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SUPREME COURT OF INDIA
HEMANT GUPTA, A.S. BOPANNA, JJ.
Krishna Gopal Tiwary & Anr. - Appellants
Versus
Union of India & Ors. - Respondents
Civil Appeal No. 4744 of 2021 (Arising out of SLP (Civil) No. 10622 of 2017)
Decided On : 13-08-2021
Income Tax Act, 1961 – Section 10(10)(ii) – Payment of Gratuity Act, 1972 – Section 4 – Payment of Gratuity (Amendment) Act, 2010 – Payment of gratuity – Tax deduction at source – What is exempt from Income Tax Act is amount of gratuity received under Gratuity Act to the extent it does not exceed an amount calculated in accordance with provisions of sub-sections (2) and (3) of Section 4 of Gratuity Act – Gratuity Act contemplated rupees ten lakhs as amount of gratuity only from 24.5.2010 – Such gratuity is amount payable only once – Cut-off date cannot be said to be illegal, it being one-time payment – Such amendment in Gratuity Act cannot be treated to be retrospective – Provisions of statute cannot be said to be retrospective – Date of commencement fixed by Executive in exercise of power delegated by Amending Act cannot be treated to be retrospective as benefit of higher gratuity is one-time available to employees only after commencement of Amending Act – Benefit paid to appellants under office memorandum is not entitled to exemption in view of specific language of Section 10(10)(ii) of Income Tax Act – No error in order passed by High Court – Appeal dismissed. (Paras 13, 17 and 18)
Facts of the case:
Appellants are employees of Coal India Limited. Challenge in the present appeal is to an order passed by High Court of Jharkhand on 27.7.2016 whereby the claim of appellants to declare the applicability of Payment of Gratuity (Amendment) Act, 2010 from 1.1.2007 was declined. Grievance of the appellants is that the tax has been deducted at source when the gratuity was paid to the appellants before commencement of the Amending Act. The appellants have challenged the date of commencement as 24.5.2010 but asserted that it should be made effective from 1.1.2007 and consequently appellants would not be liable for deduction of tax on the gratuity amount.
Findings of Court:
Sub-section (5) of Section 4 of the Gratuity Act protects the right of an employee to receive better terms of gratuity under any award or contract with the employer. The gratuity paid to the appellants on strength of office memorandum dated 26.11.2008 would fall in said sub-section.
Result : Appeal dismissed.
JUDGMENT :
HEMANT GUPTA, J.
1. The challenge in the present appeal is to an order passed by the High Court of Jharkhand on 27.7.2016 whereby the claim of the appellants to declare the applicability of Payment of Gratuity (Amendment) Act, 2010, 1[For short, the ‘Amending Act’] from 1.1.2007 was declined.
2. The appellants are employees of Coal India Limited. The Government of India approved enhancement of gratuity to the executives and Non-Unionized Supervisors of Central Sector Enterprises such as the Coal India Limited where the appellants were employed. The ceiling of the gratuity was raised to Rs.10 lakhs w.e.f. 1.1.2007 in terms of office memorandum of Government of India dated 26.11.2008.
3. The appellants were paid such gratuity in terms of such office memorandum. However, later on, the Payment of Gratuity Act, 2[For short, the ‘Gratuity Act’] was amended by Central Act No. 15 of 2010 which received the assent of the Hon’ble President on 17.5.2010. The relevant provisions of the Amending Act read as under :
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
2. In Section 4 of the Payment of Gratuity Act, 1972, in sub-section (3), for the words “three lakhs and fifty thousand Rupees”, the words “ten lakh rupees” shall be substituted.”
4. In terms of sub-section (2) of Section 1 of the Amending Act, a notification was issued by the Government of India on 24.5.2010 appointing the said date as the date on which the Amending Act came into force.
5. The grievance of the appellants is that the tax has been deducted at source when the gratuity was paid to the appellants before the commencement of the Amending Act. The appellants have thus challenged the date of commencement as 24.5.2010 but asserted that it should be made effective from 1.1.2007 and consequently the appellants would not be liable for deduction of tax on the gratuity amount.
6. Certain provisions of the Gratuity Act as it existed prior to amendment by Central Act No. 12 of 2018 and that of Income Tax Act, 1961, 3[For short, the ‘Income Tax Act’] would be necessary to be extracted :
4. Payment of Gratuity – (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,-
xx xx xx
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
xx xx xx
(3) The amount of gratuity payable to an employee shall not exceed ten lakh rupees.
xx xx xx
(5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.”
The Income Tax Act, 1961
10. Incomes not included in total income. – 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 –
1. xx xx xx
10 (ii). any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act;”
7. Learned counsel for the appellants argued that the amendment of the Gratuity Act is to grant liberalised benefits. Therefore, it would be retrospective. Reliance is placed upon judgment of this Court in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited, (2015) 1 SCC 1. The aforesaid case is of insertion of proviso to Section 113 of the Income Tax Act providing that tax chargeable under the said Section shall be increased by a surcharge and shall be applicable in the assessment year relevant to the previous year in which the search is initiated under Section 132 of the said Act. It was the said provision which came up for considera
Amendment in Gratuity Act cannot be treated to be retrospective. Provisions of statute cannot be said to be retrospective.
The Gratuity Act provides overriding rights for gratuity claims that cannot be denied unless specifically exempted by law, even when alternative welfare benefits exist.
The definition of 'pay' for gratuity calculation includes special allowances, and the interest rate cannot be reduced below statutory provisions.
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