1990 (4) TMI 19 - HC - Income Tax

Summary

Issues:
- Whether profession tax can be deducted from arrears of salary paid to employees in a lump sum.
- Interpretation of the definition of "salary" or "wage" under the Gujarat State Tax on Professions, Trades, Callings and Employments Act, 1976.
- Applicability of section 3 and Schedule I of the Act in the context of arrears of salary.
- The impact of the Karnataka High Court decision on the definition of "salary" or "wage" in the Act.

Analysis:
The petitioner, the Regional Secretary of the Food Corporation of India Employees Union, sought a direction to prevent the deduction of profession tax from arrears of salary paid to employees in a lump sum. The petitioner argued that the Act does not explicitly allow for such deductions from arrears of salary, citing section 2(g) of the Act, which defines "salary" or "wage." The petitioner relied on a Karnataka High Court decision that excluded arrears of salary from the definition of "salary" or "wage."

On the other hand, the respondents contended that the lump sum paid to employees represented the salary difference owed from August 1983 onwards. They referred to Schedule I of the Act, which outlines tax rates on professions, trades, callings, and employments. Section 3 of the Act establishes the levy and collection of tax, with section 4 placing the responsibility on employers to deduct and pay tax on behalf of employees before salary payment.

The court analyzed the concept of arrears of salary, emphasizing that arrears represent the unpaid portion of salary due at specific times. The court rejected the petitioner's argument that arrears should not be subject to tax deductions due to irregular payment, asserting that arrears are part of the salary owed regularly. The court disagreed with the Karnataka High Court decision, stating that the inclusive definition of "salary" or "wage" extends its meaning without restricting its ordinary sense. The court highlighted that arrears maintain their salary character despite delayed payment and are covered by the Act's provisions.

Ultimately, the court upheld the deduction of profession tax from arrears of salary, deeming it lawful and non-arbitrary. The petition was dismissed, affirming the legality of the tax deductions from the arrears of salary paid to the employees.