Law:

Section:

Section 10(10C) of the Income-tax Act, 1961 - Exemptions - Payment received by employee of a public sector company at time of his voluntary retirement - Whether section 10(10C) is constitutionally valid - Held, yes FACTS By a petition under article 32 of the Constitution, the petitioners challenged the constitutional validity of clause (10C) inserted in section 10 by the Finance Act, 1987 with effect from 1-4-1987. The effect of clause (10C) so inserted in section 10 is that any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf, is not included in the total income of such employee resulting in grant of tax exemption to that extent to him. The petitioners contended that the denial of this benefit to an employee of a private sector company at the time of his voluntary retirement amounted to an invidious distinction between public sector employees and private sector employees in the matter of taxation and was arbitrary and unintelligible amounting to hostile discrimination. HELD One has to look beyond the ostensible classification and to the purpose of the law and apply the test of 'palpable arbitrariness' in the context of the felt needs of the times and societal exigencies informed by experience, to determine reasonableness of the classification. It is clear that the role of public sector in the sphere of promoting the national economy and the context of felt needs of the times and societal exigencies informed by experience gained from its functioning till the enactment, are of significance. There was no dispute that the impugned provision includes all employees of the public sector and none not in the public sector. The question is whether those left out are similarly situated for the purpose of the enactment to render the classification palpably arbitrary. It was only if this test of palpable arbitrariness applied in this manner was satisfied, that the provision could be faulted as discriminatory but not otherwise. It was first necessary…

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