C. K. KARANAKARAN v. UNION OF INDIA — 1980 DIGILAW 136 (DEL)

S. RANGANATHAN, J. ( 1 ) THIS appeal raises an interesting and somewhat difficult question regarding the extent, of exemption available under the Income-tax Act, 1961, to a Government servant in respect of a lump sum received by him (on his deemed retirement from service due to his absorption into a public sector undertaking) in place of the payments which he would have been entitled to receive had he retired from Government service in the normal course. ( 2 ) ON general principles, the receipt of a lump sum, by an employee on the commutation of the pension payments which he would otherwise be entitled to receive would be in the nature of a capital receipt (except, perhaps, where the pension is in the nature of deferred remuneration ). This general rule stood abrogated by the very comprehensive definition of profits in lieu of salary contained in Explanation 2 to Section 7 (1) of the Indian Income-tax Act, 1922. However, it appears that the legislature did not then intend to bring commuted pension to tax for Section 23 (2) of the Finance (No. 2) Act, 1965, declared: "notwithstanding anything contained in the Indian Income-tax Act,1922 any sum due to or received by any person in commutation of pension shall not be included and shall be deemed nevr to have been includible in computing the total income of ushc person under the provisions of the Act. " THE language of Section 17 (3) of the Income-tax Act, 1961, corresponds to that of Explanation 2 to Section 7 (1) of the 1922 Act but the Finance (No. 2) Act of 1965 introduced a limited exemption regarding commuted pension with retrospective effect from 1-4-1962, the date of commencement of the 1961 Act. The exemption, couched in guarded language is in respect of : "s. 10 (10a) (I), any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the defence services or to the. members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or a corporation established by a Central, State or Provincial Act; (II) any payment in commutation of pension received under any scheme of any other employer, to the extent it docs not exceed (A) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and (B) in any other case, the commuted value of one-half of such pension. SUCH commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality: PROVIDED that the maximum limit of payment specified in subclause (ii) (a) or sub-clause (ii) (b) shall not apply in respect of any such payment made before the 19th day of August, 1965". THE question in the present appeal is whether an amount, received by the appellant, wholly qualifies for this exemption or not. ( 3 ) NOW for the factual background in which the question arises : THE petitioner, C. R. Karunakaran, joined the Central Services (Class 1) on 31-7-1959 in what was known as the Industrial Manage. ment Pool. The pool, which had been constituted in 1957, was abolished with effect from the afternoon of 31-3-1977. In the meantime, the services of the petitioner had been lent to a public sector corporation, the Oil and Natural Gas Commission (ONGC ). The resolution of the Government of India dated 31-1-1977 deciding to abolish the pool (which is not before us) seems to have also decided to give an option to the officers belonging to the pool who were on deputation elsewhere to get absorbed in their place of deputation. The petitioner exercised the option offered to him. ( 4 ) ON ,28-12-1977, the Bureau of Public. Enterprises of the Government of India which the petitioner was serving addressed a letter to the Pay and Accounts Officer, Ministry of Finance, North Block, New Delhi, conveying the sanction of the President to the permanent absorption of the petitioner in the ONGC w. e. f. 1-4-1977 "in the public interest". ( 4 ) ON ,28-12-1977, the Bureau of Public. Enterprises of the Government of India which the petitioner was serving addressed a letter to the Pay and Accounts Officer, Ministry of Finance, North Block, New Delhi, conveying the sanction of the President to the permanent absorption of the petitioner in the ONGC w. e. f. 1-4-1977 "in the public interest". This letter, inter alia, stated, in paras (ii), (iii) and (iv) that the petitioner would be entitled to pro-rata pension and death-cum-gratuity based on the length of his qualifying service in Government till the date of permanent absorption in the ONGC under the normal rules applicable to Government servants. However, clause (v) proceeded to say : " (V) The officer will exercise an option, within six months of the date of issue of this letter, for either of the alternatives indicated below: (A) Receiving the pro-rata monthly pension and death-cum- retirement gratuity as admissible under clauses (ii), (iii) and (iv) above under the Government of India Rules; (B) Receiving the pro-rata gratuity and a lump sum amount in lieu of pension worked out with reference to commutation tables obtaining on the date from which pension will be admissible and payable under option orders. " (UNDERLINING ours ). . CLAUSE (vi) stated that the petitioner would be eligible for family pension to the extent permissible under the Central Civil Services (Pension) Rules 1972 (hereinafter referred to as the Pension Rules) and other Government orders bearing on the subject. cl. (viii) stated: SUCH commutation will be regulated in accordance with the Government of India Rules in force at the time. " ( 5 ) IT appears that the petitioner, like several other officers placed in a similar position, opted for the course suggested in para (v) (b) of the above letter and applied, on 18-2-1978, for "commutation of his full pension". In April-May 1978, it was decided that "payment of the commuted value of pension" of Rs. 90,909 be made to the petitioner. The Accountant General, Bombay, however, sought instructions from the Pay and Accounts Officer, Ministry of Finance, New Delhi regarding "the portion of the commutation amount that is taxable" before releasing the amount. In April-May 1978, it was decided that "payment of the commuted value of pension" of Rs. 90,909 be made to the petitioner. The Accountant General, Bombay, however, sought instructions from the Pay and Accounts Officer, Ministry of Finance, New Delhi regarding "the portion of the commutation amount that is taxable" before releasing the amount. A letter addressed by the petitioner to the income-tax Officer, Bombay referring to a decision of the Bombay Benches of the Income-tax Appellate Tribunal of November, 1974 in the case of one P. Murlidharan (I. T. R. Nos. 2421 of 73-74 and 1516 of 74-75) and requesting him to advice the Accounts Officer at Bombay not to deduet any tax on commuted pension apparently evoked no response. And on 3-7-1978 the Pay andAccounts Officer, Ministry of Finance, New Delhi replied to the Accountant General at Bombay, to say that "the paying branch will be responsible for deduction of income tax at source from pension payments including commutation. " The petitioner, thereupon, filed a writ petition in this Hon ble Court, contending that the "commuted pension" payable to him is no taxable and praying (a) that the letter dated 3-7-1978 be quashed and (b) that the Accounts Officer at Bombay be directed to pay the "commuted pension of the petitioner without deducting tax at source or otherwise". The writ petition has been dismissed and hence this appeal. ( 6 ) BEFORE proceeding to deal with the issues raised, it is necessary to refer to certain other relevant aspects which have a bearing on the present case. (1) We have referred earlier to Clause (v) (b) of the letter of the Government to the petitioner which referred to a lump sum payment. The rules governing this payment are Rules 37 and 37a of, the Pension Rules, 1972 which may be extracted here : "37. Pension on absorption in or under a corporation company or body. (1) We have referred earlier to Clause (v) (b) of the letter of the Government to the petitioner which referred to a lump sum payment. The rules governing this payment are Rules 37 and 37a of, the Pension Rules, 1972 which may be extracted here : "37. Pension on absorption in or under a corporation company or body. A Government servant who has been permitted to be absorbed in a service or post in or under a corporation or company wholly or substantially owned or controlled by the Government or in or under a body controlled or financed by the Government shall, if such absorption is declared by the Government to be in the public interest, be deemed to have retired from service from the date of such absorption and shall be eligible to receive retirement benefits which he may have elected or deemed to have elected, and from such date as may be determined, in accordance with the orders of the Government applicable to him: PROVIDED that the Government shall have. no liability for the payment of family pension in such a case: PROVIDED further that no declaration regarding absorption in the public interest in a service or post in or under such corporation, company or body shall be required in respect of a Government servant whom the Government may, by order, declare to be a scientific employee. " "37-A. Payment-of lump sum amount to persons on absorption in or under a corporation, company or body. (1) Where a Government servant referred to in rule 37 elects the alternative of receiving the death-cum-retirement gratuity and a lump sum amount in lieu of pension, he shall, in addition to the death-cum-retirement gratuity, be granted : (A) on an application made in this behalf, a lump sum amount not exceeding the commuted value of one-third of his pension as may be admissible to him in accordance with the provisions of the Civil Pensions (Commutation) Rules; and (B) a terminal benefit equal to twice the amount of the lump sum referred to in clause (a), subject to the condition that the Government servant surrenders his right of drawing two-thirds of his pension:" RULE 37 (which had originally governed such cases) contemplated that the extent of retirement benefits were to be decided by orders of the Government from time to time. However, Rule 37a was introduced, pursuant to a decision of the Government, on 9-4-1973 with effect from 21-4-1973 but sub-rule (2) of the Rule makes it clear that it was deemed to have been applicable to all cases of payments received by such employees on or after 24-7-1971. The payment; made to the present petitioner was in terms of Rule 37a. (2) The dated 24-7-1971 appears to have been provided for in Rule 37a (2) because though the scheme of lump sum payments in lieu of pension for such employees appears to have been in force since 1969 or so, the bifurcation of the lump sum payment into two comoponents provided for in Rule 37a (1) had been introduced informally by a memo of the Finance Ministry of that date which had been issued to clarify a number of queries and doubts that had been raised, particularly in regard to the taxability of the amounts received by the employee. This memorandum, inter alia, stated: (I) The pro-rata gratuity paid to the employee would be exempt from income-tax. (II) Where the employee opted for a lump sum in lieu of pension. Such lump sum would consist of two distinct components (A) the commuted value upto the normal limit of l/3rd the pension; and (B) a terminal benefit equivalent to the capital value of 2/3rd of the pension payable in consideration of the optee s surrendering the right of drawing 2/3rd pension, as also the family pension. (III) Consequently, the payment referred to in (a) above will be exempt from income tax but not that referred to in (b ). However, in respect of the latter, the recipient could claim appropriate relief of spread over (which, it may be noted, is available under Section 89 of the Income-tax Act, 1961 ). THIS memo also refers to steps being on foot to amend the rules accordingly which, as noted earlier, was done on 9-4-1973 with the benefit covering all cases of retirement after 24-7-1971. The above position regarding tenability was also reiterated in a memorandum issued by the same Ministry on 13-4-1973 explaining the newly introduced Rule 37a and, again, in a memo issued on 8-4-1976. The above position regarding tenability was also reiterated in a memorandum issued by the same Ministry on 13-4-1973 explaining the newly introduced Rule 37a and, again, in a memo issued on 8-4-1976. (3) After the above memo of 1971 become operative the question of taxability of the lump sum received by such an employee came up for consideration before the Bombay Bench of the Tribunal in Murlidharan s case earlier referred to, and was decided in November, 1974 holding in favour of complete exemption. Since this decision would affect a large number of cases, the Central Board of Revenue had to take a decision whether it should be accepted or taken up on reference to the High Court. On20-5-1976, it seems, the Board decided to accept the decision "as laying down the correct position in law". This appears from a letter of the Commissioner of Income-tax dated 10-9-1976 (placed before us by the counsel for the appellant) which proceeds further to direct the Income-tax Officer not only to apply the decision in future but also to rectify orders already made, assessing such receipts, in the light of the decision of the Board. The Board, however, reconsidered the matter in consultation with the Ministry of Law and decided that the terminal benefit under Rule 37 A (l) (b) would be taxable though eligible for relief under Section 89. This was clarified in a circular issued on 1-7-1978 which also directs remedial action under Section 263 in all cases where relief had been granted earlier. This circular does not refer to its earlier decision in the matter but refers to the Government memorandum dated 13-4-1973. (4) It may be mentioned that in the case of a civil servant in Government service the maximum commutation permitted is to the extent of one third of the pension payable to him where he is governed by one of certain specified schemes and to the extent of one-half of the pension in other cases. The uncommuted residue of the pension in either case should not be less than Rs. 240 per annum : vide Rules 3 and 4 of the Civil Pensions (Commutation) Rules (hereinafter referred to as the commutation Rules ). The uncommuted residue of the pension in either case should not be less than Rs. 240 per annum : vide Rules 3 and 4 of the Civil Pensions (Commutation) Rules (hereinafter referred to as the commutation Rules ). It was also stated before us that Defence Personnel are entitled to commute upto 43% of the pension payable to the commutation is permitted subject to certain rules which prescrtibed for a medical examination when commutation is sought more than a year after retirement and in accordance with the multiples prescribed in tables prescribed for the purpose and revised from time to time. ( 7 ) THE writ petition does not give any inkling regarding the stand of the Pay and Accounts Officer and other respondents and the extent to which they considered the amount payable to him as liable to tax. But the reply filed by the respondent takes the same line as the memorandam dated 13-4-1973 and 8-4-1976 and the circular dated 1-7-1978. The stand is that the lump sum payable to the petitioner consists of two components. The first is an amount arrived at by commuting, in accordance with the Commutation Rules, one-third of the pension payable to the petitioner. This is exempt from tax. The other is a terminal benefit equal to twice the above amount, also payable to the assessee. Though this is paid only on his surrendering his rights to receive the balance of 2j3rd of the pension, this payment is not covered by Section 1o (1oa) (i) of the Act. ( 8 ) ANAND J. accepted the contention of the respondents. It appears that before the learned Judge it was the common case of the parties that the payment made under clause (a) of Rule 37a (1) of the Pension Rules is exempt from tax and that the dispute was as to whether the terminal benefit, in addition to he above payment, to which the petitioner was entitled under clause (b) of the said Rule would also qualify for exemption. Further, it was also not disputed that "rule 37a was added primarily to introduce uniformity in the matter of exemption under Section IO (IOA) of Income-tax Act because, but for this rule, the entire amount in lieu of pension receivable by a civil servant, on absorption would be exempt from tax while the exemption in the case of an ordinary retiring civil servant would be confined to the commuted value of one-third of the pension. " The argument for the writ petitioner appears to have been that while the payment under Clause (a) was exempt under the opening words of Section 10 (10) (1) "as a payment in commutation of pension received under the Commutation Rules of the Central Government" the payment under clause (b) would be exempt under one of the other categories mentioned therein viz. as a "payment in commutation of pension received under any similar scheme applicable to members of the civil service of the Union," referred to hereinafter a the second limit of the Section. The learned Judge agreed that clause (b), which also provides for payment of a terminal benefit in lieu of pension, is in the nature of "a similar scheme" envisaged by the above words but pointed out that to qualify for exemption under this limit of the section, another condition had t,o be also satisfied a condition required by the words in paranthesis: " (Such members. . . being persons not governed by the said Rules)". Observing that it was not disputed that, until absorption in the new service, the petitioner was governed by the Commutation Rules, the learned Judge held that the petitioner would not be entitled to the exemption, as it could not be said that the petitioner was not governed by the Commutation Rules. It was immaterial that the Commutation Rules applied only to the commutation under clause (a) but not to the terminal benefit under clause (b ). He observed : "the provision does not contemplate the benefit of exemption being given to payment of the same nature by two different sets of rules and that is why the provision that the persons, who are entitled to the benefit under a similar scheme, must not be persons to whom the commutation Rules would apply. He observed : "the provision does not contemplate the benefit of exemption being given to payment of the same nature by two different sets of rules and that is why the provision that the persons, who are entitled to the benefit under a similar scheme, must not be persons to whom the commutation Rules would apply. A contrary interpretation would apparently frustrate the very object of Rule 37a, i. e. , to bring uniformity of treatment in the matter of exemption from tax between a retiring civil servant and a civil servant who is deemed to have retired because of absorption in another service. Any other interpretation would lead to an anomaly that a civil servant, who was absorbed in another service and had merely deemed to have retired from service, would be put in a more advantageous position than the civil servant who may finally retire. " IN the result, though the learned Judge agreed with the criticisms of the petitioner s counsel that it was unfair and inequitable to tax pensionary benefits granted to members of fixed income groups at the time of retirement after long service with an employer, he concluded that the petitioner s claim for exemption under Section 10 (IOA) (1) was based on infirm reasoning and so not maintainable in law and that the writ petition had, therefore, to be dismissed. ( 9 ) REALISING, perhaps, the inherent weakness of the arguments addressed on behalf of the writ petitioner before Anand J. , Shri O. P. Vaish, counsel for the appellants took a different line of argument before us. He contended that it was not correct to break-up and consider the two components of the payment under Rule 37a, treating one as a payment under the Commutation rules and the other as some other payment in the nature of a terminal benefit. His argument was that the Commutation Rules applied to a person only when he retired in the normal course and was permitted to commute 33-1 [3 or 50% of the pension, as the case may be. Persons in the , position of the present appellant who exercised the option for lump sum payment, were governed by these rules but were governed by a different but similar scheme envisaged by Rule 37 and 37a of the Pension Rules. Such a person was permitted to commute the entirety of his pension. Persons in the , position of the present appellant who exercised the option for lump sum payment, were governed by these rules but were governed by a different but similar scheme envisaged by Rule 37 and 37a of the Pension Rules. Such a person was permitted to commute the entirety of his pension. This was partly by way of concession given to him in view of the fact that he is forced to retire from service much earlier than he would have normally retired and partly intended to enable the Government to square up once and for all the accounts of an employee who had left its service to join some other organisation. The whole payment was, therefore, attempt under the second limit of Section 10 (IOA) (i ). ( 10 ) IT appears to us that this contention of the learned counsel is well founded. Rule 37 contemplates the grant of such retirement benefits to this category of employees as may be envisaged by Government orders from time to time. The scheme of benefits to such employees was originally being announced by orders of Government issued from time. to time. These were replaced by Rule 37a which contemplates the alternative of a "lump sum amount in lieu of pension" in addition to the death-cum-gratuity. In other words, such an employee is allowed to commute the whole of this pension and receive a lump sum instead. If Rule 37a had simply said that he would be permitted to commute his whole pension on the same lines as the Government servant retiring in normal course can commute a part of his, there would have been no difficulty and the lumpsum received in commutation would have been exempt as a commuted payment received under a scheme similar to that envisaged by the Commutation Rules. The difficulty is created because Rule 37a proceeds further to dissect the lump sum into two components one equal to the commuted value of one-third of his pension and another equal to twice the above amount. The contention for the respondents is that, since Clause (a) Rule 37a (1) contains a reference to the Commutation Rules, the lump sum computed and paid under that clause would be a payment received under the Commutation Rules. The contention for the respondents is that, since Clause (a) Rule 37a (1) contains a reference to the Commutation Rules, the lump sum computed and paid under that clause would be a payment received under the Commutation Rules. But, it is said, when we come to Clause (b) no relief would be available because, though it also envisages a lump sum in commutation of the remaining two-thirds of the pension under a similar scheme, that would be a receipt by a person who is governed by the Commutation Rules and who in fact has received the lump sum under Clause (a) only by virtue of those rules. But we think that Mr. Vaish is correct in saying that the two clauses of Rule 37a (1) should not be separated and considered as standing on different footing. We say so for the following reasons. In the first place,, the scheme of Rules 37 and 37a is to give the employee the alternative to opt either for the normal monthly pension applicable to all Government servants with the corresponding right to commute such portion thereof as is permissible under the Commutation Rules or the death-cum-retirement gratuity plus a lump sum in lieu of pension. In other words, the employees are either governed by the Commutation Rules or by the alternative, but similar, scheme of Rule 37a. In the latter case, they cannot be said to be governed by the Commutation Rules which permits the commutation only of a part of the pension. To say that they are governed by the Commutation Rules in part for purposes of Clause (a) and not governed by them so far as Clause (b) is concerned is to introduce an artificial. dichotomy into a straight alternative provided between two different schemes. Secondly, full effect should be given to the use of the words "lump sum. in lieu of pension" in the main part of the rule. Clauses (a) and (b) only provide that this lump sum is to be computed in two stages. The first stage is to calculate the lump sum which the employee would have been entitled to receive had he been commuting one-third of the pension on the basis of the Commutation Rules. In other words, the reference to the commutation rules is only to provide the measure of the lump sum payable under Clause (a ). The first stage is to calculate the lump sum which the employee would have been entitled to receive had he been commuting one-third of the pension on the basis of the Commutation Rules. In other words, the reference to the commutation rules is only to provide the measure of the lump sum payable under Clause (a ). The effect of it is not that the employee would be governed by the Commutation Rules so far as the payment is concerned. On the other hand, it only stipulates calculation of an amount which would have been received had he retired in the normal course and opted to be governed by the usual rules of commutation in regard to one-third of the pension. A third important aspect to be borne in mind is that under Clause (a) the lump sum is not to exceed the commuted value of one-third of the pension. There are two possible cases which this may cover. One is that the employee may choose to commute less than one third of his pension in which case he cannot be said to be governed by the Commutation Rules. This eventuality, however, is highly unlikely. In such a case, since the employee will get only the lump sum under Clause (a) plus twice the said amount under Clause (b) the whole of the pension will not get commuted and it is not possible to conceive of any employee commuting less than one-third under Clause (a ). The other possibility is that the employee may be entitled 1,0 commute, under the Commutation Rules (if they applied), more than a third of his pension. Though as in the case of the present petitioner, normally these rules envisage commutation of only a third, the rules do permit some employees to commute half the pension due to them. But even such employees, if they opt for the scheme under Rule 37a, can get. a lump sum under Clause (a) of the commuttd value of only one-third. Of course, the reason for this provision is clear viz. that under Clauses (a) and (b) put together the employee should not be entitled to get more than the commuted value of his pension. a lump sum under Clause (a) of the commuttd value of only one-third. Of course, the reason for this provision is clear viz. that under Clauses (a) and (b) put together the employee should not be entitled to get more than the commuted value of his pension. But we are only concerned to point out from this that in such cases it would not be correct to say that he is receiving the payment calculated as per Clause (a) under the Commutation Rules. For these reasons, we think that the more harmonious and reasonable construction of Rules 37 and 37a is to say that they out-line a scheme of commutation similar to but different from that provided for in the Commutation Rules and that the availability of exemption for the lump sum received under Rule 37aci) should be considered as as one integral whole and under the Second limb of Sec- tion IO (IOA) (i ). We think that the separate consideration. of the two components of the lump sum paid would not be a correct way of construing the scheme of Rules 37 and 37a in the context of the provision for exemption. ( 11 ) WE quite appreciate that some difficulty may be felt in placing the above construction by reason of the memorandum dated 24-7-71, 13-4-1973 and 8-4-1976 which indicate that the intention of the Government was that only the amount calculated under Clause (a) should be eligible for exemption. It has also been argued for the respondent that the bifurcation by Rule 37a itself of the lump sum contemplated to be paid under it has no meaning except in the context of such an intention. We have, however, come to the conclusion, after some thought, that this should not stand in the way of the acceptance of the contention urged on behalf of the appellant. In the first place, the rule-making authority may well have thought that, since the normal practice was to commute only one-third of the pension, it would be easier to describe the lump sum payable by reference to this amount instead of using more involved language which may give rise to difficulties. Secondly, the memoranda only express the Government s interpretation of the impact of Rule 37a on the issue of Income-tax exemption and cannot be considered conclusive. Secondly, the memoranda only express the Government s interpretation of the impact of Rule 37a on the issue of Income-tax exemption and cannot be considered conclusive. Thirdly, the Government itself was speaking in two voices about the scope of the exemption for, initially at least, the Central Board of Direct Taxes thought that the decision of the Income-tax Appellate Tribunal inMurlidharan s case was correct and deserved to be accepted. The letter dated 13-12-1977 issued to the appellant did -not refer to Rules 37 and 37a but only talked of a lump sum in commutation of pension. Fourthly, if one peruses Clauses 10, IDA and II of Section 10 of the Income-tax Act, 1961 one finds that these unequivocally be speak the intention of the Legislature to exempt all terminal benefits received by a Government servant whether called death-cum-gratuity or pension or any other name and, in this context, it would not be correct to interpret the relevant clause as breaking away from this pattern in the absence of compulsive language Lastly, there can be no doubt that Rules 37 and 37a were intended to grant a benefit to their category of employees. Even wihout this alternative, some of the employees could have got even one-half or 43 per cent of the pensiom due to them commuted free of income-tax. It could not have been intended to narrow down even this benefit in the cases of such employees who retire in these circumstances. In the case of those who could have commuted only one-third, the permission to commute the balance subject to payment of income-tax would confer very little benefit. if a substantial part of the amount has to be paid away as tax. Mr. Verma suggested that the very fact that they can get a lump sum which they could not have got other wise is itself a benefit and, anyhow, they had an option which they must be considered to have exercised to their best advantage. There is some truth in this, but, we think, the whole scheme has to be taken in its broad setting and in the context of the fact that these employees are "deemed" to have retired after a few years of service when some of them might not have become entitled to their full pension. There is some truth in this, but, we think, the whole scheme has to be taken in its broad setting and in the context of the fact that these employees are "deemed" to have retired after a few years of service when some of them might not have become entitled to their full pension. If the Government, having all considerations in mind, decided to permit them to commute their entire pension, there is no reason in principle why this commutation should be treated on a different footing from other cases of commutation of Government pension. ( 12 ) MR. Vaish also draw our attention to two decisions of the Kamataka High Court in the cases of Ohria (W. P. 8618/78) and Rao (W. P. 10596/78) where a learned single judge of that Court has taken the view that the entire amount paid under Rule 37a would be exempt. One of these cases related to a defence employee to whom the payment was made in one lump sum and not bifurcated as under Rule 37a and who, in the normal course, would have commuted 43% of his pension. Even in such a case. the Commissioner of Income-tax appears to have considered only one-third to be exempt. We agree with the view taken by the Kamataka High Court. ( 13 ) MR. Vaish also raised contentions based on the doctrine of equitable estoppel and the binding nature of the circulars issued by the Central Board of Direct Taxes. These. contentions cannot be permitted to be raised for the first time in the appeal. We also think that the factual background for basing these contentions has not been clearly made out. However, in view of the conclusion we have arrived at above, it is unnecessary to discuss these contentions further. ( 14 ) IN the result, we allow the appeal and the writ petition. We direct the third respondent to pay the entire amount due to the appellant under Rule 37a (1) without deduction of any income-tax at source. ( 15 ) IN the circumstances however we direct the parties to bear their own costs in this appeal.