The validity of disparate tax treatment on leave encashment between bank employees and government employees has been affirmed by the Patna High Court. The case involved a retired State Bank of India employee who received leave encashment after 36 years of service, with income tax deducted.
The petitioner argued that section 10(10AA) unfairly discriminates among similarly-situated employee groups, violating Article 14 of the Constitution of India.
In response, the Patna High Court held that the distinction between Central/State government employees and others is a reasonable classification, consistent with previous decisions by the Supreme Court.
It clarified that if the individual had been a Central or state government employee, there would have been no tax deduction under section 10(10AA).
While acknowledging that taxation laws must adhere to the equality clause in Article 14, the Court also recognised the complexity of fiscal adjustments and granted the State substantial discretion in tax-related classifications.
Furthermore, the Court emphasised the legislative freedom to select and classify individuals, properties and income for taxation purposes. Consequently, the differentiation in Section 10(10AA) between Central/state government employees and other employees was deemed neither discriminatory nor in violation of Article 14 of the Constitution of India.
The petitioner, a retired State Bank of India employee, was thus denied parity with Central and state government employees.
