The central legal point established is that commuted pensions under Sec. 10 (10a) (i) of the Income Tax Act, 1961, are exempt from tax, and the authority to order tax deduction is limited by the provisions of the Act.

( 1 ) THE petitioner is an Income Tax assessee. He joined the service of the union Government in the year 1953 in the Postal Department. Thereafter, he was serving in the Ministry of Finance department of Expenditure,, New delhi. In the year 1977 he was deputed by the Ministry of Finance to render services for M/s Thungabhadra Steel products Ltd. , a joint undertaking of the Government of India, the Government of Karnataka and the Government of Andhra Pradesh at Thungabhadra dam Site. In the year 1978 the petitioner chose to be absorbed in the service of the undertaking of the aforementioned Governments and retired voluntarily from the service of the Government of India. The petitioner was eligible to certain retirement benefits as he had completed 25 years of service in the Central Government. It is sufficient to state that he was entitled to either draw pension at the scale permissible or commute the same and draw a lumpsum. The petitioner chose to commute his pension and as a result he was entitled to receive the sum of Rs. 93,567-60 as the commuted amount of pension which the Government sanctioned. The Accountant General in karnataka Bangalore, by his communication dated 25-8-1980 PAE/cent/80/81 bearing No. 8411 instructed the District treasury Officer, Bellary, that two thirds of the commuted amount may be subjected to tax and the tax deducted at source. Aggrieved by that direction, the petitioner has approached this Court under Art. 226 of the constitution inter alia contending that the 1st respondent had no authority to issue such a direction as the amount commuted was not liable to tax having regard to sub-sec. (10a) (i) of Sec. 10 of the Income Tax act, 1961, (hereinafter referred to as the Act ). Sec. 10 (10a) (i) of the act is as hereunder. "10. 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- (10a) (i) any payment in commutation of pension received under the Civil Pensions (Commutation) rules of the Central Govemment or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence, or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the All India Services or to the members of the defence services of to the members of the civil posts under a Stale or to the employees of a, local authority or a corporation established by a Central, State or Provincial Act; (ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed- (a) in a case where the employee receives any gratuity, the commuted value of one third of the pension which he is normally entitled to receive, and (b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of thei recipient, the state of his health, the rate of interest and officially recognised tables of mortality: provided that the maximum limit of payment specified in sub-clause (ii) (a) or sub-clause (ii) (b) shall not apply in respect of any such payment made before the 19th day of august, 1965. "

( 2 ) WHETHER the commixed pension is exempted from taxation has been the subject matter of decision by the bombay Income Tax Appellate Tribunal which appears to haye held that the same is entitled to exemption under sec. 10 (10a) (i) of the Act, which decision has been accepted by the department in so far as it relates to state of Maharastra. Similarly, in The case of C. P. Chrie v. Accountant general, Karnataka, (i) Srinivasa. Iyengar, J. , has taken the view that all pensions commuted are entitled to get the same treatment and get the exemption to which they are entitled under Sec. 10 (10a) (i) of the Act. Similarly, in the case of C. K. Karunakaran v. Union of India (2) a Division Bench of the Delhi High court