C O M M O N O R D E R

The petitioners challenge audit objections issued by local fund audit calling upon the petitioners to remit income tax on surrender of leave salary (SLS) on the ground that tax has not been deducted at source in terms of the Income Tax Act, 1961 (in short 'Act').

2. The petitioners are employees of the Tamil Nadu Agricultural University (University/TNAU). To be noted that the petitioners are direct employees of the University, and not employees of allied institutions or constituent colleges and the ratio of this decision will apply only to those employees who are under the direct employment of the University per se.

3. The employees had retired from service in the year 2017 and at the time of retirement had been granted SLS. An objection was raised by local fund audit on the ground that tax ought to have been deducted under the provisions of the Act. Thus, the University sought a clarification from the local fund audit as well as from the Income Tax Department.

4. The latter has, vide clarification dated 17.02.2015, stated as follows:

Government of India Ministry of Finance, Income Tax Department Office of the Assistant Commissioner of Income Tax, 63-A, Race Course Road, Coimbatore-18. TDS Circle/Mar/2014-15 Date:17.02.2015 To, The Registrar, Tamil Nadu, Agricultural University Coimbatore.

Sir, Sub:-TNAU-Establishment of Earned leave – Deduction of Income Tax at par with Government Employee U/s 10 (10AA) of IT Act – Clarification issued-regarding.

Ref:- Your letter in No.A3/10842/2014 dt. 17/12/2014.

0-0 Please refer to the above communication.

The clarification sought by you is on Sec 10 (10AA), which deals with exemption on encashed earned leave by employees.

Sec (10AA) clause (i) deals with leave salary received by a Central Government/State Government and has no ceiling associated with it.

Sec10 (10 AA) clause (ii) deals with leave salary received by other employees and is limited by two monetary ceilings:

(a). Ten months average salary.

(b). Rs.3,00,000 as per notification No.SO 588 (E) dt.31.05.2022 You have pointed out that LF Audit has raised an objection for your treating the university employees as government employees.

I have studied the implication of the LF Audit.

As of now, there are no instructions/circulars/Notifications from the CBDT, the governing body for the administration of direct taxes in India, extending (or )

treating University employees as Government employees.

Additionally, your kind attention is invited to the following existing sections, which distinguish between a government employee and a University employee. Sec 192 (2A) of the IT Act, while listing types of employees, includes University employees with non-government servants only. Further, the Explanation to this sub-section exclusively defines University employees in an elaborate manner and does not mention about any parity with Government employees.

Additionally, Sec 10 (10 C), which covers VRS payments, exempted employees of Companies, Corporations, Local Authorities, Co-operative Societies, Universities, IITs and IIMs in their introductory stages (1993) itself and later only included government employees through a different amendment (2001) to the Section.

The above are just two instances from the Act, to high light that University employees are not considered as Government employees in the present scheme of the Act similar situation prevails in the cases of IIT and IIM employees also. After considering the legal provision, I find that the LF Audit objection on Encashment of Leave Salary (Sec 10) (10AA) is tenable.

Yours Faithfully (C.O.FRANCIS, IRS)

Assistant Commissioner of Income Tax, TDS Circle, Coimbatore

5. The sum and substance of the stand of the Department is that the petitioners are not 'Government servants' as set out under Section 10(10AA) Clause (i) of the Act and hence cannot claim benefit of the aforesaid provision that grants an exemption from tax, in certain specific situations.

6. The provisions of Section 10(10AA) read