Date of judgment:
August 13, 2021
Judges:
Hemant Gupta, J.
A.S. Bopanna, J.
Parties:
Appellant: KRISHNA GOPAL TIWARY & ANR.
Respondents: UNION OF INDIA & ORS.
Subject
Whether the 2010 Amendment to Payment of Gratuity Act will have a retrospective effect from 2007 on the date when it was notified or will it come into effect from 2010 when it received the president’s assent?
Legal Provisions
Section 4 of Payment of Gratuity Act: It provides for the amount of gratuity payable to a superannuated employee will be Rs 3.5 lakhs but the same was amended to Rs 10 lakhs by the 2010 amendment.
Section 10 of the Income Tax, 1961: This section lays down some exemptions from allowed to salaried employees.
Overview
- The appellants are the employees of Coal India Limited and have challenged the order passed by Jharkhand High Court where their claim to declare the 2010 Amendment to Payment of Gratuity Act as retrospective was declined by the High Court.
- The government of India enhanced the gratuity to the executives and Non-Unionized Supervisors of Central Sector Enterprises such as the Coal India Limited from a bracket of Rs 3.5 lakhs to Rs 10 lakhs in terms of office memorandum of Government of India dated 26.11.2008.
- The appellants were paid gratuity of Rs 10 lakhs in January 2007 however the Payment of Gratuity Act was amended and it received the assent of the President in 2010 and it came into effect from the same year.
- The appellants have grieved that tax from deducted from source for the amount of Rs 10 lakhs when the gratuity was paid to the appellants before the commencement of the Amending Act.
- They have challenged the date of commencement of the amendment in 2010 and have claimed that the amending act should have retrospective effect from 2007 and subsequently, they will not be liable to pay TDS.
- Counsel for the appellants relied on the Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited, and argued that the amendment is beneficial and therefore should be retrospective.
- Counsel for the appellants also referred to a judgment of this Court in D.S. Nakara & Ors. v. Union of India 5 to contend that the cut-off date as 24.5.2010 has created two categories of employees, first who have attained the age of superannuation before the said date and second who have superannuated on or after 24.5.2010. And such classification as illegal and arbitrary.
Judgement Analysis
- The court firstly looked into Section 4 of the Payment of Gratuity Act and Section 10 of The Income Tax Act, 1961.
- The court observed that under subsection 5 of Section of Payment of Gratuity Act, the employee is entitled to receive better terms of gratuity under any award or contract with the employee and the same was awarded to the appellants.
- Referring to Income Tax Act, 1961, the court said that amount of gratuity that can be exempted under the act should not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of Section 4 of the Gratuity Act.
- The court held that the gratuity amount is payable once and therefore the cut-off date cannot be said to be illegal and the amendment cannot have retrospective effect.
- It was also held that the gratuity paid to appellants is not entitled to exemption under Section 10 of the Income Tax Act, 1961.
Conclusion
The central government with the aim to enhance the gratuity to executives and Non-Unionized Supervisors of Central Sector Enterprises increased the amount of gratuity from Rs 3.5 lakhs to 10 Lakhs by the amendment of 2010 to the Payment of Gratuity Act, 1972. There had been questions before the courts as to what will be the effect of the amendment as the notification for the same was passed in 2007 and it received the president’s assent in 2010. The Supreme Court dealt with the same question and held that since the payment of gratuity is in one amount, the amendment cannot be retrospective.
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