Gratuity Amendment Act has no retro-effect; no exemption u/s 10 if enhanced gratuity received before 24-5-10

Case details: Krishna Gopal Tiwary v. Union of India - [2021] 129 taxmann.com 168 (SC)

Judiciary and Counsel Details

• • Hemant Gupta and A.S Bopanna, JJ.

Facts of the Case

The ceiling of the gratuity was raised to Rs. 10 lakh w.e.f., 01-01-2007 in terms of office memorandum of Government of India dated 26-11-2008. Appellants were paid such gratuity in terms of such office memorandum. Later on, the Payment of Gratuity Act was amended by Central Act No. 15 of 2010.

The Amendment Act has finally enhanced the ceiling of gratuity from Rs. 3.50 lakh to Rs. 10 lakh. However, the Government of India has appointed 24-5-2010 as the date on which the Amending Act came into force.

The grievance of the appellant was that the tax had been deducted at the source when the gratuity was paid to the appellants before the commencement of the Amended Act. The amendment of the Gratuity Act was to grant liberalized benefits. Thus, amendments should be made effective from 01-01-2007 instead of 25-05-2010.

Supreme Court held

The Supreme Court of India held that the date of commencement fixed by the Executive in the exercise of the 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.

What is exempt under section 10(10(ii) of the Income-tax Act, 1961 is the amount of gratuity received under the Gratuity Act. The Gratuity Act contemplated Rs. 10 lakhs as the amount of gratuity only from 24.5.2010. The cut-off date cannot be said to be illegal, it being a one-time payment. Therefore, such amendment in the Gratuity Act cannot be treated to be retrospective.

Accordingly, the benefit paid to the appellants under the office memorandum was not entitled to exemption in view of specific language of Section 10(10)(ii) of the Income-tax Act.