Key Takeaways: - Facts of the case - Issues and Orders of the case - Contention of the parties - Observations by Honourable Supreme Court - Conclusions

1. WITHHOLDING ON GRATUITY PAYMENT
SUPREME COURT OF INDIA
KRISHNA GOPAL TIWARY
V.
UNION OF INDIA
[2021] 129 TAXMANN.COM 168 (SC)

2. LEGENDS USED
CIL Coal India Limited
CSE Central Sector Enterprises
GOI Government of India
IT Act Income Tax Act, 1961
OM Office Memorandum
RPC Rice Price Control
SC Supreme Court
Sec Section
TDS Tax Deducted at Source

3. PRESENTATION SCHEMA
Facts of the Case Issues Involved Contentions of the Parties
Observations of Honourable
SC
Decisions of the Court

4. FACTS OF THE CASE

5. FACTS OF THE CASE
• The appellant-employees of CIL, were paid an enhanced gratuity amount in January 2007 pursuant
to an OM by which GOI approved enhancement of gratuity to the executives and Non-Unionized
Supervisors of CSE such as the CIL.
• The ceiling of the gratuity payable to an employee was raised to Rs.10 lakhs w.e.f. 01.01.2007 in
terms of OM of GOI dated 26.11.2008.
• Despite enhancement of gratuity to Rs. 10 Lakh by the OM with effect from 01.01.2007 there were
no consequent amendments made in the Payment of Gratuity Act, 1972 to increase the limit of
gratuity.
• As a result, increase in the exemption limit under the IT Act could not be claimed, &
TDS was deducted on the enhanced gratuity paid to the employees.
• Further, after the Payment of Gratuity (Amendment) Act, 2010 received assent from the President
on 17.05.2010 the ceiling of gratuity payable to an employee was increased to Rs 10 Lakh and the
said amendment was made w.e.f 24.05.2010.
• Therefore, Appellants sought a retrospective effect to the enhanced limit from 01.01.2007, to
claim complete tax exemption for the gratuity received by challenging the date of
commencement of 2010 Amendment Act.

6. ISSUES
INVOLVED

7. ISSUES OF THE CASE
Whether the amendment in 2010 to enhance the limit of gratuity payable to an employee, will have a
retrospective effect from 01.01.2007 i.e date of approval by the GOI by an OM or will it come into effect from
24.05.2010 i.e date on which President’s assent was received.

8. CONTENTIONS OF THE
PARTIES

9. CONTENTIONS OF THE APPELLANT
The Appellant contended
that
Since, the amendment of the
Gratuity Act is to grant
liberalized benefits, it would
be retrospective.
The cut-off date as on
24.05.2010 created two
categories of employees.
Employees who have
attained the age of
superannuation (retirement)
before 24.05.2010.
Employees who have
superannuated on or after
24.05.2010.
Such categorization was viewed illegal and arbitrary in nature, as the appellant found no rational in
granting gratuity benefits only to those who retired subsequent to 24.05.2010 & simultaneously denying
the same to those who retired prior to that date.
1
2

10. D.S. Nakara v. Union of India [1983] 1
SCC 305
State Government Pensioners’
Association & Ors. vs. State of
Andhra Pradesh (1986) 3 SCC 501
Union of India vs. All India Services
Pensioners’ Association &
Anr. (1988) 2 SCC 580
I. 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.
II. It was thus argued that benefit
of gratuity stands on different
footing, then recurring right of
payment of pension.
There is no scope for revision in
amount paid based on revision in
formula evolved in future unless
the provision expressly provides
so retrospectively.
It was held that the pension is
payable periodically as long as
the pensioner is alive while the
gratuity is ordinarily paid only
once on retirement.
The learned counsel of union contended the following w.r.t the cases adduced by the Appellant
1 2 3
CONTENTIONS OF THE UNION

11. OBSERVATIONS
OF SC

12. ANALYSIS OF THE RELEVANT
SECTIONS
Honourable SC observed that Sec 4 of the
Gratuity Act, provides that employee is
entitled to receive better terms of
gratuity under any award with the
employer & the same was awarded to the
appellants.
Honourable SCon observing the
provisions of IT Act stated that the
gratuity amount that can be claimed as
exemption should not exceed the
amount calculated in accordance with
Sec 4 of Gratuity Act
Sec 4 of Payment of Gratuity Act, 1972 Sec 10 of IT Act, 1961

13. CUT – OFF DATE
Honourable SCbased on the above affirmed the response elicited by the Ld. Counsel of the Union, and stated that,
• Gratuity Act considered Rs.10 Lakhs as the amount of gratuity only from 24.05.2010 where such amount is paid
only once and thus cut off date cannot be stated illegal.
• Therefore, such amendment cannot be treated to be retrospective.
Honourable SC observed the
decisions held in the case
State Government
Pensioners' Association v.
State of Andhra Pradesh
[1986] 3 SCC 501
Where gratuity amount
payable to employees got
crystallized on the retirement
date on the basis of the
salary drawn by him on the
retirement date & was
already paid to the
employees on that footing i.e
where transaction was
complete & closed.
It was held that there were no
scope for upward or
downward revision evolved
later in future unless the
provision in this behalf
expressed any retrospective
effect.

14. ANALYSIS OF OTHER RELEVANT
HONOURABLE SC DECISIONS
• It was held that for sales made before the enforcement of
RPC Order, 1964, the appellants were paid only at prices as
on date of sale & not at revised prices as an effect of the
order.
Sri Vijayalakshmi Rice Mills v. State of
Andhra Pradesh [1976] 3 SCC 37
• It was held that even if, executive was empowered to choose
the date of commencement of Act, it is confined w.r.t
certain limits & the power to give full effect to the policy
behind the legislation vested with the government.
Orient Paper & Industries Ltd.v. State of
Orissa 1991 Supp. (1) SCC 81
• It was held that in the case of payment of increased
quantum of death-cum-retirement gratuity, the cut- of date
cannot be arbitrary which was fixed keeping in view financial
constraints.
Himachal Road Transport Cor. v. Himachal
Road Transport Corpn. Retired Employees
Union [2021] 4 SCC 502
Based on the above decisions, Honourable SC concluded that,
- Any beneficial provision of an order would not have any retrospective effect unless provided
expressly.
Honorable SC referred to the following case laws, to support the conclusions it arrived at,

15. DECISION OF THE
COURT

16. CONCLUSION
The Honourable SC concluded that date of issue of OM, 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.
The benefit paid to the appellants under the OM is not entitled to exemption in view of specific language of
Section 10(10)(ii) of the Income Tax Act.

17. WAY FORWARD
It’s made clear in this order that a retrospective effect would never be implied unless and otherwise it's been
explicitly provided.

18. Thank You!
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