TMI Blog2017 (3) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... and income tax cannot be deducted from the severance package paid to the employees of HPF. Pursuant to interim orders dated 22.12.2015, the amounts deducted towards income tax was directed to be kept in deposit to the credit of the Writ Petition in Indian Bank, High Court Branch. In the light of the finding rendered supra holding that no income tax is recoverable from the severance package, the amount deducted as income tax shall be disbursed to the respective employees by the respondents. It is reiterated that in these writ petitions, the Court has considered the VRS package and the consequential circular issued by the HBF relief sought for, for payment of 72 months salary instead of 60 months salary as proposed in the VRS Scheme and not to deduct income tax on the amount payable to them as in respect of recovery which were sought to be made pursuant to the circular dated 10.07.2013 and 01.07.2013 were already been quashed by this Court in W.P.Nos.24460, 24355 and 25491 of 2013 dated 29.11.2016. The respondents shall comply with the above directions within a period of one month from the date of receipt of a copy of this order as during the pendency of these writ petitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckage payable under the Voluntary Retirement Scheme; not to deduct the recoverable monthly advance, Special Performance Allowance and adjustable advance paid to the employees and permit the employees to occupy the staff quarters till 01.05.2016, at the same rate of rent, charged until Voluntary Retirement Schemes. Out of the above consequential directions sought for by the petitioner, the prayer not to deduct the amount of recoverable monthly advance, special performance allowance and adjustable allowance is concerned, the petitioners have been granted the relief sought for by them in another Writ Petition filed by the petitioner herein and other workers Union in W.P.Nos.24460, 24355 25491 of 2013, dated 29.11.2016. By the said order, the circulars issued by the HPF, dated 10.07.2013 and 01.07.2013, whereby the monies paid in the form of allowances were sought to be adjusted against the terminal benefits were quashed. Thus, in these Writ Petitions, the petitioners seek to challenge the VRS and the consequential circular issued by the HPF and seek for payment of 72 months salary instead of 60 months salary, as proposed in the VRS scheme, not to deduct income tax on the amount paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion due and payable to the Workmen. Another settlement was arrived at on 19.08.2009, by virtue of which the workers were to be paid Special Performance Allowance equivalent to 20% of the salary and such payment to continue till the revival proposal submitted to the Government of India by HPF. The workmen as well as the Management of HPF were strongly and seriously pursuing the revival proposal and the Management of HPF had filed a separate Writ Petition in W.P.No.20017 of 2005, challenging the order passed by the AAIFR and in the said Writ Petition, the Management took a stand that if the Cabinet Committee on Economic Affairs (CCEA) sanctioned the revival proposal, the same will be beneficial not only to the company, its employees but also it would result in settlement of the dues to the banks and financial institutions and the company will be in the path of recovery. 5. HPF strongly relied on the recommendations of the Committee of Secretaries, who recommended for revival of the company. This stand was taken by HPF in an affidavit filed on 28.09.2012. However, well before the said date, the CCEA in its meeting held on 23.08.2012, considered the revival proposal and took a decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoverable/adjustable advances/special performance allowance in respect of employees who have superannuated/left the company prior to implementation of this enhanced VRS proposal. (iv) To take further action for closure of the Company as per recommendations of BRPSE in their meeting dated 28.06.2013. 2. The financial sanctions for the above wherever required will be issued separately. 3. This issues in accordance with the approval of CCEA communicated by Cabinet Secretarial vide No.CCEA/11/2014(i), dated 03.03.2014. The compliance of Election Commission's directives as per their letter dated 14.03.2014, (copy enclosed) shall be ensured. Encl: As above Yours faithfully, sd/- (Ajay Kumar) Under Secretary to the Government of India Tele:23061531 Copy to: 1.Secretary, Board for Restructuring of Public Sector Enterprises (BRPSE), Department of Public Enterprises. 2.Sh.K.L.Sharma, Joint Secretary, Cabinet Secretary, New Delhi. 3.The Director of Audit Commerce, Works Miscellaneous, IP Estate, New Delhi. 4.CCA, Department of Heavy Industry, Udyog Bhawan, New Delhi 5.IFW, DHI 6.B A Section, DHI 7.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is called as a VRS, it is only a closure compensation scheme as VRS can be implemented in respect of surplus staff or staff who are not required for the establishment and the establishment would continue to operate with the required number of staff. Therefore, the workmen have to be compensated by paying them compensation calculated in terms of the ID Act, when closure of an establishment is ordered. To buttress the said submission, reference was made to the letter of the Director of the Department of Heavy Industries, dated 23.03.2016, wherein the Managing Director of the second respondent was directed to work towards retrenchment of employees under the ID Act, primarily on the ground that decision has already been taken by the Government to take action for closure/winding up of the company, as there is no production in the company and the employees are not on salary/wages support from the Government. The employees have been given ample opportunities to take attractive VRS and it amounts to serving public interest by separating the employees and closure/winding up of the company at the earliest. Therefore, it is submitted that the Central Government clearly understood that it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is a severance package and not a retirement package, as there is termination of employment and there is no option left to the employee. The Central Government was also conscious of the decision to close down the establishment which was recorded by the Court in W.P.Nos.24417 19640 of 2005, dated 29.08.2016, wherein the Court has recorded that the Government of India on 20.03.2014, has taken a decision to close down the company. Therefore, it is submitted that since the industry has been closed down, the package given to the employees is a severance package and as it is pursuant to a decision taken by the Government of India considering the plight of the employees, no income tax can be deducted and by treating the package amount as a compensation for closure, the respondent should be directed to compute the compensation by applying the yardsticks under the ID Act in cases where closure is approved under the said Act. In support of the contentions, the learned Senior counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of M.C.Mehta (Calcutta Tanneries' Matter) reported in (1997) 2 SCC 411; Air India vs. Nergesh Meerza Ors., reported in (1981) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is payable on the acceptance of the package given under the VRS scheme has to be remitted and tax has to be deducted at source in terms of Section 10(10C) of the IT Act. 13. Mr.J.Narayana Swamy, learned Senior counsel appearing for the Income Tax Department referred to the decision of the Hon'ble Division Bench of this Court in case of CIT vs. S.K. Sundararamier Sons. reported in 1999-240-ITR-740 (Mad), and submitted that the persons, who are bound under the IT Act to deduct income tax at the time of making payment of any income, profits or gains are not concerned with the ultimate result of the assessment on the person to whom the payment is made. Therefore, tax has to be deducted at source and the TDS provision is a separate provision and distinct from the assessment procedure. It is further submitted that the HPF is to pay money to its employees and the question as to the nature of receipt is to be gone into by the Assessing Officer and it is not for the employer to decide the same. It is submitted that in the recent communication received from the CBDT, dated 28.02.2017, the Board has taken into consideration the scheme dated 20.03.2014, and as it states that further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er amenities and as of now, there is no electricity supply for the quarters during the day time and only skeleton lighting facility is available at night and those employees who have opted for VRS have to vacate the quarters and cannot continue to reside there. 17. Heard the learned counsels appearing for the parties and carefully perused the materials placed on record. 18. The challenge in these Writ Petitions, is to an order passed by the first respondent, dated 20.03.2014, and the consequential circular issued by the HPF, dated 21.03.2014. The sum and substance of the impugned orders is a VRS package for the employees of HPF, Ootacammand. This package is an out come of a decision of the Cabinet Committee on Economic Affairs, which approved a proposal for providing non-plan budgetary support of ₹ 181.54 crores for Voluntary Retirement of the employees of HPF at the 2007 notional pay scale. This has been done by granting a one time relaxation of the DPE guidelines for all the employees of HPF. The Cabinet Committee on Economic Affairs took such a decision being conscious of the fact that the employees of HPF were continuing in the 1987 pay scale, unable to survive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together with arrears without any deductions towards income tax or other allowances. So far as the deduction of other allowances are concerned, the petitioners have succeeded in a Writ Petition filed challenging the same in W.P.No.24460 of 2013, etc, dated 29.11.2016. 19. The argument advanced by the learned Senior counsel for the petitioner contending that the package is not a VRS, but a case of a closure, at the first blush was found to be impressive. However, on a careful and close scrutiny of the facts and circumstances of the case, the position which emerges is otherwise. It is true that the package is called VRS . In the considered view of this Court, the nomenclature of the package would be irrelevant, but what would be relevant is purpose for which the package has been sanctioned. The undisputed fact is that HPF which in the initial years enjoyed a monopoly market in x-ray films became a White Elephant , for the Central Government. It crashed in its own weight contributories being several factors not to be named. The net result was the entire capital of the company stood eroded, the rehabilitation schemes sanctioned by BIFR/AAIFR became unworkable, the rehabilitation pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, this interpretation is wholly impermissible in the facts and circumstances of the case. Though the petitioners would state that there is no option available, there is not a single case filed by a employee, who has refused to accept the VRS and requested to be treated differently. The petitioners do not dispute the fact that VRS has been announced by the HPF Management periodically from the year 1991. These schemes were typical as VRS scheme where the employees left the employment, yet the employer continued to do its operation. However, as of now, the establishment cannot continue, because by operation of law, it is deemed not to exist on and from the date when winding up was ordered i.e., on 24.01.2017. One more interpretation that could be given is the date of winding up shall be the date on which the petition for winding up was presented before this Court on the recommendations of BIFR, which was in 2003. If such is the legal position, the consequences which may emanate out of that would be disastrous for the workmen. This is due to the fact that by operation of law, there is a cessation of employment and the assets of HPF all inclusive would vest with the Official Liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e followed. Therefore, this Court can safely conclude that the employees of HPF are in a quandary, on one hand, they wanted to leave the organisation, receive compensation, but on the other are not agreeable to accept the quantum of compensation fixed by the Central Government. However, such relief cannot be acceded to on the grounds raised by the petitioners. 25. As mentioned above, the package is a special package and regardless of the nomenclature or other surrounding factors, this package, if agreeable to be accepted by the employees, it is open to them to accept the same. This Court cannot issue a mandamus or a direction to rework the scheme, which is specific and special. Adding to the reason assigned in the preceding paragraphs with regard to the question as to whether, it is a closure or not, it is not a case where, the word closure should be given a literal meaning, but what the petitioners seek to project is closure in the legal sense i.e., as per the provisions of the ID Act. If such a plea is raised, the moot question that would arise is, what is the effect of the order of winding up passed by this Court, which is based on the recommendations made by the BIFR. The Wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (10B) (10C) of Section 10 would be relevant, which are quoted herein below:- Incomes which do not form part of Total Income Incomes not included in total income. 10.In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included. S.10(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise, [at the time of his retrenchment: Provided that the amount exempt under this clause shall not exceed:- (i) an amount calculated in accordance with the provisions of clause (b) of Section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or (ii) such amount, not being less than Rs.Five lakhs, as the Central Government may, by notification in the Official Gazette, specify in this behalf, Whichever is less: Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year:]. 29. The case of the revenue is that the package given to the workmen is a VRS package and it would fall within Section 10(10C)(viii) and accordingly, taxable if the receipt exceeds the exempted limit. The case of the petitioner is that the severance package received by them would fall within Section 10(10B) and shall not be included as income in computing total income of the employees. The contention of the revenue that TDS proceeding is independent of the other provisions of the Act cannot be disputed, but however, what the revenue seeks to a state is that it is for the Assessing Officer to examine as to whether the receipts in the hands of the employee is a compensation for a closure or a package received as a Voluntary Retirement settlement. 30. Admittedly, the instant case, is not a case of a single assessee, but a large section of employees of HPF Ltd., a Government of India company. If it is clear from the plain language adopted in the scheme as regards the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g been received by the workmen as compensation pursuant to the decision taken by the Central Government to offer special protection to the employees of HPF, the same stands exempted from deduction to income tax. 33. W.P.No.18608 of 2015; the petitioner in this Writ Petition is an association of officers working in HPF and the relief sought for by them is also identical. The yardstick applicable to workmen as defined under the Industrial Disputes Act, cannot be made applicable to the officers. Therefore, under normal circumstances whatever reasoning assigned by this Court in the preceding paragraphs would apply to the employees in the workmen category. Nevertheless, the Central Government does not make any distinction in its press information, dated 28.02.2014, nor do the impugned proceedings/circular, as it has extended the special benefit to all the employees of HPF. Therefore, in the given facts and circumstances, whatever is the interpretation given by this Court while testing the prayer made in the Writ Petitions filed by the workers would equally apply to this Writ Petition filed by the officers association. 34. In the result, the Writ Petitions are partly allowed on the ..... 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