KARUNAKARAN C K Vs. UNION OF INDIA

JUDGEMENT

(1.) : This petition under Art. 226 of the Constitution of India by a former civil servant, who was deemed to have retired from service on absorption in the Oil and Natural Gas Commission, raises an interesting question as to the taxability of terminal benefit payable to him under cl. (b) of sub-r. (1) of r. 37A of the Central Civil Services (Pension) Rules, 1972. The petition was filed in the following circumstances :

(2.) THE petitioner joined civil service in 1959 in the Industrial Management Pool, Central Services Class I. THE pool which was constituted in 1957 was, however, abolished w.e.f. March 31, 1977. THE pool officers were, however, given the option to either seek permanent absorption in public sector corporations, in which they were serving on deputation, or to retire from service. THE petitioner was required to give his option for absorption in the Oil & Natural Gas Commission. THE petitioner exercised the option for permanent absorption in the Commission and elected the alternative of receiving the death-cum-retirement gratuity and a lump-sum amount in lieu of pension and, therefore, became entitled to receive a lump-sum amount not exceeding the commuted value of 1/3rd of his pension as may be admissible in accordance with the provisions of the Civil Pensions (Commutation) Rules, for short, the "Commutation Rules" ) under cl. (a) of sub- r. (1) of r. 37A of the Central Civil Services (Pension) Rules, 1972 (for short, "Pension Rules"), and a terminal benefit equal to twice the amount under cl. (b) of sub-r. (1) of the said rule. It is a common case of the parties that the amount payable in commutation of pension under the Commutation Rules by virtue of cl. (a) of sub-r. (1) of r. 37A is exempt from tax as income under s. 10(10A)(i) of the IT Act, 1961. A dispute has, however, arisen if the terminal benefit in addition to the aforesaid payment to which the petitioner is entitled under cl. (b) of sub-r. (1) of the aforesaid rule would also qualify for exemption under the aforesaid provision of the IT Act or not. THE dispute came to a head when tax was sought to be deducted at source and that is how the petition was filed to enforce the payment of the entire amount of terminal benefit without any such deduction on the ground that the amount was exempt from tax.