KRISHNA GOPAL TIWARY & ANR.versusUNION OF INDIA & ORS.

422                      [2021]REPORTS
               SUPREME COURT    8 S.C.R. 422              [2021] 8 S.C.R.


A                    KRISHNA GOPAL TIWARY & ANR.
                                       v.
                          UNION OF INDIA & ORS.
                        (Civil Appeal No. 4744 of 2021)
B                              AUGUST 13, 2021
              [HEMANT GUPTA AND A. S. BOPANNA, JJ.]
             Income Tax Act, 1961: s.10(10)(ii) – Exemption – Appellants
      are employees of Coal India Ltd. – In terms of Office Memorandum
      of Government of India dated 26.11.2008, the upper limit of gratuity
C
      was increased to Rs.10 lakhs w.e.f 01.01.2007 – Payment of such
      gratuity was made to appellants in terms of Office Memorandum –
      However, later on Payment of Gratuity Act was amended which
      received assent of President on 17.05.2010 – In terms of Amending
      Act, a notification issued by Government of India on 24.05.2010
D     appointing the said date as the date on which the Amending Act
      came into force – Case of appellant was that the tax was deducted
      at source when the gratuity was paid to the appellants before the
      commencement of the Amending Act – Appellants thus challenged
      the date of commencement as 24.05.2010 but asserted that it should
      be made effective from 01.01.2007 and consequently they would
E
      not be liable for deduction of tax on the gratuity amount – Held:
      Sub-section (5) of s.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
F     the said sub-section – 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 s.4 of the Gratuity Act
      – The Gratuity Act contemplated Rs.10 lakhs as the amount of
      gratuity only from 24.05.2010 – Such gratuity is the amount payable
G
      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 – The benefit paid to the
      appellants under the Office Memorandum is not entitled to exemption
      in view of specific language of s.10(10)(ii) of the Income Tax Act –
H
                                      422
  KRISHNA GOPAL TIWARY & ANR. v. UNION OF INDIA &                  423
                      ORS.

Payment of Gratuity (Amendment) Act, 2010 – s.1(2) – Payment of    A
Gratuity, 1972 – s.4.
     Dismissing the appeal, the Court
      HELD: 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   B
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) of the Income Tax Act.
[Para 17][430-F-H]                                                 C
     Commissioner of Income Tax (Central)-I, New Delhi v.
     Vatika Township Private Limited (2015) 1 SCC 1
     : [2014] 12 SCR 1037; D. S. Nakara & Ors. v. Union
     of India (1983) 1 SCC 305 : [1983] 2 SCR 165; State
     Government Pensioners’ Association & Ors. v. State of         D
     Andhra Pradesh (1986) 3 SCC 501 : [1986] 3 SCR
     383; Union of India v. All India Services Pensioners’
     Association & Anr. (1988) 2 SCC 580 : [1988] 2 SCR
     697; Sri Vijayalakshmi Rice Mills, New Contractors Co.
     & Ors. v. State of Andhra Pradesh (1976) 3 SCC 37 :
     [1976] 3 SCR 775; Orient Paper and Industries Ltd. &          E
     Anr. v. State of Orissa & Ors. (1991) 1 Suppl. SCC 81 :
     [1990] 2 Suppl. SCR 480; Himachal Road Transport
     Corporation & Anr. v. Himachal Road Transport
     Corporation Retired Employees Union (2021) 4 SCC
     502 – referred to.                                            F
                     Case Law Reference
[2014] 12 SCR 1037              referred to          Para 7
[1983] 2 SCR 165                referred to          Para 8
[1986] 3 SCR 383                referred to          Para 10       G
[1988] 2 SCR 697                referred to          Para 11
[1976] 3 SCR 775                referred to          Para 14
[1990] 2 Suppl. SCR 480         referred to          Para 15
(2021) 4 SCC 502                referred to          Para 16       H
424                SUPREME COURT REPORTS                         [2021] 8 S.C.R.


A           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4744
      of 2021.
            From the Judgment and Order dated 27.07.2016 of the High Court
      of Jharkhand at Ranchi in W.P. (S) No.1729 of 2016.
           Arijit Prasad, Sr. Adv., Sanjay Kumar Visen, Bhanwar Jadon,
B     Ms. Adira A. Nair, Advs. for the Appellants.
           Vikramjit Banerjee, ASG, M. P. Gupta, Bhakti Vardhan Singh,
      Mohan Prasad Gupta, P. S. Sudhir, Ms. Priyanka Das, Amrish Kumar,
      Vaibhav Agnihotri, Ms. Supriya Juneja, Advs. for the Respondents.

C               The Judgment of the Court was delivered by
                HEMANT GUPTA, J.
            1. The challenge in the present appeal is to an order passed by the
      High Court of Jharkhand on 27.7.2016 whereby the claim of the appellants
      to declare the applicability of Payment of Gratuity (Amendment) Act,
D     20101 from 1.1.2007 was declined.
             2. The appellants are employees of Coal India Limited. The
      Government of India approved 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. The ceiling
E     of the gratuity was raised to Rs.10 lakhs w.e.f. 1.1.2007 in terms of
      office memorandum of Government of India dated 26.11.2008.
           3. The appellants were paid such gratuity in terms of such office
      memorandum. However, later on, the Payment of Gratuity Act 2 was
      amended by Central Act No. 15 of 2010 which received the assent of
F     the Hon’ble President on 17.5.2010. The relevant provisions of the
      Amending Act read as under:
                “1(1). This Act may be called the payment of Gratuity
                (Amendment) Act, 2010.
                (2) It shall come into force on such date as the Central Government
G               may, by notification in the Official Gazette, appoint.
                2. In Section 4 of the Payment of Gratuity Act, 1972, in sub-
                section (3), for the words “three lakhs and fifty thousand Rupees”,
                the words “ten lakh rupees” shall be substituted.”
      1
          For short, the ‘Amending Act’
H     2
          For short, the ‘Gratuity Act’
     KRISHNA GOPAL TIWARY & ANR. v. UNION OF INDIA &                             425
                ORS. [HEMANT GUPTA, J.]

       4. In terms of sub-section (2) of Section 1 of the Amending Act, a        A
notification was issued by the Government of India on 24.5.2010 appointing
the said date as the date on which the Amending Act came into force.
       5. The grievance of the appellants is that the tax has been deducted
at source when the gratuity was paid to the appellants before the
commencement of the Amending Act. The appellants have thus challenged            B
the date of commencement as 24.5.2010 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.
      6. Certain provisions of the Gratuity Act as it existed prior to
amendment by Central Act No. 12 of 2018 and that of Income Tax Act,              C
19613 would be necessary to be extracted:
          “The Payment of Gratuity Act, 1972
          4. Payment of Gratuity – (1) Gratuity shall be payable to an
          employee on the termination of his employment after he has
          rendered continuous service for not less than five years,-             D
                      xx              xx               xx
                Provided that the completion of continuous service of five
          years shall not be necessary where the termination of the
          employment of any employee is due to death or disablement:
                                                                                 E
                      xx              xx               xx
          (3) The amount of gratuity payable to an employee shall not exceed
          ten lakh rupees.
                      xx              xx               xx
                                                                                 F
          (5) Nothing in this section shall affect the right of an employee to
          receive better terms of gratuity under any award or agreement or
          contract with the employer.”
          The Income Tax Act, 1961
          10. Incomes not included in total income. – In computing the total     G
          income of a previous year of any person, any income falling within
          any of the following clauses shall not be included –
          1.    xx                    xx                       xx
3
    For short, the ‘Income Tax Act’
                                                                                 H
426                SUPREME COURT REPORTS                           [2021] 8 S.C.R.


A              10 (ii). any gratuity received under the Payment of Gratuity Act,
               1972 (39 of 1972), 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 that Act;”
             7. Learned counsel for the appellants argued that the amendment
B     of the Gratuity Act is to grant liberalised benefits. Therefore, it would be
      retrospective. Reliance is placed upon judgment of this Court in
      Commissioner of Income Tax (Central)-I, New Delhi v. Vatika
      Township Private Limited4. The aforesaid case is of insertion of proviso
      to Section 113 of the Income Tax Act providing that tax chargeable
      under the said Section shall be increased by a surcharge and shall be
C     applicable in the assessment year relevant to the previous year in which
      the search is initiated under Section 132 of the said Act. It was the said
      provision which came up for consideration before this Court. This Court
      held as under:
               “31. In such cases, retrospectivity is attached to benefit the persons
D              in contradistinction to the provision imposing some burden or liability
               where the presumption attaches towards prospectivity. In the
               instant case, the proviso added to Section 113 of the Act is not
               beneficial to the assessee. On the contrary, it is a provision which
               is onerous to the assessee. Therefore, in a case like this, we have
E              to proceed with the normal rule of presumption against
               retrospective operation. Thus, the rule against retrospective
               operation is a fundamental rule of law that no statute shall be
               construed to have a retrospective operation unless such a
               construction appears very clearly in the terms of the Act, or arises
               by necessary and distinct implication. Dogmatically framed, the
F              rule is no more than a presumption, and thus could be displaced
               by outweighing factors.”
             8. Learned counsel for the appellants also referred to a judgment
      of this Court in D.S. Nakara & Ors. v. Union of India5 to contend that
      the cut-off date as 24.5.2010 has created two categories of employees,
G     first who have attained the age of superannuation before the said date
      and second who have superannuated on or after 24.5.2010. Such
      classification is illegal and arbitrary in nature.

      4
          (2015) 1 SCC 1
      5
          (1983) 1 SCC 305
H
     KRISHNA GOPAL TIWARY & ANR. v. UNION OF INDIA &                                427
                ORS. [HEMANT GUPTA, J.]

       9. On the other hand, Mr. Vikramjit Banerjee, learned counsel for            A
the Union has argued that D.S. Nakara’s case deals with pensioners,
who get recurring benefit every month whereas, the gratuity is one-time
payment. This Court has held that the cut-off date so as to grant benefit
of pension to the retirees after the cut-off date and to deny the retirees
pension before the cut-off date is arbitrary. It was thus argued that benefit
                                                                                    B
of gratuity stands on different footing, then recurring right of payment of
pension. This Court held as under:
         “38. What then is the purpose in prescribing the specified date
         vertically dividing the pensioners between those who retired prior
         to the specified date and those who retire subsequent to that date?
         That poses the further question, why was the pension scheme                C
         liberalised? What necessitated liberalisation of the pension
         scheme?
                       xx             xx                xx
         42. If it appears to be undisputable, as it does to us that the            D
         pensioners for the purpose of pension benefits form a class, would
         its upward revision permit a homogeneous class to be divided by
         arbitrarily fixing an eligibility criteria unrelated to purpose of
         revision, and would such classification be founded on some rational
         principle? The classification has to be based, as is well settled, on
         some rational principle and the rational principle must have nexus         E
         to the objects sought to be achieved. We have set out the objects
         underlying the payment of pension. If the State considered it
         necessary to liberalise the pension scheme, we find no rational
         principle behind it for granting these benefits only to those who
         retired subsequent to that date simultaneously denying the same            F
         to those who retired prior to that date…”
      10. The aforesaid judgment has come up for consideration before
this Court in a judgment reported as State Government Pensioners’
Association & Ors. v. State of Andhra Pradesh6 wherein the payment
of gratuity from a specified date of retirement was held to be not                  G
unconstitutional. This Court held as under:
         “2. … Similar is the case with regard to gratuity which has already
         been paid to the petitioners on the then prevailing basis as it obtained

6
    (1986) 3 SCC 501
                                                                                    H
428                SUPREME COURT REPORTS                          [2021] 8 S.C.R.


A              at the time of their respective dates of retirement. The amount
               got crystallized on the date of retirement on the basis of the salary
               drawn by him on the date of retirement. And it was already paid
               to them on that footing. The transaction is completed and closed.
               There is no scope for upward or downward revision in the context
               of upward or downward revision of the formula evolved later on
B
               in future unless the provision in this behalf expressly so provides
               retrospectively (downward revision may not be legally permissible
               even)….”
              11. Similar view was taken in a judgment reported as Union of
      India v. All India Services Pensioners’ Association & Anr.7 wherein
C     it was held that the pension is payable periodically as long as the pensioner
      is alive whereas the gratuity is ordinarily paid only once on retirement.This
      Court held as under:
               “8. From the foregoing it is clear that this Court has made a
               distinction between the pension payable on retirement and the
D              gratuity payable on retirement. While pension is payable periodically
               as long as the pensioner is alive, gratuity is ordinarily paid only
               once on retirement. No other decision of this Court which has
               taken a view contrary to the decision of Thakkar and Ray, JJ.
               in Andhra Pradesh State Government Pensioners’ Association
E              case [(1986) 3 SCC 501 : 1986 SCC (L&S) 676] and to the decision
               in N.L. Abhyankar case [(1984) 3 SCC 125 : 1984 SCC (L&S)
               486] has been brought to out notice. The observations made in
               these two cases are binding on us insofar as the applicability of
               the rule in D.S. Nakara case [(1983) 1 SCC 305 : 1983 SCC
               (L&S) 145 : (1983) 2 SCR 165 : 1983 UPSC 263] to the liability
F              of the Government to pay gratuity on retirement. We respectfully
               agree with the views expressed in those decisions. It is also not
               shown that the Government notification in question either expressly
               or by necessary implication directs that those who had retired
               prior to 1-1-1973 would be entitled to any additional amount by
G              way of gratuity. The Tribunal was, therefore, in error in upholding
               that gratuity was payable in accordance with the Government
               Notification No. 33/12/73-AISC(ii) dated 24-1-1975 to all those
               members of the All-India Services who had retired prior to 1-1-
               1973.”
      7
          (1988) 2 SCC 580
H
     KRISHNA GOPAL TIWARY & ANR. v. UNION OF INDIA &                           429
                ORS. [HEMANT GUPTA, J.]

       12. Sub-section (5) of Section 4 of the Gratuity Act protects the       A
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.
       13. However, what is exempt from the Income Tax Act is the              B
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,   C
such amendment in the Gratuity Act cannot be treated to be retrospective.
Therefore, the provisions of the statute cannot be said to be retrospective.
       14. In a judgment of this Court reported as Sri Vijayalakshmi
Rice Mills, New Contractors Co. & Ors. v. State of Andhra Pradesh8,
the new rate of supply of rice was made effective on 23.3.1964. The            D
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 as under:                                               E
         “6. 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       F
         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.”
      15. In another judgment reported as Orient Paper and Industries
Ltd. & Anr. v. State of Orissa & Ors.9, it was held that since the executive   G
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 as under:

8
    (1976) 3 SCC 37
9
    1991 Supp. (1) SCC 81                                                      H
430                SUPREME COURT REPORTS                          [2021] 8 S.C.R.


A               “29. 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
B
                contemplation of the legislature. There is no excessive delegation
                in such statutory grant of power. [See Gwalior Rayon Silk Mfg.
                (Wvg.) Co. Ltd. v. CST [(1974) 4 SCC 98 : 1974 SCC (Tax) 226
                : (1974) 2 SCR 879] ; Harishankar Bagla v. State of M.P. [(1955)
                1 SCR 380, 388 : AIR 1954 SC 465] ]”
C           16. In a recent judgment reported as Himachal Road Transport
      Corporation & Anr. v. Himachal Road Transport Corporation Retired
      Employees Union10, 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
D     constraints. This Court held as under:
                “18. Though there are long line of cases, where validity of fixation
                of cut-off date is considered by this Court, we confine and refer
                to the case law which is relevant to the facts of the case on hand.
                In State of Punjab v. Amar Nath Goyal [State of Punjab v. Amar
E               Nath Goyal, (2005) 6 SCC 754 : 2005 SCC (L&S) 910], while
                examining the validity of cut-off date fixed for grant of benefit of
                increased quantum of death-cum-retirement gratuity, this Court
                has held that the financial constraint pleaded by the Government,
                was a valid ground for fixation of cut-off date and such fixation
                was not arbitrary, irrational or violative of Article 14 of the
F               Constitution…….”
             17. In view of the above, we find 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
G     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) of the Income Tax Act.


      10
H          (2021) 4 SCC 502
  KRISHNA GOPAL TIWARY & ANR. v. UNION OF INDIA &                           431
             ORS. [HEMANT GUPTA, J.]

      18. Consequently, we do not find any error in the order passed by     A
the High Court. The appeal is dismissed.


Devika Gujral                                           Appeal dismissed.

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