Section 10(10A) l Commuted Pension
Circular No. 286 was issued by the Central Board of Direct Taxes on 17 November 1980. Its subject is Section 10(10A) l Commuted Pension.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Makes the whole commutation exempt for a Government servant absorbed in a public undertaking. Paragraph 5 of Instruction No. 1191 dated 1 July 1978 had said that for a Government servant absorbed in a public undertaking on or after 24 July 1971 only the commuted value of one-third of the pension qualified for exemption under section 10(10A)(i), the remaining two-thirds being includible in total income with relief under section 89(1) read with rule 21A. The Delhi High Court in C.K. Karunakaran v. Union of India, allowing a writ petition, relied on rule 37A of the Pension Rules, 1972, which provides for a lump sum to persons absorbed in public sector corporations, and held that the lump sum is paid in lieu of pension and that its bifurcation into two parts under sub-clauses (a) and (b) of rule 37A(i) alters neither its nature nor its character as a payment in lieu of pension; so, on the language of section 10(10A)(i) covering any payment under any similar scheme applicable to members of the civil services of the Union, the entire commutation is exempt. The Board is advised to accept that decision, withdraws Instruction No. 1191 with immediate effect, and directs that appeals, revision petitions and reference applications on the point be conceded or withdrawn.
The Delhi High Court decided the issue against the Board's instruction, and the Board was advised to accept the decision rather than contest it further.
SECTION 10(10A) l COMMUTED PENSION
70. Exemption of commuted pension - Extent thereof under clause (10A)(i)
1. Attention is invited to Board’s Instruction No. 1191 [F. No. 174/29/77-IT(A-I)], dated 1-7-1978 on the above subject. Para 5 of the said Instructions clarify that in the case of a Government servant absorbed in a public undertaking on or after 24-7-1971, the amount that would qualify for tax exemption under the provisions of section 10(10A)(i ), would only be the amount representing the commuted value of one-third of the pension. The remaining two-thirds amount received by the person by way of terminal benefit would be includible in the total income subject to relief under section 89(1) read with rule 21A of the Rules.
2. The issue has been recently decided by a Division Bench of the Delhi High Court in the case of C.K. Karunakaran v. Union of India [1980] 4 Taxman 178. The High Court, while allowing a writ petition, relied upon rule 37A of the Pension Rules, 1972, which provides for payment of lump sum amount to persons absorbed in public sector corporations. It has been held that rule 37A provides for payment of lump sum in lieu of the pension. The lump sum was bifurcated into two component parts under sub-clauses (a) and (b) of rule 37A( i) but the fact that it is bifurcated into two parts neither alters the nature of the payment nor does it cease to be a payment in lieu of pension. Therefore, by virtue of the language of section 10( 10A)(i) which speaks of any payment under any similar scheme applicable to the members of the civil services of the Union, the entire commutation was held to be exempt under section 10(10A)(i ).
3. The Board have been advised that the decision of the Delhi High Court is to be accepted.
4. In view of the above, Instruction No. 1191 stands withdrawn with immediate effect. All appeals/revision petitions/reference applications on this point may be conceded/withdrawn in the light of this circular.
Circular : No. 286 [F. No. 174/79/80-IT(A-I)], dated 17-11-1980.
In an assessment or appeal of an absorbed Government servant where two-thirds of the lump sum received on absorption has been brought to tax.
Rules it names. Rule 21A, 37A of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.