High Court of KeralaSingle Judge2015-11-03Writ petitions dismissed.

MURALEEDHARAN A. and C.R. THANKAPPAN v. UNION OF INDIA and ORS

Case / Petition Number:WP(C).No. 14069 of 2010 (G)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: K. Vinod Chandran
Judgment Date: 2015-11-03
Court Decision / Holding: Writ petitions dismissed. Remittance to the Income Tax Department was directed within one month from receipt of certified copy; no interest liability is to be imposed due to the stay. The court clarified that the exemption is not applicable beyond statutory limits and that taxpayers retiring before the amendments must bear tax on the excess amounts.
Final Disposition: Writ petitions dismissed.

Parties to the Case

Appellants / Petitioners

Muraleedharan A.
C.R. Thankappan

Respondents

Union of India
Kerala State Financial Enterprises Ltd.
State of Kerala

Legal Representation & Advocates

Counsels for Petitioners

• Sri P. Sreekumar
• Sri K. S. Manu (Punukkonnoor)
• Sri P. S. Sidhan

Counsels for Respondents

• Sri M. L. Sajeevan, SC, KSFE Ltd.
• Smt. P.A. Rezia, CGC
• Sri Jose Joseph, SC, FOR INCOME TAX
• Sri Lal George, SC, Kerala State Financial Enterprises Ltd.
• Sri M. Gopikrishnan Nambiar
• Sri P. Gopinath
• Sri P. Benny Thomas
• Sri K. John Mathai

Case Synopsis & Summary

This writ petition before the Kerala High Court challenges the tax treatment of retirement benefits, specifically D.C.R.G. (Dearness cash retirement gratuity) and leave encashment, disbursed on retirement. The petitioners contend that the income tax exemption provisions are disproportionately favorable to central and state government employees, while others are restricted to limits fixed under the Payment of Gratuity Act and the central government notification for leave encashment. The petitions analyze sub-clauses (ii) of Section 10(10) and Section 10(10AA) of the Income Tax Act, 1961, arguing that the amendments surrounding the gratuity exemption and leave encashment were enacted after retirement, effectively depriving the petitioners of a uniform exemption. The respondents (State, KSFE, and Union of India) defend the classification as rational, citing Article 14 and the need for intelligent differentia with a rational nexus to legitimate objectives. The court cites Arun Kumar v. Union of India (SC) to support the argument that government vs. private employees can be treated differently in exemptions without constitutional violation if a rational basis exists. It holds the amendments cannot be applied retroactively and that the petitioners must absorb taxation on the excess amounts. The dispute is concluded with directions for remittance within a month and dismissal of the petitions, with no interest liability arising from the stay."

Provisions of Law Cited

Income Tax Act, 1961 - Section 10(10) (sub-clause (ii))Income Tax Act, 1961 - Section 10(10AA) (sub-clauses (i) and (ii))Payment of Gratuity Act, 1972 - Section 4(2) and 4(3)Constitution of India, Article 14Income Tax Rules, 1962 - Rule 3

Legal Doctrines & Maxims

Intelligent differentia
Rational nexus
Classification under Article 14
Twin tests to sustain a classification

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioners argue that the exemption granted to Central and State Government employees should extend to others as well. They contend that amendments to raise the gratuity and leave encashment limits were enacted after retirement, and applying them prospectively causes hardship and discriminatorily penalizes non-government employees. They rely on Arun Kumar v. Union of India to claim that discrimination cannot be justified and that a uniform, retrospective relief should be available; they also urge that the stay should not prejudice the petitioners and request remittance of the excess amounts without interest.

Contentions of Respondents

The respondents defend the classification as a reasonable intelligent differentiation grounded in Article 14. They argue the exemptions and ceilings reflect a rational nexus to policy objectives and are not inherently discriminatory since the two groups are not similarly situated. They contend the amendments were not intended to be retrospective and apply prospectively; the Government’s inaction cannot be the basis for retrospective relief. They rely on constitutional validity and the need to maintain fiscal discipline, especially for non-government employees who do not enjoy identical exemptions.

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
Arun Kumar v. Union of India and others	(2006) 286 ITR 89 (SC)	Positive	The court cites the Arun Kumar decision to support the reasoning that a government/private employee distinction can be valid under Article 14 if based on intelligent differentia with a rational nexus; it uses this precedent to reject the petitioners’ discrimination challenge.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **TUESDAY, THE 3RD DAY OF NOVEMBER 2015/12TH KARTHIKA, 1937** ## **WP(C).No. 14069 of 2010 (G)** **----------------------------** ## **PETITIONER(S):** **----------------------** **1. MURALEEDHARAN A., AGED 58 YEARS, S/O. A.MADHAVA PANICKER, USHUS (ANAT), NENMANIKKARA PUDUKAD - 680 301.** **2. C.R. THANKAPPAN, AGED 57 YEARS, S/O RAGHAVAN, SREELAKSHMI, V P SASI ROAD PALLURUTHY, KOCHI WORKING AS SENIOR MANAGER, KSFE, SHANMUGHAM ROAD BRANCH ERNAKULAM** **BY ADVS.SRI.P.SREEKUMAR SRI.K.S.MANU (PUNUKKONNOOR) SRI.P.S.SIDHAN** **RESPONDENT(S):** - **----------------------------** ## **1. UNION OF INDIA,** - **REPRESENTED BY ITS SECRETARY, MINISTRY OF FINANCE NEW DELHI.** ## **2. KERALA STATE FINANCIAL ENTERPRISES,** - **REPRESENTED BY ITS MANAGING DIRECTOR, BHADRATHA THRISSUR.** ## **3. STATE OF KERALA,** **REPRESENTED BY ITS SECRETARY, FINANCE DEPARTMENT GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM.** **R,R2 BY ADV. SRI.M.L.SAJEEVAN, SC, KSFE LTD. R,R1 BY ADV. SMT.P.A.REZIA, CGC** **R,R1 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX R2 BY ADV. SRI.LAL GEORGE, SC, KERALA STATE FINANCIAL ENTERPRISES LTD.** **R2 BY ADV. SRI.M.GOPIKRISHNAN NAMBIAR R2 BY ADV. SRI.P.GOPINATH R2 BY ADV. SRI.P.BENNY THOMAS** **R2 BY ADV. SRI.K.JOHN MATHAI** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03-11-2015, ALONG WITH WPC. 14126/2012, WPC. 17296/2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **WP(C).No. 14069 of 2010 (G)** ## **APPENDIX** ## **PETITIONERS EXHIBITS:** **EXT.P1 COPY OF THE COMMUNICATION DTD. 27.2.10 ISSUED BY THE 2ND RESPONDENT.** ## **RESPONDENTS EXHIBITS:** **// TRUE COPY //** **P.A TO JUDGE** **SB** ## **K. VINOD CHANDRAN, J.** ## **===================== W.P.(C) No.14069 of 2010 - G, 14126 of 2012-M and 17296 of 2013 - J ============================ Dated this the 3[rd] day of November, 2015** ## **J U D G M E N T** The petitioners are aggrieved by the deduction of income tax from the amounts disbursed as D.C.R.G. and leave encashment, on retirement on amounts exceeding respectively Rs.3,50,000/- and Rs.3,00,000/-. 2. The petitioners contend that while the Government employees were extended with exemption, for the entire amounts received as D.C.R.G and leave encashment, the same was confined, with respect to the petitioners, to the maximum amounts stipulated under the Payment of Gratuity Act, 1972 and with respect to the leave encashment; to the limit specified by the Central Government. The petitioners specifically referred to **2** W.P.(C) No.14069 of 2010 - G, and connected cases sub-clause (ii) of Section10(10) and 10(10AA) of the Income Tax Act, 1961. 3. Sub-clause (ii) of Section10(10) of the Income Tax Act, exempts any payment received under the Payment of Gratuity Act, to the extent it does not exceed the amount calculated in accordance with the provisions of sub-sections (2) and (3) of Section 4 of the Gratuity Act. Sub-clause (i) of Section 10 (10AA) of the Income Tax Act exempts all payment, received by an employee of the Central Government or State Government, of the cash equivalent of the the leave salary in respect of the period of earned leave which is credited at the time of his retirement or otherwise; from exigibility to tax. However subclause (ii) of section 10(10AA) of the Income Tax Act, grants such benefits to employees other than of the Central Government or the State Government, only to the extent of the encashment of leave salary as does not exceed 10 months salary, subject again to the limits specified by the Central Government, by notification. **3** W.P.(C) No.14069 of 2010 - G, and connected cases 4. In the present case all the petitioners retired just prior to the amendment brought to the Payment of Gratuity Act. The effective date of amendment, i.e, on 24.05.2010 falls after the date of retirement. By the amendment, the limit was enhanced from Rs.3,50,000/- to Rs.10,00,000/-. Likewise notification, in the same period, was brought out under sub- clause (ii) of section 10(10AA) of the Income Tax Act, enhancing the limit of leave encashment from Rs.3,00,000/- to Rs.3,50,000/-. 5. The learned Counsel appearing for the petitioners contend that the exemption so granted to Central Government and State Government employees and declined in the case of other employees is arbitrary and discriminatory. It is also argued that the amendments, enhancing the limit was brought out after 13 years and hence the inaction of the Central Government cannot be a reason to disentitle the petitioners from such exemption. 6. With respect to the claim of discrimination, the **4** W.P.(C) No.14069 of 2010 - G, and connected cases issue is no longer res integra since, the Hon'ble Supreme Court has considered the same in **Arun Kumar and others** v. **Union of India and others [(2006) 286 ITR, 89 (SC)]** , wherein similar exemptions available, with respect to the House Rent Allowance under Rule 3 of the Income Tax Rules 1962 came up for consideration. Therein also, the plea was that the Government employees and employees in private sector are treated differently, inviting the vice of the discrimination, which the Hon'ble Supreme Court negatived. Basing the reasoning on Article 14 of the Constitution of India, it was held that there could be no discrimination found as the two sets of employees treated differently, cannot be said to be equally situated. They formed a class different and cannot be equated under Article 14, was the finding. In such circumstance, following the above binding precedent, the contention raised by the petitioners with respect to discrimination has to be rejected. 7. The learned Counsel for the petitioners have an **5** W.P.(C) No.14069 of 2010 - G, and connected cases argument that in the cited case the employees who raised the challenge were employed under the private sector who had demonstrably better remuneration and perquisites than Government employees. Here the petitioners were employed in the respondent organisation which was under the direct control of the State and had much lesser service benefits than the State Government Employees. However that does not commend a deviation from the dictum laid down by the Hon'ble Supreme Court that the distinction made between the Government employees and others is a reasonable classification based on intelligent differentia and discloses a rational nexus to the object sought to be achieved; the twin tests to sustain a classification. The classification been found to be the having proper, contention is reduced to a mere plea of hardship, which cannot be urged against taxing statutes. 8. The further contention is with respect to the Central Government having not acted in time to bring in the **6** W.P.(C) No.14069 of 2010 - G, and connected cases enhancement. It is to be noticed that the petitioners' retired before the enhancement was made. The amendment to the Payment of Gratuity Act and the enhancement of the limit prescribed under sub-clause (ii) of section 10(10AA) of the Income Tax Act was subsequent to the retirement of the petitioners. In such circumstance, this Court cannot order retrospective effect to the said enhancement nor can the same be directed to be applied in the case of the petitioners merely for the reason of the hardships caused to the petitioners. The enhancement having not been made with a retrospective effect, it can only be applied prospectively. The petitioners would be liable to tax on the amounts received on retirement in excess of the exemption granted by the Income tax Act. 9. Considering the fact that there was a stay on the admission of the writ petition from remitting the amounts to the Income Tax Department, the respondent employer, is directed to make such remittance, within a period of one month from the **7** W.P.(C) No.14069 of 2010 - G, and connected cases date of receipt of the certified copy of this judgment. It is made clear that since the remittance was not made on account of the stay order of this Court, no interest liability as per the Income Tax Act could be mulcted either on the respondent employer or on the individual petitioners. The writ petitions would stand dismissed. **Sd/K. VINOD CHANDRAN, JUDGE** SB/04/11/2015 // true copy // P.A to Judge.