Sriramulu, J. -
(1.)IN this reference, made to this court at the instance of the Commissioner of INcome-tax, Andhra Pradesh, Hyderabad, under Section 66(1) of the INdian INcome-tax Act, 1922 (hereinafter referred to as the "Act"), the following question of law arises for our consideration :
" Whether, on the facts and in the circumstances of the case, the gratuity of Rs. 11 250 received by the assessee, on his retirement from the Life INsurance Corporation of INdia, in accordance with the Staff Regulations of 1960, is exempt from tax by virtue of the proviso to Explanation 2 of Sub-section (1) of Section 7 of the INdian INcome-tax Act, 1922 ? "
(2.)ON his retirement from the Life Insurance Corporation of India, the assessee, Sri B. Gopalakrishna Murthy, in accordance with the Staff Regulations of the Life Insurance Corporation of India, received retirement gratuity of Rs. 11,250 from his employers. The Life Insurance Corporation of India deducted the tax at source on the payment of gratuity made to the assessee and the assessee also returned it for the assessment year 1960-61. The Income-tax Officer accordingly taxed that gratuity. Later on, the assessee realised that the gratuity paid to him by his employer was exempt from payment of tax under the proviso to the second Explanation to Sub-section (1) of Section 7 of the Act and that he by mistake returned it. The assessee, therefore, preferred an appeal against the assessment to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner accepted the contention of the assessee that gratuity was exempt from payment of tax and accordingly deleted it from the total income. Aggrieved by the order of the Appellate Assistant Commissioner, the Income-tax Officer filed an appeal to the Appellate Tribunal. The Tribunal also accepted the view expressed by the Appellate Assistant Commissioner and dismissed the appeal filed by the Income-tax Officer. Hence, this reference has been made by the Commissioner of Income-tax as stated above.
Before us the learned counsel for the revenue contended that the gratuity that was paid to the assessee was not under a scheme similar to that of the Revised Liberalised Pension Rules of the Central Government, and, therefore, the Tribunal had erred in exempting the gratuity from payment of tax.
In order to appreciate the contention of the counsel for the revenue, it may be necessary to read the relevant portion of the section which exempts the gratuity from payment of tax. It is the proviso to the second Explanation to Sub-section (1) of Section 7 of the Act. It reads thus :
" Provided that nothing herein contained shall render liable to income-tax any payment of death-cum-retirement gratuity received after the 16th day of April, 1950, under the revised Pension Rules of the Central Government or under any similar scheme of a State Government, a local authority or a corporation established by a Central, State or provincial Act. ....." (Underlining ours).
(3.)THE Life Insurance Corporation of India is a corporation which has been established by the Act of the Central Government and that is the " Life Insurance Corporation Act, 1956 ". Payment of gratuity to the assessee is not a solitary and individual payment to the assessee, but it has been made to the assessee under a scheme framed by the Life Insurance Corporation of India for payment of gratuity to its permanent employees. THE regulation defining the terms and conditions of service of the staff have been framed by the Life Insurance Corporation of India with the approval of the Central Government. If the payment of gratuity to the assessee is under a scheme similar to the Revised Liberalised Pension Rules of the Central Government then it is exempt from payment of tax under the proviso to Explanation 2 to Sub-section (1) of Section 7 of the Act. THE scheme under which the Life Insurance Corporation of India has paid the gratuity to the assessee has to be compared with the scheme of the Liberalised Pension Rules of the Central Government, in order to ascertain whether the former scheme is similar to the latter. THE relevant portions of both the schemes are given in the printed book as annexures " B " and " C ".
A. (1) Under Rule 77(a) of the regulations framed by the Life Insurance Corporation of India, gratuity is payable to four categories of permanent employees who have put in not less than 15 years of continuous service. THEy are, (1) whose services are terminated for any reason, otherwise than as a punishment inflicted by way of disciplinary action; or (2) who voluntarily resigns from the service or dies while in service; or (3) who retires from the Corporation on completion of superannuation, or whose services are determined either due to continued illness or accident incapacitating him from the proper discharge of his services; and (4) whose services are dispensed with owing to reduction of staff or reorganisation of establishment.
(2) Under the Liberalised Pension Rules of the Central Government, gratuity is payable to an officer who has put in five years of qualifying service when he retires from service.
B. (1) Under the regulations of the Life Insurance Corporation of India, gratuity is payable in the case of employees specified in (A) up to a maximum of 15 months' terminal basic pay or 25,000 rupees, whichever is less, on the date of cessation of service.
(2) Under the Liberalised Pension Rules of the Central Government, gratuity that is payable is fixed at 9/20th of the emoluments of an officer for each completed year of service, subject to a maximum of 15 times the emoluments and in the case of death of an officer, while in service, at 12 times the emoluments and in no case to exceed Rs. 24,000.
C. (1) Under the regulations of the Life Insurance Corporation of India, salary has been defined to be the basic pay, special pay, personal pay, dearness allowance and all other allowances, but excluding overtime payment, conveyance allowance and other compensatory allowances.
(2) Under the Liberalised Pension Rules, the expression " emoluments " has been limited to Rs. 1,800 and reckoned in accordance with article 486 of the Civil Services Regulations.
D. (1) Under the regulations of the Life Insurance Corporation of India, officers belonging to 1, 3 and 4 classes are paid gratuity at one month's terminal basic pay for each completed year of service and in the case of an officer belonging to class 2, at the rate of one month's terminal basic pay for each year of service, but calculated in a prescribed manner.
(2) Under the Liberalised Pension Rules of the Central Government, no such distinction between one class of officer and the other has been made.
These are, in short, the schemes under which the Life Insurance Corporation of India and the Central Government pay gratuity to its employees. Under both the schemes it is obvious that gratuity is paid to an honest and permanent employee on the cessation of his service either by retirement or by death. There is, however, slight variation in the details in regard to the computation of the quantum of gratuity that is payable to the employees. In the former scheme, the maximum is limited to Rs. 25,000 and in the latter to Rs. 24,000. Whereas, under the former scheme, gratuity is payable on voluntary resignation or on dispensation of service owing to reduction of staff or reorganisation of establishment, under the liberalised pension rules, gratuity is not payable under these circumstances.