Wp/839/2000 Of V.venkat Reddy v. Chief Commissioner Of Income Tax

*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND*THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM+W.P.Nos.839 and 26817 of 2000 % Dated 01.07.2014 Sri V.Venkat Reddy and others. ….Petitioners $ The Chief Commissioner of Income Tax and others. ….Respondents ! Counsel for the petitioners : Sri Sriram Krishna Moorthy ^ Counsel for respondents 1&2: Sri S.R.Ashok ^ Counsel for respondent No.3 : Sri Y.Ratnakar < GIST: HEAD NOTE: ? Cases referred: THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAMW.P.Nos.839 and 26817 of 2000 COMMON JUDGMENT: (Per LNR,J) These two writ petitions are filed almost for similar relief. The petitioners are the employees of the 3[rd] respondent herein. On 22.09.1993, a Scheme of Voluntary Retirement (VRS) wasintroduced by the 3[rd] respondent, on the basis of a settlementarrived at between the management and the union of workmen. The scheme inter alia provided for payment of Rs.2.5 lakhs for an employee, who has completed 10 to 15 years of service andRs.2.65 lakhs for an employee, who has completed 16 to 20years of service. With similar progression, the last category isthe one, of employees, who completed the service of 31 yearsand above and the compensation provided for is Rs.3.25 lakhs. The grievance of the petitioners is that though under Section10(10C) of the Income Tax Act, 1961 (for short ‘the Act’) VRSbenefits to the extent of Rs.5,00,000/- is exempted, the 3[rd]respondent i.e., employer has effected deductions of substantialamounts, at source. They contend that the action taken by the3[rd] respondent is contrary to the provisions of the Act, the Rulesmade thereunder, and the Circulars issued from time to time. The writ petitions are contested mainly by the 3[rd]respondent. According to them, Section 10(10C) of the Act, nodoubt, provided for exemption to the extent of Rs.5,00,000/- ofVRS amount, but subject to certain conditions. Reliance isplaced upon the guidelines issued under Section 10(10C) of theAct in the form of Rule 2-BA of the Income Tax Rules (for short‘the Rules’). They submit that Clause (vi) of Rule 2BA of theRules mandates working out of the VRS benefits and if theyexceed the limits stipulated therein, the balance of the amount isto be levied tax and accordingly, deduction, at source was made. Heard Sri Sriram Krishna Moorthy, learned counsel for thepetitioners, Sri S.R.Ashok, learned senior Standing Counselappearing for respondents 1 and 2 and Sri Y.Ratnakar, learnedcounsel for the 3[rd] respondent. The 3[rd] respondent felt that the manpower in itsestablishments has become economically unviable andaccordingly evolved VRS, with the participation of therepresentatives of the workmen. The gist of the formula forextending the VRS benefits has already been indicated in thepreceding paragraphs. Recognizing the need to prune excessive manpower invarious organizations, the Government intended to provideincentives not only to the employers but also to the employees,in the context of enforcing the measures evolved for thatpurpose. Section 10(10C) of the Act is one such provision. It provided inter alia for exemption of levy of income tax on theamounts received by an employee of a company, under VRS,subject to the ceiling of Rs.5,00,000/- To discourage introduction of indiscriminate schemes,which ultimately may serve the cross purposes, the Governmentintroduced Rule 2BA in the Rules, prescribing certain Guidelines. The provision reads: 2BA. The amount received by an employee of- (i)a public sector company; or (ii)any other company; or (iii)an authority established under a Central, Stateor Provincial Act; or (iv)a local authority. At the time of his voluntary retirement shall be exempt under clause(10C) of section 10 only if the scheme of voluntary retirement framed by theaforesaid company or authority, as the case may be, is in accordance withthe following requirements namely:- To discourage introduction of indiscriminate schemes,which ultimately may serve the cross purposes, the Governmentintroduced Rule 2BA in the Rules, prescribing certain Guidelines. The provision reads: 2BA. The amount received by an employee of- (i)a public sector company; or (ii)any other company; or (iii)an authority established under a Central, Stateor Provincial Act; or (iv)a local authority. At the time of his voluntary retirement shall be exempt under clause(10C) of section 10 only if the scheme of voluntary retirement framed by theaforesaid company or authority, as the case may be, is in accordance withthe following requirements namely:- (i)it applies to an employee of the company or theauthority, as the case may be, who has completed 10years of service or completed 40 years of age; (ii)it applies to all employees(by whatever name called)including workers and executives of the company or theauthority, as the case may be, excepting Directors of thecompany; (iii)the scheme of voluntary retirement has been drawn toresult in overall reduction in the existing strength of theemployees of the company or the authority, as the casemay be;(iv)the vacancy caused by the voluntary retirement is notto be filed up; (v)the retiring employee of a company shall not beemployed in another company or concern belonging to thesame management;(vi)the amount receivable on account of voluntaryretirement of the employee does not exceed the amountequivalent to one and one-half month’ssalary for eachcompleted year of service or salary at the time ofretirement multiplied by the balance months of service leftbefore the date of his retirement on superannuation. It is only when VRS satisfies these conditions, that thebenefit under Section 10(10C) of the Act would be available, tothe extent of Rs.5,00,000/-. The 3[rd] respondent effecteddeductions of income tax at source, though the amount thatbecame payable to each of the petitioners was less thanRs.5,00,000/-. The 3[rd] respondent effected deduction of tax at source on the basis of working out a formula referred to Clause (vi) of Rule2BA of the Rules. They proceeded on the assumption that theamounts stipulated under that Clause viz., one and half monthssalary for each completed year of service or the monthly salarymultiplied by the balance of months of service left before the dateof retirement on superannuation alone is exempted. The amountso arrived at was treated as qualified for the benefit underSection 10(10C) of the Act and the rest of the amount wassubjected to TDS, though the aggregate was belowRs.5,00,000/-. The approach of the 3[rd] respondent is contrary to therelevant provisions of the Act and the Rules made thereunder. Rule 2BA of the Rules by itself does not provide for any formulafor deductions. It only stipulates the conditions on satisfaction ofwhich, the VRS would qualify for the benefit under Section10(10C) of the Act. The 3[rd] respondent filed the order, dated22.09.1993 passed by the 1[st] respondent approving thescheme. Once the scheme is approved, the occasion to effectdeduction of tax at source would arise, if only the benefit of aparticular employee exceeds Rs.5,00,000/-. It is not in disputethat for none of the petitioners herein, the benefit under VRSexceeded Rs.5,00,000/-. Therefore, the writ petitions are allowed and it is directedthat the 3[rd] respondent shall refund the amount deducted atsource, from the amounts payable to the petitioners, with interestat the rate of 9% per annum, within three months. Since we findthat the very deduction was not proper, the 3[rd] respondent shallbe entitled to claim refund of the amount, if any, passed on by itto the Revenue. If any of the petitioners herein have beenrefunded any amount deducted towards tax from the VRS benefiteither by the 3[rd] respondent or by the Department, they shall notbe entitled to be paid any further amount. The miscellaneous petitions filed in these writ petitionsshall also stand disposed of. There shall be no order as tocosts. ____________________ Therefore, the writ petitions are allowed and it is directedthat the 3[rd] respondent shall refund the amount deducted atsource, from the amounts payable to the petitioners, with interestat the rate of 9% per annum, within three months. Since we findthat the very deduction was not proper, the 3[rd] respondent shallbe entitled to claim refund of the amount, if any, passed on by itto the Revenue. If any of the petitioners herein have beenrefunded any amount deducted towards tax from the VRS benefiteither by the 3[rd] respondent or by the Department, they shall notbe entitled to be paid any further amount. The miscellaneous petitions filed in these writ petitionsshall also stand disposed of. There shall be no order as tocosts. ____________________ L.NARASIMHA REDDY, J ______________________ CHALLA KODANDA RAM, J Date: 01.07.2014Note: L.R.Copy to be marked.JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM W.P.Nos.839 and 26817 of 2000 JSU Date: 01.07.2014