Law:

Section:

Section 10(10A) of the Income-tax Act, 1961 - Pension - Whether terminal benefit received by a civil servant in lien of his pension on his retirement from Government service and absorption in a public sector corporation under rule 37A (1)(b) of Civil Services (Pension) Rules, 1972, would not be exempt from tax under section 10(10A)(i) - Held, yes FACTS When the Industrial Management Pool, Central Services class I, was abolished from 31-03-1977, the petitioner, a class-I officer of the pool, exercised his option for permanent absorption in the ONGC 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 was admissible in accordance with the provisions of the Civil Pensions (Commutation) Rules, under clause (a) of rule 37A (1) of the Central Civil Services (Pension) Rules, 1972 and a terminal benefit equal to twice the amount under clause (b) of sub-rule (1) of the said rule. The amount payable in commutation of pension under the Commutation Rules by virtue of clause (a) of sub-rule (1) of rule 37A was exempt from tax as income under section 10(10A)(i) of the Act. A dispute had, however, arisen if the terminal benefit in addition to the aforesaid payment to which the petitioner was entitled under clause (b) of 37A(1) rule would also qualify for exemption under the aforesaid provision of the Act or not. The department sought to deduct tax at source on that benefit. On writ, the petitioner sought payment of entire amount of terminal benefit without deduction of tax at source on the ground that the amount was exempt from tax. HELD It was not disputed that rule 37A was added primarily to introduce uniformity in the matter of exemption under section 10(10A) of the Act because, but for this rule, the entire amount in lieu of pension receivable by a civil servant on absorption would be exempt from tax while the exemption in the case of an ordinary retiring civil servant would be confined to the commuted value of 1/3rd of the pension. The terminal benefit under clause (b) of rule…

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