Employees transitioning from a state undertaking to a corporation retain exemption for prior government service under section 10(10AA) but only up to specified limits post-restructuring.

Order

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), NFAC, dated 09.10.1023, for the assessment year 2016-17.

2. The grounds of appeal raised by the Assessee are as under: -

1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding that the assessee was not a Government employee and as such was not entitled to get full tax exemption on leave encashment received from PSPCL after retirement under section 10(10AA) which is arbitrary and unjustified.

2. That the Ld. Commissioner of Income Tax (Appeals) has erred in holding that employees of PSPCL cannot be treated as Government employees which is an incorrect finding and as such the order passed is arbitrary and unjustified.

3. Without prejudice to the above and strictly in the alternative, the Ld. Commissioner of Income Tax (Appeals) has failed to consider the alternate submission of the assessee that he was entitled to complete Leave Encashment at least in respect of the period when he was a serving employee of the Punjab Government under Punjab State Electricity Board which is arbitrary and unjustified.

4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

5. That the order of Ld. Commissioner of Income Tax (Appeals) Officer is arbitrary, opposed to the facts of the case and thus untenable.

3. The facts of the case, as per the order of the Ld. CIT(A) are that the assessee is a retired Government employee, retired from PSPCL (Punjab State Power Corporation Limited), 100 per cent owned by the State Government. The assessee could not claim exemption under Section 10 (10AA) of the Income Tax Act, 1961 , on account of leave salary or leave encashment. When he realised this mistake of his which is apparent from the records, he submitted a rectification application u/s 154 of the Income Tax Act 1961 before the Assessing Officer rejected the application on the plea that the assessee was not retired from the Government job. In contrast, he retired from the corporation, which the Punjab Government wholly owns. On appeal before the Ld. CIT(A), the Ld. CIT(A) did not find any reason to deviate from the stand taken by the Assessing Officer and uphold the order of the Assessing Officer.

4. The Assessee, thus, has come into appeal before the Tribunal.

5. It is the submission of the ld. AR, Shri Tej Mohan Singh that the Assessee was an employee of Punjab State Electricity Board (PSEB) from 18.11.1983 to 16.4.2010. Thereafter, the PSEB was restructured, and a company by the name of Punjab State Power Corporation Limited (PSPCL) came into existence. As a result of this restructuring, the Assessee's employment was transferred from PSEB to PSPCL through a government restructuring scheme. It was the contention of the Ld.AR that without prejudice to the rights of the Assessee, that the leave encashment received by the Assessee for the period the Assessee served to PSEB is not taxable to tax as the PSEB was the State undertaking of the State Government which fully falls within the realm of section 10(10A) of the Income Tax Act, 1961 (in short 'the Act') It was submitted that though the Coordinate Bench in the case of Arvind Kumar Jolly vs ITO ( ITA No.952/Chd/2025) vide order dt. 8.10.2025, had decided the issue against the Assessee, however, nonetheless, the period for which the services were rendered by the Assessee with PSEB, which happens to qualify to a State utility, the Assessee is entitled to the relief to that extent for the amount of Rs. 13,02,816/-

6. Per contra, the Ld. DR relied upon the or