Law Office
of NAVDEEP SINGH
Advocate, Punjab &
Haryana High Court
Office-cum-Residence :
# 1063, Sec 2, Panchkula – 134112, Haryana
Your reference
:
Our
reference :
To:
Chairman-cum-Managing Director (CMD)
State Bank of India, Mumbai
01 September 2016
ILLEGAL DEDUCTION OF
INCOME TAX ON DISABILITY PENSION BY THE STATE BANKOF INDIA IN CONTRAVENTION OF
DIRECTIONS OF THE GOVT
1. Shocking
instances have come to light wherein your bank has indulged in deduction of
Income Tax at source in case of Disability Pensioners. On further inquiry, it
has been informed that the action is based upon some ‘advice’ rendered by a
Chartered Accountant that income tax exemption is only available to those
pensioners who have been invalided out before completion of their service for
normal pension, that is, those released earlier than 20 years in case of
Commissioned Officers and 15 years in case of ranks other than Commissioned
Officers, and that the said exemption is not available on the service element
of those who have been released/ retired/discharged with a pension after
serving more than 20/15 years of service as above.
2. Firstly,
your attention is invited to Instruction No 2/2001 issued by the Central Board
of Direct Taxes in this regard which amply explains the issue (Appx A).
Your attention is also invited to Paragraph 88.3 of the Pension Payment
Instructions issued to all your banks by the Government (Appx B) which
leaves no scope of doubt regarding exemption of income tax from the entire
disability pension, including service element. Moreover, the interpretation of
your bank in this regard is absolutely incorrect, absurd and militates against
the rules and norms promulgated by the Government as above. It may be recalled
that Income Tax exemption on complete disability pension is available to
defence personnel since the 1920s.
3. On
discussion, it emerges that the confusion has been created due to the
terminology of ‘Service Element’ which is hereby clarified for your benefit in
the following lines. Disabled personnel who are granted disability benefits at
the time of release from service are known as Disability Pensioners. The
said Disability Pension consists of two elements- service element and
disability element. Both elements taken together are known as Disability
Pension. There is no minimum qualifying service required for the grant of
Service Element with effect from 01 January 1973. The calculation of service
element however is different in cases of those personnel released from service
before completion of pensionable service limits vis-a-vis those who are
released on completing pensionable service limits. In case of the latter, the
service element is granted at a rate equal to Service Pension. The fact that
the pension granted for service in both cases is known as Service Element
becomes clear from a bare perusal of Regulation 183 of the Pension Regulations,
1961, which contains two clauses, that is, 183(1)(a) for those who are released
with sufficient service to earn a pension, and 183(1)(b) for those who are
released before completing sufficient service to qualify for normal service
pension. The said Regulation is enclosed as Appx C. Please note
from the Regulation that in both cases the service part of the pension is known
as Service Element. Even the normal service pension rates reflected under
Regulation 183(1)(a)(i) are categorized as ‘Service Element’.
4. The
fact that the service part of pension, whether a person is released prior to
completion of service limits or after completion of service limits (20/15
years), is known as ‘Service Element’ also becomes clear from a perusal of the
recent Circular No 554 (Appx D) issued by the Principal Controller of
Defence Accounts (Pensions) to all banks, including yours. Paragraphs 1(i) and
(ii) and then 1(iv) & 1(v) as well as Paragraph 6 of the same clearly
stipulate that in case of disability pensioners, the amount of service part of
the pension is known as ‘Service Element’ irrespective of the fact whether a
person has lesser or more than 20/15 years of service. In simple words, the
service element of pension in cases of those disabled personnel who have
completed pensionable limits is equal to normal service pension, but being
disability pensioners, it is nomenclatured as ‘Service Element’.
5. Even
otherwise, it would be important to point out that disabled personnel released
prior to completion of pensionable terms as well as those who are released on
completion of terms or at own request are all treated at par as far as
disability pension is concerned. In fact, all those who are in low medical
category at the time of release are to be treated as ‘invalided’ as per
rules (Also Appx C) as has also been held as per interpretation of
teh pre-existing rules by the Hon’ble Delhi High Court in CW 2967/1989 Mahavir
Singh Narwal Vs Union of India decided on 05 May 2004 as affirmed by
the Hon’ble Supreme Court in SLP 24171/2004 on 04 January 2008 and also in the
recent decision of the Hon’ble Supreme Court in Civ Appeal 11208//2011 Union
of India Vs Angad Singh Titaria decided on 24 Feb 2015.
6. In
view of the above, you are requested to inform all your branches to cease and
desist from flouting guidelines of the Central Board of Direct Taxes in this
regard and direct them to honour income tax exemption on both service as well
as disability elements of disability pensioners as was being done till now. It
may be appreciated that the opinion of your Chartered Accountant cannot
override existing law and rules that have been followed since times immemorial.
7. You
are requested to issue directions to refund the illegally deducted amount to
all affected disabled pensioners within a period of 7 days from the receipt of
this letter.
Thanking You
Sd/-
Navdeep Singh
Advocate, High Court
