KRISHNA GOPAL TIWARY & ANR. versus UNION OF INDIA & ORS. on 13 August 2021

1. The challenge in the present appeal is to an order passed by theHigh Court of Jharkhand on 27.7.2016 whereby the claim of the appellantsto declare the applicability of Payment of Gratuity (Amendment) Act,D2010[1] from 1.1.2007 was declined.

2. The appellants are employees of Coal India Limited. TheGovernment of India approved enhancement of gratuity to the executivesand Non-Unionized Supervisors of Central Sector Enterprises such asthe Coal India Limited where the appellants were employed. The ceilingEof the gratuity was raised to Rs.10 lakhs w.e.f. 1.1.2007 in terms ofoffice memorandum of Government of India dated 26.11.2008.

3. The appellants were paid such gratuity in terms of such officememorandum. However, later on, the Payment of Gratuity Act[2] wasamended by Central Act No. 15 of 2010 which received the assent ofFthe Hon’ble President on 17.5.2010. The relevant provisions of theAmending Act read as under:

“1(1). This Act may be called the payment of Gratuity(Amendment) Act, 2010.

(2) It shall come into force on such date as the Central Governmentmay, by notification in the Official Gazette, appoint.

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2. In Section 4 of the Payment of Gratuity Act, 1972, in sub-section (3), for the words “three lakhs and fifty thousand Rupees”,the words “ten lakh rupees” shall be substituted.”

1 For short, the ‘Amending Act’

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2 For short, the ‘Gratuity Act’

4. In terms of sub-section (2) of Section 1 of the Amending Act, anotification was issued by the Government of India on 24.5.2010 appointingthe said date as the date on which the Amending Act came into force.

5. The grievance of the appellants is that the tax has been deductedat source when the gratuity was paid to the appellants before thecommencement of the Amending Act. The appellants have thus challengedthe date of commencement as 24.5.2010 but asserted that it should bemade effective from 1.1.2007 and consequently the appellants wouldnot be liable for deduction of tax on the gratuity amount.

6. Certain provisions of the Gratuity Act as it existed prior toamendment by Central Act No. 12 of 2018 and that of Income Tax Act,1961[3] would be necessary to be extracted:

“The Payment of Gratuity Act, 1972

4. Payment of Gratuity – (1) Gratuity shall be payable to anemployee on the termination of his employment after he hasrendered continuous service for not less than five years,- Provided that the completion of continuous service of fiveyears shall not be necessary where the termination of theemployment of any employee is due to death or disablement:

(3) The amount of gratuity payable to an employee shall not exceedten lakh rupees.

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(5) Nothing in this section shall affect the right of an employee toreceive better terms of gratuity under any award or agreement orcontract with the employer.”

The Income Tax Act, 1961

10. Incomes not included in total income. – In computing the totalincome of a previous year of any person, any income falling withinany of the following clauses shall not be included –

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3 For short, the ‘Income Tax Act’

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A10 (ii). any gratuity received under the Payment of Gratuity Act,1972 (39 of 1972), to the extent it does not exceed an amountcalculated in accordance with the provisions of sub-sections (2)and (3) of section 4 of that Act;”

7. Learned counsel for the appellants argued that the amendmentBof the Gratuity Act is to grant liberalised benefits. Therefore, it would beretrospective. Reliance is placed upon judgment of this Court inCommissioner of Income Tax (Central)-I, New Delhi v. VatikaTownship Private Limited[4]. The aforesaid case is of insertion of provisoto Section 113 of the Income Tax Act providing that tax chargeableunder the said Section shall be increased by a surcharge and shall beCapplicable in the assessment year relevant to the previous year in whichthe search is initiated under Section 132 of the said Act. It was the saidprovision which came up for consideration before this Court. This Courtheld as under:

“31. In such cases, retrospectivity is attached to benefit the personsDin contradistinction to the provision imposing some burden or liabilitywhere the presumption attaches towards prospectivity. In theinstant case, the proviso added to Section 113 of the Act is notbeneficial to the assessee. On the contrary, it is a provision whichis onerous to the assessee. Therefore, in a case like this, we haveEto proceed with the normal rule of presumption againstretrospective operation. Thus, the rule against retrospectiveoperation is a fundamental rule of law that no statute shall beconstrued to have a retrospective operation unless such aconstruction appears very clearly in the terms of the Act, or arisesby necessary and distinct implication. Dogmatically framed, theFrule is no more than a presumption, and thus could be displacedby outweighing factors.”

8. Learned counsel for the appellants also referred to a judgmentof this Court in D.S. Nakara & Ors. v. Union of India[5] to contend thatthe cut-off date as 24.5.2010 has created two categories of employees,Gfirst who have attained the age of superannuation before the said dateand second who have superannuated on or after 24.5.2010. Suchclassification is illegal and arbitrary in nature.

4 (2015) 1 SCC 15 (1983) 1 SCC 305H

9. On the other hand, Mr. Vikramjit Banerjee, learned counsel forthe Union has argued that D.S. Nakara’s case deals with pensioners,who get recurring benefit every month whereas, the gratuity is one-timepayment. This Court has held that the cut-off date so as to grant benefitof pension to the retirees after the cut-off date and to deny the retireespension before the cut-off date is arbitrary. It was thus argued that benefitof gratuity stands on different footing, then recurring right of payment ofpension. This Court held as under:

“38. What then is the purpose in prescribing the specified datevertically dividing the pensioners between those who retired priorto the specified date and those who retire subsequent to that date?That poses the further question, why was the pension schemeliberalised? What necessitated liberalisation of the pensionscheme?

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42. If it appears to be undisputable, as it does to us that thepensioners for the purpose of pension benefits form a class, wouldits upward revision permit a homogeneous class to be divided byarbitrarily fixing an eligibility criteria unrelated to purpose ofrevision, and would such classification be founded on some rationalprinciple? The classification has to be based, as is well settled, onsome rational principle and the rational principle must have nexusto the objects sought to be achieved. We have set out the objectsunderlying the payment of pension. If the State considered itnecessary to liberalise the pension scheme, we find no rationalprinciple behind it for granting these benefits only to those whoretired subsequent to that date simultaneously denying the sameto those who retired prior to that date…”

10. The aforesaid judgment has come up for consideration beforethis Court in a judgment reported as State Government Pensioners’Association & Ors. v. State of Andhra Pradesh[6] wherein the paymentof gratuity from a specified date of retirement was held to be notunconstitutional. This Court held as under:

“2. … Similar is the case with regard to gratuity which has alreadybeen paid to the petitioners on the then prevailing basis as it obtained AB

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Aat the time of their respective dates of retirement. The amountgot crystallized on the date of retirement on the basis of the salarydrawn by him on the date of retirement. And it was already paidto them on that footing. The transaction is completed and closed.There is no scope for upward or downward revision in the contextof upward or downward revision of the formula evolved later onBin future unless the provision in this behalf expressly so providesretrospectively (downward revision may not be legally permissibleeven)….”

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11. Similar view was taken in a judgment reported as Union ofIndia v. All India Services Pensioners’ Association & Anr.[7] whereinCit was held that the pension is payable periodically as long as the pensioneris alive whereas the gratuity is ordinarily paid only once on retirement.ThisCourt held as under:

“8. From the foregoing it is clear that this Court has made adistinction between the pension payable on retirement and theDgratuity payable on retirement. While pension is payable periodicallyas long as the pensioner is alive, gratuity is ordinarily paid onlyonce on retirement. No other decision of this Court which hastaken a view contrary to the decision of Thakkar and Ray, JJ.in Andhra Pradesh State Government Pensioners’ AssociationEcase [(1986) 3 SCC 501 : 1986 SCC (L&S) 676] and to the decisionin N.L. Abhyankar case [(1984) 3 SCC 125 : 1984 SCC (L&S)486] has been brought to out notice. The observations made inthese two cases are binding on us insofar as the applicability ofthe rule in D.S. Nakara case [(1983) 1 SCC 305 : 1983 SCC(L&S) 145 : (1983) 2 SCR 165 : 1983 UPSC 263] to the liabilityFof the Government to pay gratuity on retirement. We respectfullyagree with the views expressed in those decisions. It is also notshown that the Government notification in question either expresslyor by necessary implication directs that those who had retiredprior to 1-1-1973 would be entitled to any additional amount byGway of gratuity. The Tribunal was, therefore, in error in upholdingthat gratuity was payable in accordance with the GovernmentNotification No. 33/12/73-AISC(ii) dated 24-1-1975 to all thosemembers of the All-India Services who had retired prior to 1-1-1973.”

7 (1988) 2 SCC 580H

7 (1988) 2 SCC 580H

12. Sub-section (5) of Section 4 of the Gratuity Act protects theright of an employee to receive better terms of gratuity under any awardor contract with the employer. The gratuity paid to the appellants on thestrength of office memorandum dated 26.11.2008 would fall in the saidsub-section.

13. However, what is exempt from the Income Tax Act is theamount of gratuity received under the Gratuity Act to the extent it doesnot exceed an amount calculated in accordance with the provisions ofsub-sections (2) and (3) of Section 4 of the Gratuity Act. The GratuityAct contemplated rupees ten lakhs as the amount of gratuity only from24.5.2010. Such gratuity is the amount payable only once. Thus, the cut-off date cannot be said to be illegal, it being one-time payment. Therefore,such amendment in the Gratuity Act cannot be treated to be retrospective.Therefore, the provisions of the statute cannot be said to be retrospective.

14. In a judgment of this Court reported as Sri VijayalakshmiRice Mills, New Contractors Co. & Ors. v. State of Andhra Pradesh[8],the new rate of supply of rice was made effective on 23.3.1964. Thequestion arose was as to whether the rice supplied earlier would havethe benefit of beneficial provision as contained in the later notificationdated 23.3.1964. This Court held that price as was prevalent on the dateof sale alone would be payable and not the higher price introduced byamendment. It was held as under:

“6. The aforesaid sales in the instant cases having been made bythe appellants before the coming into force of the Rice (AndhraPradesh) Price Control (Third Amendment) Order, 1964, and theproperty in the goods having passed to the Government of AndhraPradesh on the dates the supplies were made, the appellants hadto be paid only at the controlled price obtaining on the dates thesales were effected and not at the increased price which cameinto operation subsequently.”

15. In another judgment reported as Orient Paper and IndustriesLtd. & Anr. v. State of Orissa & Ors.[9], it was held that since the executivehas been empowered to choose the date of commencement of the Act,such delegation cannot be said to be case of excessive delegation. TheCourt held as under:

8 (1976) 3 SCC 379 1991 Supp. (1) SCC 81

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A“29. Even if the section were to be seen as a delegation of power,it is a power conferred on the government to give full effect to thepolicy behind the legislation. It is with a view to achieving thatpurpose that the executive has been empowered to choose thetime, place and forest produce for bringing the Act into operationhaving regard to the particular facts and circumstances in theBcontemplation of the legislature. There is no excessive delegationin such statutory grant of power. [See Gwalior Rayon Silk Mfg.(Wvg.) Co. Ltd. v. CST [(1974) 4 SCC 98 : 1974 SCC (Tax) 226: (1974) 2 SCR 879] ; Harishankar Bagla v. State of M.P. [(1955)1 SCR 380, 388 : AIR 1954 SC 465] ]”C

16. In a recent judgment reported as Himachal Road TransportCorporation & Anr. v. Himachal Road Transport Corporation RetiredEmployees Union[10], in the case of payment of increased quantum ofdeath-cum-retirement gratuity, it was held that the cut-off date cannotbe said to be arbitrary which was fixed keeping in view financialDconstraints. This Court held as under:

“18. Though there are long line of cases, where validity of fixationof cut-off date is considered by this Court, we confine and referto the case law which is relevant to the facts of the case on hand.In State of Punjab v. Amar Nath Goyal [State of Punjab v. AmarENath Goyal, (2005) 6 SCC 754 : 2005 SCC (L&S) 910], whileexamining the validity of cut-off date fixed for grant of benefit ofincreased quantum of death-cum-retirement gratuity, this Courthas held that the financial constraint pleaded by the Government,was a valid ground for fixation of cut-off date and such fixationwas not arbitrary, irrational or violative of Article 14 of theFConstitution…….”

17. In view of the above, we find that the date of commencementfixed by the Executive in exercise of power delegated by the AmendingAct cannot be treated to be retrospective as the benefit of higher gratuityis one-time available to the employees only after the commencement ofGthe Amending Act. The benefit paid to the appellants under the officememorandum is not entitled to exemption in view of specific language ofSection 10(10)(ii) of the Income Tax Act.

18. Consequently, we do not find any error in the order passed bythe High Court. The appeal is dismissed.

Devika Gujral

Appeal dismissed.

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