S. 10(10), SC : Commencement date of payment of Gratuity (Amendment) Act, 2010, is 24-05-2010; it cannot be treated to be retrospective

Commencement date of payment of Gratuity (Amendment) Act, 2010, is 24-05-2010; it cannot be treated to be retrospective

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[2021] 129 taxmann.com 168 (SC)[13-08-2021] 

SUPREME COURT OF INDIA

Krishna Gopal Tiwary  v. Union of India *

HEMANT GUPTA and A.S. BOPANNA, jj.

Civil Appeal No. 4744 of 2021

AUGUST  13, 2021 

Section 10(10) of the Income-tax Act, 1961 - Gratuity (General) - Appellants were paid gratuity of Rs 10 lakhs in January 2007, however, Payment of Gratuity Act was amended and it received assent of President and came into effect from 2010 - Appellants challenged date of commencement of Amending Act as 24-5-2010 as tax had been deducted at source when gratuity was paid to appellants before commencement of Amending Act and asserted that it should be made effective from 1-1-2007 and consequently appellants would not be liable for deduction of tax on gratuity amount - High Court by order declined claim of appellants to declare applicability of Amending Act from 1-1-2007 - Whether benefit of higher gratuity was one-time available to employees only after commencement of Amending Act and hence, could not be treated to be retrospective - Held, yes [Paras 13 and 17][In favour of revenue]

FACTS

 

■		The appellants were the employees of CIL. The government of India enhanced the gratuity to the executives and Non-Unionized Supervisors of Central Sector Enterprises such as the CIL 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 grievance of the appellants was that the tax had been deducted at source when the gratuity was paid to the appellants before the commencement of the Amending Act. The appellants thus challenged the date of commencement as 24-5-2010 and asserted that it should be made effective from 1-1-2007 and consequently the appellants would not be liable for deduction of tax on the gratuity amount.
■		High Court by order declined the claim of the appellants to declare the applicability of Payment of Gratuity (Amendment) Act, 2010 from 1-1-2007.
■		On appeal to the Supreme Court:

HELD

 

■		Sub-section (5) of section 4 of the Gratuity Act protects the right of an employee to receive better terms of gratuity under any award or contract with the employer. The gratuity paid to the appellants on the strength of office memorandum dated 26-11-2008 would fall in the said sub-section.[Para 12]
■		However, what is exempt from the Income-tax Act is the amount of gratuity received under the Gratuity Act to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of the Gratuity Act. The Gratuity Act contemplated rupees ten lakhs as the amount of gratuity only from 24-5-2010. 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.[Para 13]
■		In a judgment of this Court reported as Sri Vijayalakshmi Rice Mills v. State of Andhra Pradesh [1976] 3 SCC 37, the new rate of supply of rice was made effective on 23-3-1964. The question arose was as to whether the rice supplied earlier would have the benefit of beneficial provision as contained in the later notification dated 23-3-1964. This Court held that price as was prevalent on the date of sale alone would be payable and not the higher price introduced by amendment. It was held that the aforesaid sales in the instant cases having been made by the appellants before the coming into force of the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964, and the property in the goods having passed to the Government of Andhra Pradesh on the dates the supplies were made, the appellants had to be paid only at the controlled price obtaining on the dates the sales were effected and not at the increased price which came into operation subsequently.[Para 14]
■		In another judgment reported as Orient Paper & Industries Ltd. v. State of Orissa 1991 Supp. (1) SCC 81, it was held that since the executive has been empowered to choose the date of commencement of the Act, such delegation cannot be said to be case of excessive delegation. The Court held that 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 the policy behind the legislation. It is with a view to achieving that purpose that the executive has been empowered to choose the time, place and forest produce for bringing the Act into operation having regard to the particular facts and circumstances in the contemplation of the legislature. There is no excessive delegation in such statutory grant of power.[Para 15]
■		In a recent judgment reported as Himachal Road Transport Corpn. v. Himachal Road Transport Corpn. Retired Employees Union [2021] 4 SCC 502, in the case of payment of increased quantum of death-cum-retirement gratuity, it was held that the cut-off date cannot be said to be arbitrary which was fixed keeping in view financial constraints.[Para 16]
■		In view of the above, it is found that the date of commencement fixed by the Executive in exercise of power delegated by the Amending Act cannot be treated to be retrospective as the benefit of higher gratuity is one-time available to the employees only after the commencement of the Amending Act. The benefit paid to the appellants under the office memorandum is not entitled to exemption in view of specific language of section 10(10)(ii).[Para 17]
■		Consequently, there is no error in the order passed by the High Court. The appeal is dismissed.[Para 18]