Discrimination in Taxability of Leave Encashment of Bank Employees vis-à-vis Govt. Employees is Valid | Patna HC

Case Details: Purnendu Shekhar Sinha vs. Union of India - [2024] 159 taxmann.com 746 (Patna)

Judiciary and Counsel Details

• • K. Vinod Chandran, CJ. & Rajiv Roy, J.
  • Kundan Kumar Sinha & Bipin Krishna Singh, Advs. for the Petitioner.
  • K.N. Singh, Sr. Adv. Ms Archana Sinha & Rakesh Kumar Singh, Advs. for the Respondent.

Facts of the Case

The assessee, a retired State Bank of India employee, received a sum as a leave encashment after 36 years of service. The assessee received such amount after the deduction of income tax. There is no tax deduction if he had been a Central or State Government employee on such sum as per section 10(10AA).

Thus, the assessee contended that section 10(10AA) discriminates between the similarly placed group of employees. Considering it violated Article 14 of the Constitution of India, the assessee filed a writ petition before the Patna High Court.

High Court Held

The High Court held that the distinction made between the Central and State Government employees vis-a-vis others is a reasonable classification that was found to be proper in various cases decided by Hon’ble the Apex Court.

Though it was accepted that a taxation law cannot claim immunity from the equality clause enshrined in Article 14 of the Constitution of India and it has to pass the test, the Court was also conscious of the fact that considering the intrinsic complexity of fiscal adjustments of diverse elements, the State had wide discretion in the matter of classification for the taxation purposes.

The legislature must have the freedom to select and classify persons, properties and income which it would tax or not. Thus, the differentiation made by the State between the employees of the Central and State Governments on the one hand and the other employees on the other in Section 10(10AA) was neither discriminating nor violative of Article 14 of the Constitution of India.

Accordingly, it was held that the petitioner, a retired State Bank of India employee, cannot claim parity with the employees of the Central and State Governments.