Disabled Army Officer Entitled to Income Tax Refund on Disability Pension With 9% Interest: HC

The petitioner, Nikhil Subodh Gajjar, was commissioned as a second lieutenant into the Army and served for 22.5 years. In 1985, the petitioner was injured while carrying out an operation against the enemy, which led to his hospitalisation. Due to his medical condition, he could not attend professional courses or get promotions, so he chose premature retirement from 31.05.2000. At the time of his retirement, he did not get the disability pension. However, following the order of the Army Headquarters in 2017 to the Military Hospital for reassessment of the medical condition of the petitioner, the petitioner was granted a 30% disability pension with effect from 01.01.2006.

The petitioner claimed that the disability pension is exempt from income tax as per the provisions of Notification (F No. 878F-IT) issued under sections 60 and 60A of the Income Tax Act, 1922. Therefore, he requested the refund of income tax paid on his pension for the assessment years 2006-07 to 2018-19. However, even after many reminders, the authorities did not refund the tax.

The authorities informed the petitioner that he is not eligible for the tax exemption on disability pension as per the Circular No. 13/2019, as he had chosen voluntary retirement. The petitioner again requested the refund by sending reminder letters. However, the Income Tax Department rejected the refund request in an Order dated 22.03.2024, saying that the refund application was time-barred as per Circular No. 9/2015, which condones a delay for six years from the end of the assessment year. Therefore, the petitioner filed a writ before the Gujarat High Court.

The petitioner argued that the disability pension was granted only in 2018, so the application was not time-barred. He also argued that the refund must be allowed, as the income was exempt from taxation.

The court observed that it is not in dispute that the disability pension is exempt income. The Court noted that tax authorities did not consider all the facts of the case and only relied on Circular No. 9/2015, which is not applicable. Further, the court pointed out that the petitioner is eligible to claim the refund, as a similar issue has been ruled in favour of petitioners in the decisions of the Delhi High Court, Madhya Pradesh High Court, and Punjab & Haryana High Court.

Based on this, the Gujarat High Court quashed the order dated 22.03.2024 and directed the Income Tax Department to refund the tax deducted on disability pension with 9% interest within three months. The court also warned that if the refund is not paid within three months, then an interest of 18% per annum would be applicable.