RAO B V S LT COL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE petitioner was a commissioned officer of the Indian Army and pursuant to a sanction of the President to his permanent absorption in the Bharath Earth Movers Ltd. was to be absorbed w.e.f. 24th July, 1974. As a consequence his services with the Indian Army ceased and he was retired from that service. He was entitled to retirement benefits in accordance with a communication bearing No. 23(7)/70/BEM/D(BEL) of the Government of India, Ministry of Defence, dated September 12, 1974. THE letter is addressed to the chairman-cum-managing director, Bharath Earth Movers Ltd., Bangalore, and is to the following effect :

(2.) THERE is no dispute that the petitioner exercised the option as given to him under cl. V(b) and he became entitled to a lump sum amount in lieu of the pro rata service pension, that is, a lump sum in lieu of the entire pension to which he was entitled. Subsequently, the Controller of Defence Accounts, Allahabad, sent a communication dated 8/9th Oct., 1975 addressed to the Pension Pay Master, Bangalore, in which Rs. 93,333 was stated to be the amount payable towards the full commuted pension in lieu of pro rata pension. However, that communication went on to add that a sum of Rs. 31,871 was to be deducted towards income-tax and surcharge. A copy of the communication is filed as Exhibit A. The petitioner received the payment during the financial year 1975-76 relevant to the asst. yr. 1976-77. When he filed his IT return he claimed a refund of the income-tax deducted and credited, viz., Rs. 31,871, which had been deducted from the lump sum of the commuted pension. This was based upon the provisions of S. 10(10A) of the IT Act, 1961. The ITO accepted the contention of the petitioner and after making certain adjustments made an order for the refund of a sum of Rs. 28,765. The adjustments were in respect of tax liability in regard to certain other receipts of the petitioner and property income, etc. The assessment was made under S. 143(1)(a) of the IT Act, 1961, dated October 20, 1976 (Exhibit B). The CIT, Bangalore, however, sent a notice dated July 21, 1978, proposing to revise the assessment on the ground that the order of the (ITO III), Bangalore, passed on October 29, 1976, for the asst. yr. 1976-77 was erroneous and prejudicial to the interests of the Revenue as he had allowed exemption from tax in regard to the entire lump sum amount of commuted pension and that the petitioner was entitled only to an exemption in regard to 1/3rd of the commuted value of the pension. A copy of this notice has been filed as Exhibit C. In this writ petition, the notice issued by the CIT is challenged as without jurisdiction and contrary to law.

(3.) AS pointed out above the notice issued by the CIT is defective and it transpires that the notice was issued on certain Departmental instructions from the CBDT which was in general terms, as to the interpretation of the provisions under S. 10(10A). The contention urged on behalf of the petitioner that the notice should be quashed as defective, is a highly technical one. It may not be correct to quash the notice merely on that ground, as the basis is that the full exemption granted by the ITO is erroneous and the exemption could have been only in regard to a portion of the amount. However, the main submission made, that the petitioner was entitled to the exclusion of the entire amount from computation of the total income, appears to be sound and must be accepted.