Supreme Court: The Division Bench of Hemant Gupta and A.S. Bopanna, JJ., addressed whether the 2010 amendment of Payment of Gratuity Act 1972 is retrospective.
In the instant matter, Jharkhand High Court’s decision has been challenged whereby the claim of the appellants to declare the applicability of Payment of Gratuity (Amendment) Act, 2010 from 1-1-2007 was declined.
Appellants were employees of Coal India Limited. Government of India had approved the enhancement of gratuity to the executives and Non-Unionized Supervisors of Central Sector Enterprises such as the Coal India Limited where the appellants were employed and the said gratuity was raised to Rs 10 lakhs.
Later, the Payment of Gratuity Act was amended.
Grievance of the Appellants
Appellants were aggrieved that the tax was deducted at the source when the gratuity was paid to the appellants before the commencement of the Amending Act. Thus, the appellants challenged the date of commencement as 24-05-2010 but 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.
The Judgment of D.S. Nakara v. Union of India, (1983) 1 SCC 305, came up for consideration before this Court in a Judgment of State Government Pensioners’ Assn. v. State of A.P., (1986) 3 SCC 501, wherein the payment of gratuity from a specified date of retirement was held to be not unconstitutional.
A similar view was taken in the Supreme Court decision of Union of India v. All India Service Pensioners’ Assn., (1988) 2 SCC 580, wherein it was held that the pension was payable periodically as long as the pensioner was alive whereas the gratuity was ordinarily paid only once on retirement.
Section 4(5) of the Gratuity Act protects the rights of an employee to receive better terms of gratuity under any award or contract with the employer. The gratuity paid to the appellants on strength of office memorandum would fall in the said sub-section.
“…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 Rs 10 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. Hence, the said provisions of the statute cannot be said to be retrospective.
In a recent judgment Himachal Road Transport Corporation v. Himachal Road Transport Corporation 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.
Lastly, in view of the above, Bench 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 was one-time available to the employees only after the commencement of the Amending Act.
Concluding the matter, it was held that benefit paid to the appellants under the office memorandum is not entitled to exemption in view of specific language of Section 10(10)(ii) of the Income Tax Act.
No error was found in the Jharkhand High Court’s decision. [Krishna Gopal Tiwary v. Union of India, 2021 SCC OnLine SC 581, decided on 13-08-2021]
