The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that employees of state government undertakings could not be treated as state government employees. Therefore the bench upheld the restricting exemption made under Section 10(10) and 10(10AA) of Income Tax Act, 1961.
Assessee Shivaram Gopal Awate is an individual deriving income under the head “salaries”. After filing the return assessee case was revised on 18.08.2018 at total income of Rs.8,83,560/-
During the previous year relevant to the assessment year appellant had retired from the services of Maharashtra State Electricity Transmission Company.
Consequent to his retirement, the appellant had received Gratuity and Leave Encashment of Rs.25,81,460/- and Rs.12,96,380/- respectively.
In the revised return of income, the assessee sought the exemption of the same under Section 10(10) and section 10(10AA) of the Income Tax Act, 1961 respectively.
The AO was of the opinion that the appellant is not an employee of the State Government or Central Government, accordingly, restricted the exemption to the extent of Rs.10,00,000/- u/s 10(10) of the Act.
Similarly, in respect of the amount received on account of Leave Encashment, the AO restricted the exemption to the extent of Rs.3,00,000/- under Section 10(10AA) of the Income Tax Act, 1961.
Aggrived assessee filed an appeal before the National Faceless Appeal Centre (NFAC). The NFAC upheld the action of the AO by holding that the employees of the State Government Undertaking could not be treated as a State Government employee.Against the decision of NFAC assessee filed second appeal before the tribunal.
When the matter called for hearing no one appeared for the assessee. Sonal L. Sonkavde appeared for the revenue.
The tribunal relied upon the decision of the Supreme Court in case of Indian Institute of Science vs. DCIT observed that “State Government Undertaking may be considered as a State instrumentality within the definition of article 12 of the Constitution of India, the same cannot be treated as Central or State Government, consequently the employees of such undertakings cannot be treated as a Central or State Government employee”.
Thereafter, the tribunal of Inturi Rama Rao, Accountant Member observed that action of the AO in restricting the exemption under Section 10(10) and Section 10(10AA) of the Income Tax Act to the extent applicable to a non-State Government employee has been correct in law.
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