he must be given benefit of any future retrospective notification on the subject matter. With these submissions, we pray the H’ble bench to allow this ground of appeal raised by the assessee. Ground No. 2 That the appellant hereby craves the leave to add, alter, substitute and withdraw any or all grounds of appeals at the time of or before the date of hearing. This ground of appeal does not require any submission. With the above submissions, we hereby pray the Ld. Bench to allow the appeal of the assessee.” 6. In addition to the above detailed written submission the ld. AR of the assessee also submitted that in the recent budget speech Hon’ble Finance Minister indicated that for increase in the limit and the related notification is awaited. The ld. AR thus relying the Delhi HC judgment issuing notice to the Union of India prayed that the relief be granted to the assessee. 7. The ld. DR is heard who has relied on the findings of the lower authorities and notification dated 31.05.2002. 20 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO 8. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee relying the decision of Hon’ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. Vs. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has given following directions :- “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.” 8.1 We have also persuaded the written submissions and oral arguments by both the parties. It is not disputed that the CBDT has not issued the notification for increase in the limit and even in the case stated herein above, the Hon’ble Delhi High Court has issued a notice in the matter to the Union of India. In the light of these facts and prayer of the assessee that even the Hon’ble Finance Minister while giving the speech in the budget indicated in the increase in the limit but the relevant notification/clarification 21 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO yet not received the bench feels that if the CBDT issue the notification and revise the limit in that case the assessee may seek the relief based on that future events but presently considering the fact that the relevant limit is fixed at Rs. 3,00,000/- for which there is already relief granted to the assessee considering the present provision read with the notification. Based on these observations we are of the view that if the limit fixed in 2002 revised, consequent to the directions or the proceedings before the Hon’ble Delhi High Court or the CBDT revise the limit then in that situation the assessee may approach the jurisdictional AO for taking the benefit of increase in limit but presently considering the fact that in the absence of the relevant notification benefit cannot be granted to the assessee more than Rs. 3 lacs. Based on these observations the appeal of the assessee is disposed off. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 10/05/2023. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member 22 ITA No. 385/JP/2022 Dilip Singh Yadav vs. ITO Tk;iqj@Jaipur fnukad@Dated:- 10/05/2023 *Ganesh Kumar vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Sh. Dilip Singh Yadav, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Ward 1(3), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 385/JP/2022) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar