CIT (TDS) Vs Hindustan Photo Film Workers (Madras High Court)
The appeals before the Madras High Court arose from orders passed in a batch of writ petitions concerning deduction of tax at source (TDS) on amounts paid or payable to workmen following the closure of an industry. The central issue was whether the payments made under a scheme styled as a Voluntary Retirement Scheme (VRS) were taxable under Section 10(10C) of the Income Tax Act or exempt under the second proviso to Section 10(10B).
The Court noted that winding-up proceedings had been initiated and that an earlier order had characterized the payment due to the workmen as a special package sanctioned by the Central Government for the benefit of employees affected by the closure of the undertaking. The learned Single Judge had held that the package was not merely a voluntary retirement benefit but a special compensation package attracting the second proviso to Section 10(10B).
The Revenue contended that the payments were made under a Voluntary Retirement Scheme and therefore fell within Section 10(10C), under which only limited exemption was available. The Court rejected this contention. Referring to the findings of the Single Judge, it observed that the Central Government had approved a non-plan budgetary support package intended to rehabilitate employees facing financial hardship. The package was designed to provide special protection to the workmen and the compensation flowed from a specific decision of the Government.
