The Income Tax Appellate Tribunal, Jaipur Bench, has held that the enhanced leave encashment exemption limit of Rs 25,00,000 under Notification No. S.O. 2276(E) dated 24.05.2023 applies to a non-government employee who retired in assessment year 2020-21, treating the notification as a remedial measure discharging the Central Government's continuing obligation to revise the limit in parity with its own employees.
Background & Facts
The Dispute
The assessee, Ram Kishan Gupta, superannuated from the service of an employer other than the Central or State Government. He filed a revised return of income on 04.11.2020 for assessment year 2020-21, declaring a total income of Rs 18,10,230 and claiming an exemption of Rs 13,81,281 under Section 10(10AA) of the Income Tax Act, 1961 in respect of the cash equivalent of leave salary received on retirement. While processing the return under Section 143(1) vide intimation dated 08.12.2021, the Assistant Director of Income Tax, Centralized Processing Centre, Bengaluru restricted the exemption to Rs 3,00,000 and added the balance of Rs 10,81,281, determining the total income at Rs 28,91,310.
Key Facts
- The assessee retired from non-government service and received Rs 13,81,281 as cash equivalent of leave salary
- Notification No. S.O. 588(E) dated 31.05.2002 had fixed the exemption limit for non-government employees at Rs 3,00,000
- No revision of this limit occurred for over two decades despite multiple pay revisions for Central Government employees
- Notification No. S.O. 2276(E) dated 24.05.2023 specified the limit at Rs 25,00,000, deemed effective from 01.04.2023
- The assessee's claimed amount of Rs 13,81,281 falls within the revised Rs 25,00,000 limit
- The assessee is not a Government employee; this finding was not challenged before the Tribunal
Procedural History
- 04.11.2020: Revised return of income filed claiming exemption of Rs 13,81,281 under Section 10(10AA)
- 08.12.2021: Intimation under Section 143(1) issued restricting exemption to Rs 3,00,000, adding Rs 10,81,281
- 30.11.2022: CIT(A), National Faceless Appeal Centre, Delhi upheld the adjustment in appeal
- 2026: Appeal filed before ITAT Jaipur (ITA No. 208/JPR/2026) with 1097 days delay
- 31.08.2026: Hearing held before the Tribunal
- 09.09.2026: Judgment pronounced allowing the appeal
The Parties' Positions
The assessee contended that the Rs 3,00,000 limit fixed in 2002 was based on Central Government employee entitlements at that time, that no notification was issued for over two decades despite pay revisions, and that the 2023 notification raising the limit to Rs 25,00,000 should be given effect. The assessee relied on coordinate bench decisions in Ram Charan Gupta v. ITO (ITA No. 408/JP/2022) and Govind Chhatwani v. CIT (Appeals) [2026] 187 taxmann.com 389 (Jaipur - Trib.).
The Departmental Representative supported the orders below, submitting that the assessee is admittedly not a Government employee and that the enhanced limit operates only from 01.04.2023.
Relief Sought
The assessee sought full exemption of Rs 13,81,281 under Section 10(10AA), deletion of the addition of Rs 10,81,281, and condonation of the 1097-day delay in filing the appeal.
The Legal Issue
The central question was whether the enhanced exemption limit of Rs 25,00,000 specified by Notification No. S.O. 2276(E) dated 24.05.2023, deemed effective from 01.04.2023, applies to a non-government employee who retired in assessment year 2020-21, where the power under Section 10(10AA)(ii) is a continuing obligation to revise the limit with regard to Central Government employee entitlements.
Arguments Presented
For the Appellant
The assessee argued that the classification between Government and non-Government employees under Section 10(10AA) has been upheld, but the limit for non-Government employees must be revised periodically with reference to Central Government employee entitlements. The 2023 notification was not a fresh grant but the belated discharge of a continuing statutory obligation. Withholding its benefit from an employee retiring shortly before the notification would perpetuate the very disparity the provision seeks to remove. The assessee relied on the Delhi High Court's prima facie view in Kamal Kumar Kalia v. Union of India [2020] 268 Taxman 398 (Delhi) that the grievance regarding the unrevised limit since 1998 appeared justified, and on coordinate bench decisions in Ram Charan Gupta and Govind Chhatwani directing allowance of the claim within the revised limit.
For the Respondent
The Departmental Representative contended that the assessee is not a Government employee and therefore governed by sub-clause (ii) of Section 10(10AA). The enhanced limit under Notification No. S.O. 2276(E) operates only from 01.04.2023 as expressly stated in the notification, and cannot be applied retrospectively to assessment year 2020-21.
The Court's Analysis
The Tribunal examined the scheme of Section 10(10AA). Sub-clause (i) exempts leave encashment received by Central or State Government employees without any ceiling. Sub-clause (ii), governing every other employee, confines the exemption to the least of four amounts: the amount actually received, the entitlement at thirty days of earned leave for every year of service, ten months' average salary, and the limit specified by the Central Government by notification. Only the fourth limit, fixed at Rs 3,00,000 by Notification No. S.O. 588(E) dated 31.05.2002, had been applied against the assessee.
The Tribunal noted that the classification drawn by clause (10AA) has been upheld by the Delhi High Court in Kamal Kumar Kalia v. Union of India, which held that employees of public sector undertakings and nationalised banks cannot claim parity with Government employees. A coordinate bench in Narender Singh Yadev v. ACIT [2023] 152 taxmann.com 187 (Jaipur - Trib.) granted full exemption only upon finding the employer was a Government institution, distinguishing Kamal Kumar Kalia on that footing. The present assessee made no such case.
On the narrower question of the revised limit, the Tribunal observed that the Delhi High Court in Kamal Kumar Kalia had recorded a prima facie view that the grievance regarding the unrevised limit since 1998 appeared justified. That grievance was redressed by Notification No. S.O. 2276(E) dated 24.05.2023, which specified Rs 25,00,000 as the limit. The Tribunal held that the power under sub-clause (ii) is not untrammelled but must be exercised having regard to the limit applicable to Central Government employees, and its exercise is a continuing obligation. The 2023 revision was thus not the grant of a fresh exemption but the belated discharge of that obligation, the limit having remained at Rs 3,00,000 since 2002 through successive revisions of Central Government pay.
"A notification of that character is remedial, and to withhold its benefit from an employee who retired shortly before it was issued would perpetuate the very disparity it was meant to remove."
The Tribunal followed the consistent view of coordinate benches. In Ram Charan Gupta (supra), a retired bank employee, the Bench directed the AO to allow the claim within the revised limit. This was followed in Govind Chhatwani v. CIT (Appeals), where it was concluded that the assessee is entitled to the deduction as claimed since the limit has been increased from Rs 3 lakh to Rs 25 lakh. No judgment of the jurisdictional High Court to the contrary was brought to the Tribunal's notice.
The Verdict
The appeal filed by the assessee is allowed. The Tribunal held that the exemption under sub-clause (ii) of clause (10AA) of Section 10 cannot be confined to Rs 3,00,000 in the assessee's case. The amount of Rs 13,81,281 received by him is well within the limit of Rs 25,00,000, and no other limit prescribed by the sub-clause has been applied against him. The Assessing Officer is directed to allow the exemption of Rs 13,81,281 under Section 10(10AA) and to delete the addition of Rs 10,81,281. The delay of 1097 days in filing the appeal is condoned subject to payment of costs of Rs 5,000 to the Prime Minister's National Relief Fund, proof whereof shall be filed before the AO.
What This Means For Similar Cases
Remedial Notifications Apply Retrospectively to Remove Disparity
The Tribunal's reasoning establishes that notifications issued under Section 10(10AA)(ii) to revise the exemption limit in line with Central Government employee entitlements are remedial in character. Where the Central Government has delayed revising the limit for decades despite pay revisions, the eventual notification discharges a continuing statutory obligation. Practitioners should argue that withholding the benefit from employees who retired shortly before the notification date perpetuates the very disparity the provision was designed to eliminate. This principle supports retrospective application to assessment years preceding the notification's stated effective date.
Coordinate Bench Consistency Strengthens the Position
- The Jaipur Bench has now consistently applied this reasoning in Ram Charan Gupta (ITA No. 408/JP/2022) and Govind Chhatwani [2026] 187 taxmann.com 389 (Jaipur - Trib.)
- Practitioners before the Jaipur Bench can rely on this line of authority as binding precedent
- The Tribunal explicitly noted the absence of any contrary jurisdictional High Court judgment
Actionable Takeaways for Practitioners
- For non-government employees retiring between 2002 and 2023: File rectification or appeal claiming the enhanced Rs 25,00,000 limit under Notification No. S.O. 2276(E)
- Argue that the notification is remedial and discharges a continuing obligation, not a fresh exemption grant
- Cite the Delhi High Court's prima facie view in Kamal Kumar Kalia acknowledging the justification for the grievance
- Ensure the claimed amount does not exceed the least of the four statutory limits under Section 10(10AA)(ii)
- Be prepared to distinguish Kamal Kumar Kalia on the ground that it upheld the classification but did not decide the retrospective application of a subsequent remedial notification
