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.
High held that the receipts in the hands of the employees of the HPF, pursuant to the severance package announced by the Central Government and intimated vide proceedings/circular is held to be a special privilege/protection granted to the employees of the HPF Ltd and therefore, the provisions of the Section 10(10B) of the Income Tax Act, 1961 are attracted and accordingly, the same shall not fall within the definition of income, while computing the total income of concerned employee and income tax cannot be deducted from the severance package paid to the employees of HPF.
Full text of the Judgment
The petitioners in Writ Petitions, except the petitioner in W.P.No.18608 of 2015, are the employees Union consisting of members, who were/are employees of the second respondent company, the Hindustan Photo Film Manufacturing Company Ltd., (in short HPF). The petitioner in W.P.No.18608 of 2015, is an association consisting of members who are officers, who were/are working in HPF.
2. With regard to the prayer sought for by the Writ Petitioners/Employees Union, W.P.No.18566 of 2015, is taken as the lead case. The petitioner therein is a registered trade union and a recognised Union of HPF, a public sector undertaking wholly owned by the Central Government. The petitioner represents 70 workmen out of the total 700 workmen and officers, who are regular employees of the HPF. It is submitted that more than 3800 of the total 4500 employees, have left employment under the Voluntary Retirement Scheme (VRS) announced by the Management periodically from 1991. The petitioner challenges the Voluntary Retirement Scheme announced by the respondents, dated 20.03.2014 and the circular dated 21.03.2014, as unfair and illegal and seek for consequential reliefs of payment of 72 months salary on the 2007 pay scales to each employee; arrears of pay on 2007 pay scales to each employee; not to deduct income tax on the severance package 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 payable to them and till the VRS is accepted and not to evict them from the quarters.
3. HPF, a wholly owned company of the Central Government, which at one point of time enjoyed a monopoly market in the manufacture of x-ray film appears to have crumbled in its own weight and suffered continuous loss and was declared as a sick industry under Section 15 of the Sick Industrial Companies Special Provisions Act, 1985, pursuant to a reference filed before the BIFR during October 1995. Attempts to revive the company had failed and BIFR recommended for winding up of the company, as against such order, the second respondent as well as the workmen preferred appeals before the AAIFR and the appeals filed by the workmen were dismissed as a certified copy of the order passed by the BIFR was not annexed. Challenging the order of the BIFR, W.P.No.24417 of 2005 was filed, which was tagged along with W.P.No.19640 of 2005, filed by the Film Factories Workers Union. The order passed by the BIFR was stayed by order dated 29.07.2005. The said Writ Petitions were dismissed by common order dated 29.08.2016, accepting the recommendations of the BIFR to wind up the second respondent company. It was made clear that the dismissal of the Writ Petitions will not come in the way of the petitioners articulating their grievances in the remaining Writ Petitions (present batch of cases) and Contempt Petition.
4. The background facts, which ultimately lead to the order passed by the BIFR recommending winding up of the company is as follows:-
The workmen of HPF were not granted revision of pay, since 1987 while their counter parts working in other public sector undertakings (PSUs), had received benefits of pay revision periodically upto 2007. The settlements which were entered into with the Management under Section 12(3) and 18(1) of the Industrial Disputes Act, (I.D., Act), with regard to payment of 20% of the salary as advances, which can be adjusted only against arrears payable upon revision of pay. However, on account of accumulation of repayable monthly advance, which had reached unbearable levels, a settlement was entered into between the workmen and the Management of HPF on 19.08.2009, agreeing to discontinue the repayable monthly advance from August 2009 and whatever was paid to them between September 2002 and July 2009, could be adjusted against the pending arrears of wage revision 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 decision to withdraw the revival package for HPF. Thus, on the date when the said affidavit was filed by the company in W.P.No.20017 of 2005, the revival package had already been withdrawn. The significant development which happened later was as a result of a press information given by the Central Government, dated 28.02.2014, sanctioning a VRS package for the employees of HPF. It states that the Cabinet Committee on Economic Affairs has approved the proposal for providing non-plan budgetary support of Rs.181.54 crores for VRS at 2007 notional pay scale, as one time relaxation of DPE guidelines for all employees of HPF; the employees of HPF are in the 1987 pay scale and with the increased cost of living, it is very difficult for them to survive and meet their minimum financial obligation and with this decision, employees will come out of their current financial crisis and the enhanced VRS package will also help the HPF employees in their post retirement rehabilitation. Pursuant to the press release given by the Government of India, the first respondent by proceedings dated 20.03.2014, granted approval to the VRS package which is as follows:-
Government of India
Ministry of Heavy Industries Public Enterprises
Department of Heavy Industry
Udyog Bhavan
New Delhi -110011
Dated: 20.03.2014
Ref. No.1 9(2)/2013-PE.III Dated 20.03.2014
To
The Chairman & Managing Director,
Hindustan Photo Films Mfg., Company Limited,
Indunagar,
Udhagamandalam,
Tamil Nadu,
Subject: VRS package for the employees of Hindustan Photo Films Mfg., Co., Ltd., (HPF), Udhagamandalam, Tamil Nadu.
Sir,
The undersigned is directed to convey the approval of the competent authority to the following:
(i) Implementation of VRS at 2007 notional pay scales without any arrears as one time relaxation of DPE guidelines for all the employees of HPF and providing a sum of 181.54 crore in the form of Non-Plan loan from the lump sum provision for implementation of Voluntary Retirement Scheme and Statutory Dues’.
(ii) Settlement of all outstanding recoveries of recoverable/adjustable advances/special performance allowance paid to employees in the past which are not covered under DPE guidelines, out of VRS dues as stated above subject to vacation of interim stay by Hon ‘ble High Court of Madras.
(iii) To waive recoveries of such 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/1 1/2014(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:23061 531
Copy to:
