C P OHRIE Vs. ACCOUNTANT GENERAL KARNATAKA

JUDGEMENT

(1.) THE petitioner had joined the Industrial Management Pool (Central Services Class I) of the Government of India in December, 1960, and was an officer of the Civil Services of the Union Government. He was working under the administrative control of the Bureau of Public Enterprises of the Ministry of Finance, Government of India. From there, he was deputed to the Hindusthan Aeronautics Ltd., at Bangalore, a public sector undertaking, in May, 1973, as Controller of Services and continued in that capacity. It transpires that the Government of India decided to abolish the Industrial Management Pool and in that connection gave certain option to the officers borne on the pool. THE petitioner was also given such an option and an intimation of termination of his employment under the Govt. of India. In terms of the communication therein, the petitioner exercised the option on February 12, 1977, and the retirement from the Govt. of India's services became effective. It also transpires that, subsequently, the Govt. of India revoked its earlier decision to abolish the pool by a notification dated October 13, 1977, but continued the earlier option given to the officers to be absorbed in public sector undertakings and then, on the officers reiterating the option, they were to be governed by the terms and conditions of the earlier notification. In the communication dated February 5, 1977, reference was made to the terminal benefits that the petitioner would be entitled to. Subsequently, the Under-Secretary to the Govt. of India, Ministry of Finance, sent a communication dated December 28, 1977, to Pay and Accounts Officer, Ministry of Finance, New Delhi, whereby he conveyed the sanction of the President to the permanent absorption of the petitioner in the services of the Hindusthan Aeronautics Ltd., and that the absorption would take effect from the forenoon of April 1, 1977. In paras, (ii), (iii) and (iv) of that communication (Ex. B) details of the pension and gratuity that the petitioner would be eligible for were given. Clause (v), however, specified as follows :

(2.) IT is not in dispute that the petitioner exercised his option under Clause (b). Thereafter, the Accountant-General, Karnataka, Bangalore, issued instructions to the Treasury Officer, Bangalore, on June 30, 1978 (Ex. D), authorising the payment of Rs. 1,31,749.80, being the commuted value of the periodical pension payable, namely, Rs. 889 per month. However, in that very communication, a direction was issued that a deduction of income-tax at source on two-thirds of this amount, namely, Rs. 87,833.20, should be made. This was on the basis that the petitioner was entitled to exemption from income-tax only to the extent of one-third of the commuted pension. IT is this direction to deduct income-tax at source on a sum of Rs. 87,833.20 that is challenged in this writ petition.

(3.) A statement of objections has been filed on behalf of the respondents, which is common to this writ petition and Writ Petition No. 10596 of 1978 Lt. Col. B.V.S. Rao v. CIT (see p. 130 infra) in which it is admitted that the petitioner had opted for receiving the retirement gratuity and a lump sum amount in lieu of pension worked out under the commutation rules as provided under Rule 37A of the Pension Rules. However, the contention on behalf of the respondents has been that the exemption is applicable only to the lump sum amount not exceeding the commuted value of one-third of the pension paid under Clause (a) of Rule 37A and not in regard to the remaining amount, namely, the two-thirds of the amount payable. The answer to the controversy, in my opinion, is to be found on a true interpretation of the provision in Section 10(10A) of the Income-tax Act, 1961, and the import of Rules 37 and 37A of the Central Civil Services (Pension) Rules, 1972.