TMI Blog2022 (8) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... calling upon the petitioners to remit income tax on surrender of leave salary (SLS) on the ground that tax has not been deducted at source in terms of the Income Tax Act, 1961 - HELD THAT:- There are vital distinctions between the employers in that case and that in the present one. Firstly, PSUs are constituted under the provisions of the Companies Act, 1956, whereas, the Tamil Nadu Agricultural University is constituted under a State enactment coming directly within and under the control of the State. PSUs are independent companies and regulation by the Government is restricted. As far as Banks are concerned, the regulatory agency is the Reserve Bank of India. TNAU is managed, administered and substantially funded out of Government funds and grants, while PSUs are commercially run companies and have independent sources of revenues. So too with Banks that have a direct source of revenue. The TNAU is administered and managed by Regulations framed by the Statute and relatable to State power. This is not the case with PSUs and banks that are managed by Boards of Directors who exercise independent control over the management. Though a government nominee may be envisaged as part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direct employees of the University, and not employees of allied institutions or constituent colleges and the ratio of this decision will apply only to those employees who are under the direct employment of the University per se. 3. The employees had retired from service in the year 2017 and at the time of retirement had been granted SLS. An objection was raised by local fund audit on the ground that tax ought to have been deducted under the provisions of the Act. Thus, the University sought a clarification from the local fund audit as well as from the Income Tax Department. 4. The latter has, vide clarification dated 17.02.2015, stated as follows: Government of India Ministry of Finance, Income Tax Department Office of the Assistant Commissioner of Income Tax, 63-A, Race Course Road, Coimbatore-18. TDS Circle/Mar/2014-15 Date:17.02.2015 To, The Registrar, Tamil Nadu, Agricultural University Coimbatore. Sir, Sub:-TNAU-Establishment of Earned leave Deduction of Income Tax at par with Government Employee U/s 10 (10AA) of IT Act Clarification issued-regarding. Ref:- Your letter in No.A3/10842/2014 dt. 17/12/2014. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and hence cannot claim benefit of the aforesaid provision that grants an exemption from tax, in certain specific situations. 6. The provisions of Section 10(10AA) read as follows: 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- .. (10AA) (i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise ; (ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise as does not exceed ten months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement whether on superannuation or otherwise, subject to such limit as the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNAU would fully support the case of the petitioners. His stand is that the TNAU is a statutory body, a State run University and hence its employees are on par with State Government employees. 10. Per contra, Mr.Rajesh, learned counsel appearing for the Income Tax Department would point out to the clear distinction in the two clauses of Section 10AA to drive home the point that the tax treatment of the two are separate and distinct. Since the statutory provisions have not been challenged, the interpretation accorded to the same must be strict and as provided for under the Act. He relies in this context on a decision of the Division Bench of the Delhi High Court in the case of Kamal Kumar Kalia Vs. Union of India , [268 Taxmann 398] that was rendered in the context of employees of Nationalized Banks and Public Sector Undertakings (PSUs). 11. He would specifically refer to certain observations of the Bench that, according to him, would apply to the case on hand. The observations are to the effect that, merely because the employer in question constitutes State in terms of Article 12 of the Constitution, it does not automatically follow that the employee must be entitled to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... University, conduct of examination as well as person or persons who are connected with the administration or finances of the University, by the State. 15. The power exercised by the State Government in the functioning and management of the University is unbridled. The Governor of Tamil Nadu is, in terms of Section 9 of the Act, the Chancellor of the University. It is also an admitted position that the funding of the University is entirely at the behest of the State Government. 16. Chapter VI of the TNAU Act deals with funds and accounts. Section 28 deals with General Fund and reads as follows: 28. General Fund (1). The University shall have a General Fund to which shall be credited. (a). Its income from fees, endowments, grants, donation and gifts, if any. (b). any contribution or grant made by the Central Government, any State Government, the University Grants Commission or like authority, any local authority or any corporation owned or controlled by the Government; and (c) other receipt. (2) The moneys in the General Fund shall be invested in the securities specified in clauses (a) to (d) of Section 20 of the Indian Trusts Act, 1882 (Central Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) for a body to be a State under Article 12. They are:- (1) Principles laid down in Ajay Hasia are not a rigid set of principles so that if a body falls within any one of them it must ex hypothesi, be considered to be a State within the meaning of Article 12. (2) The Question in each case will have to be considered on the bases of facts available as to whether in the light of the cumulative facts as established, the body is financially, functionally, administratively dominated, by or under the control of the Government. (3) Such control must be particular to the body in question and must be pervasive. (4) Mere regulatory control whether under statute or otherwise would not serve to make a body a State.' 21. In Kamal Kumar Kalia (supra), the petitioners were employees of Public Sector Undertakings (PSU) and Nationalised Banks who approached the Delhi High Court alleging discrimination between the employees of the State and the Central Government on the one hand and the employees of PSU and Nationalised Banks on the other. In that case as well, the provision that was tested was Section 10(10AA) of the Act as in the present case. 22. The challenge w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consent of the employee . It is true that Article 311 imposes constitutional restrictions upon the power of removal granted to the President and the Governor under Article 310. But it is obvious that the relationship between the Government and its servant is not like an ordinary contract of service between a master and servant . The legal relationship is something entirely different , something in the nature of status . It is much more than a purely contractual relationship voluntarily entered into between the parties . The duties of status are fixed by the law and in the enforcement of these duties society has an interest . In the language of jurisprudence status is a condition of membership of a group of which powers and duties are exclusively determined by law and not by agreement between the parties concerned . The matter is clearly stated by Salmond and Williams on Contracts as follows : So we may find both contractual and status obligations produced by the same transaction . The one transaction may result in the creation not only of obligations defined by the parties and so pertaining to the sphere of contract but also and concurrently of obligations defined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent companies / PSUs at par with government employees , it was held that the employees of government companies cannot claim the same legal rights as government employees. The relevant extract from the said judgment reads as under : 17. The legal position is that identity of the government company remains distinct from the Government . The government company is not identified with the Union but has been placed under a special system of control and conferred certain privileges by virtue of the provisions contained in Sections 619 and 620 of the Companies Act . Merely because the entire share holding is owned by the Central Government will not make the incorporated company as Central Government . It is also equally well settled that the employees of the government company are not civil servants and so are not entitled to the protection afforded by Article 311 of the Constitution ( PyareLal Sharma v . Managing Director ( 1989 ) 3 SCC 448 ) . Since employees of government companies are not government servants , they have absolutely no legal right to claim that the Government should pay their salary or that the additional expenditure incurred on account of revision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment coming directly within and under the control of the State. PSUs are independent companies and regulation by the Government is restricted. As far as Banks are concerned, the regulatory agency is the Reserve Bank of India. 25. The TNAU is managed, administered and substantially funded out of Government funds and grants, while PSUs are commercially run companies and have independent sources of revenues. So too with Banks that have a direct source of revenue. The TNAU is administered and managed by Regulations framed by the Statute and relatable to State power. 26. This is not the case with PSUs and banks that are managed by Boards of Directors who exercise independent control over the management. Though a government nominee may be envisaged as part of the Board, their presence is in addition, and supplemental to several other professionals and Directors. The degree of control and oversight by the State in the management of PSUs and Banks is restricted whereas, in the case of the TNAU, such power of the State is overarching. 27. As far as payment of gratuity, pension and provident fund are concerned, the provisions of Tamil Nadu Pension Code including the Tamil Nadu Liber ..... X X X X Extracts X X X X X X X X Extracts X X X X
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