High Court Of Calcutta
Sail Dsp Vr Employees Association 1998 vs. Union Of India & Ors.
Sections 10(10C), 15(a), 17(1), 43(2), RULE 2BA
Dilip Kumar Seth & Maharaj Sinha, JJ.
MAT No. 1695 of 2001
20th February, 2003
Counsel Appeared
Bagchi, for the Petitioner : Tapas Banerjee & C.L. Singh, for the Respondent Nos. 2 & 3 : P.K. Some & M.D. Nizamuddin, for the Respondent No. 4
JUDGMENT
D.K. Seth, J. :
In this case the petitioner-appellants were subjected to voluntary retirement pursuant to a voluntary retirement scheme (scheme) by the employer-respondent. The scheme appears at p. 21 of the paper book (Annexure “B” to the writ petition). The respondent authority had been deducting tax at source under the provisions of s. 192 of the IT Act, 1961. This seems to have been clarified by the employer through Annexure, “C” at p. 24 of the paper book. This has since been challenged by the employees’ association, the petitioners/appellants, as not chargeable to tax in view of cl. (10C) of s. 10 of the IT Act.
2. According to Mr. Bagchi, learned counsel for the appellants, the amount received under the scheme is an amount referred to in s. 10(10C) and became due and payable at the time when the voluntary retirement under the scheme took place and chargeable to tax under s. 15, cl. (a), of the said Act, whether paid or not. If the payment is spread over for a period, according to the scheme, it would not be chargeable to tax bereft of cl. (10C) of s. 10 because of its payment even at subsequent assessment years than the assessment year for which it had become due, but not paid. He has referred to s. 43(2) of the said Act and pointed out that the word ‘paid’ includes incurring of the liability to pay. He further contends that the scheme under which the voluntary retirement had taken place is in commensurate with the scheme provided in r. 2BA of the IT Rules, 1962. There is no conflict or friction in between the said rule and the scheme formulated. As such to the extent of rupees five lacs the employees opted under the scheme are entitled to exemption of tax in terms of s. 10(10C). Therefore, the amount paid under the scheme represents the amount contemplated under cl. (10C) and assumes the character of salary or benefit in lieu of salary as defined in s. 17, sub-ss. (1) and (3), respectively, and are chargeable under s. 15, cl. (a), as soon it was due though not paid and as such, liable to be exempted under s. 10(10C). He has led us through different clauses in order to point out that there is no conflict in between the scheme and r. 2BA of IT Rules.
3. Mr. Tapas Banerjee, learned counsel for Steel Authority of India Ltd. (SAIL), has pointed out that the scheme is in conflict with r. 2BA on two grounds. Firstly, it includes gratuity, leave pay and half pay leave, etc., which is something different from the amount receivable under the scheme and are salary or benefit in lieu of salary, as defined in ss. 17(1) and (3), respectively. Therefore, the amount received under the scheme does not qualify for exemption under s. 10(10C). The second ground he has pointed out that it contemplates prohibition of re- employment in any of the units or subsidiaries or joint ventures of SAIL. Whereas cl. (v) of r. 2BA contemplates reemployment in any other company which necessarily means that it is not confined to the units or subsidiaries of SAIL, but to any other company. Therefore, according to him, the scheme is not in accordance with the scheme as contemplated under s. 10(10C) r/w r. 2BA. Therefore, no benefit of s. 10(10C) could be availed of in this case. He has then, contended that the circular at p. 24 of the paper book, which is Annexure “C” to the writ petition, modified the scheme to the extent that the optees for voluntary retirement shall be liable to pay income-tax like employees in services. Since the employees themselves have opted with their eyes open with the modification in the scheme they are estopped from claiming any benefit under s. 10(10C). He contends that s. 192 of the IT Act casts a liability on the respondent. Therefore, they had rightly deducted the tax at source. He has also hinted at the second proviso to s. 10(10C) and contended that since such benefit, if available by stretching the meaning, even then the benefit can be allowed for one assessment year, it cannot be allowed for any subsequent assessment years.
4. Mr. Some, learned counsel for the respondent No. 4, on the other hand, has contended that the scheme is in conflict with r. 2BA. He has pointed out to the material differences from the scheme itself. According to him, the benefits under the scheme are different. In some cases, it is 100 per cent, in some case 90 per cent and in some cases 80 per cent and includes leave, gratuity and other benefits. Therefore, it cannot be construed to be the payment receivable on account of voluntary retirement. On the other hand, these are payments in lieu of those components. This would definitely make the said payment ‘salary’ within the meaning of s. 17(1) or benefit in lieu of salary within the meaning of s. 17(3), as the case may be. He has adopted the arguments made by Mr. Banerjee and has elaborated the same. We need not repeat his submissions since the crux of his submissions is already noted. The last contention that was suggested by Mr. Some was with regard to second proviso to s. 10(10C), which makes the benefit available once in one assessment year and not allowable in any subsequent assessment year. Therefore, according to him, when the payment is stretched over a period of years even if the benefit is available, it would be available only for the assessment year following the voluntary retirement. It cannot be stretched over to any other assessment year. Therefore, the payment that has been spread over a period of years is liable to be taxed under s. 15, cl. (a), of the IT Act.
5. Mr. Bagchi, in reply, has contended that in case there is any absurdity in the construction of the provision having regard to the proviso, then and in that event, the construction is not to be made literally or grammatically. It is to be made having regard to the object and purpose, for which particular enactment was incorporated. In order to sustain his contention, he has referred to the decision in the case of CBDT vs. Aditya Birla (1988) 67 CTR (SC) 165 : (1988) 170 ITR 137 (SC) and the decision in the case of K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC).
6. We have heard the respective counsel at length. The question depends upon the interpretation of s. 10(10C) r/w the second proviso thereof and ss. 15 and 17 as referred to above, having regard to the facts and circumstances of the case. The scheme : Rule 2BA : No conflict
7. Let us first examine the respondents’ contention that the scheme does not come within the scope and ambit of s.
10(10C) on account of its being contrary to or in conflict with r. 2BA of the Rules. We have examined the scheme for voluntary retirement and compared the same with the requirements contained in r. 2BA. In our opinion, it conforms to r. 2BA. Nowhere there is any provision in the scheme which, in our view, could be said to be in conflict with the requirement of r. 2BA. The question of re-employment, as contemplated in requirement cl. (v) of r. 2BA provides that the retiring employee of a company shall not be re-employed in another company or concern belonging to the same management. If we paraphrase this provision, we may read that a retiring employee shall not be employed in another company or in any other concern belonging to the same management. Both another company and another concern was intended to mean to belonging to the same management as expressed by the legislature. Therefore, the scheme cannot be said to be in conflict with the requirement of r. 2BA. Inasmuch as cl. (8) of the scheme clearly lays down that a retiring employee shall not be eligible for employment in any of the plant, subsidiaries or joint ventures of the SAIL. This is in consonance with cl. (v) of r. 2BA.
8. Mr. Some has pointed out that the amount of benefit sought to be provided under cl. (4) of the scheme, is in conflict with the requirement cl. (vi) of r. 2BA. The benefit, as appearing from cl. 4.1 (i), indicates that the monthly benefit would be an equivalent of specific percentage of the basic pay and DA on the date of voluntary retirement and it shall be payable for a period of 10 years or till attainment of 58 years of age, whichever is earlier. But, in our view, this provision itself makes it clear that it is not in conflict with the requirement cl. (vi) of r. 2BA. Inasmuch as requirement cl. (vi) provides that the amount payable shall not exceed the amount equal to three months’, salary for each completed year of service or salary at the time of voluntary retirement multiplied by the balance months of service left till the date of retirement or superannuation in due course. If the left over service is more than 10 years, then the amount paid cannot exceed the amount payable @ salary payable at the time of voluntary retirement multiplied by the months of service left. At the same time, if it is less than 10 years, in that event, an employee is liable to get the benefit till 58 years of age which would be exactly the left over months of service the multiplying factor of the basic pay plus DA payable on the date of voluntary retirement. In any event, the eligibility for applying for voluntary retirement is two-fold. One is minimum 20 years’ service or above 50 years of age. If the person is above 50 years of age, he cannot have 10 years service left since the retirement age is admittedly 58 years. If he is below 50 years, but had completed 20 years of service, then also he could not get more than 10 years benefit and that too @ 80 per cent of his basic pay plus DA which would definitely be an amount less than the amount contemplated under the requirement of cl. (vi) of r. 2BA. Having regard to the scheme we have found that there is nothing which can persuade us to hold that it is in conflict with r. 2BA. Sec. 10(10C) : Exemption : Availability and extent of Sec. 10(10C) uses the expression “any amount received by an employee …… at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement”…. It is the meaning of the word “amount received” is important in this case. Whether this expression includes all the amount payable under the scheme or only the compensation payable in lieu of cessation of employment. In other words, whether this will also include the retirement or superannuation or terminal benefits which the employee is otherwise entitled to receive even without the scheme simply on cessation of employment without having voluntarily retired. The expression “amount received” even if we interpret literally or grammatically would be something other than the terminal benefits, inasmuch as terminal benefits are otherwise payable on cessation of employment under the provisions of statute. An employee cannot be deprived of such dues on any ground whatsoever unless provided in the respective statutes governing those respective terminal benefits. An expression used in the statute is not always to be interpreted literally or grammatically. Sometimes it has to be interpreted having regard to the context in which the expression is used and having regard to the object and purpose for which the same is enacted. Sec. 10(10C) was inserted in order to make voluntary retirement attractive so as to reduce human complements for securing economic viability of certain companies. This object was elaborated by various Departmental circulars and explanatory statements issued from time to time. Similarly, r. 2BA, which was inserted by the IT (Sixteenth Amendment) Rules, 1992, were amended from time to time. All these go to show that this was intended to make the voluntary retirement more attractive and beneficial to the employee opting for voluntary retirement. Therefore, this has to be interpreted in a manner beneficial to the optee for voluntary retirement, if there is any ambiguity. Therefore, while searching the meaning of the word “amount received” used in s. 10(10C) we are to look into the section itself and r. 2BA as well. Rule 2BA prescribes the limit. Initially it was one and one-half month’s salary for each completed year of service since amended to three months’ salary for each completed year of service or the salary for the months remaining after voluntary retirement till retirement. This clearly indicates that it is only the compensation part payable on account of cessation of employment, which is the amount intended in s. 10(10C), inasmuch as on the date an employee opts for voluntary retirement, he is already entitled to the accumulation of the provident fund in his account governed by the Provident Fund Act and the scheme, gratuity payable under the Payment of Gratuity Act, encashment of leave pay under the Leave Rules and pension payable under the Pension Rules, if there be any. These are all terminal benefits to which an employee is entitled even without the scheme. This entitlement cannot be taken away under any scheme. Therefore, if these amounts are also payable under the scheme, the same would not be a component of the compensation for voluntary retirement and is not an amount receivable on account of voluntary retirement. Therefore, the terminal benefits cannot be brought within the scope and ambit of the expression “amount received” used in s. 10(10C). Such question is to be dealt with having regard to the context in which the expression is used and having regard to the purpose and object and its grammatical and literal meaning. As discussed above, we do not find any difficulty in construing the meaning of the expression “amount received” even by literal and grammatical meaning which is something different from an amount receivable by an employee under a particular statute or enactment or rules and to which he is otherwise entitled even without the voluntary retirement scheme and which has already accrued to him and of which he cannot be deprived.
In order to arrive at such interpretation, we may draw inspiration from the ratio decided in the CBDT vs. Aditya Birla (supra). In case the interpretation leads to absurdity or becomes mischievous, then while construing an enactment, the absurdity and mischief are to be avoided. If a plain literal interpretation of statutory provision produces a manifestly absurd and unjust result, which the legislature could not have intended, the Court is supposed to modify the language used by the legislature even to do some violence to it so as to achieve the obvious intention of the legislature and produce a rational construction. It was so held in K.P. Varghese vs. ITO (supra). We. however, as discussed above, do not find any absurdity or any unjust result having regard to the provision with which we are concerned.
12. Now let us examine as to what extent the amount receivable under the scheme qualifies for exemption under s. 10(10C). The encashment of leave pay or half pay leave [cl. 4.1(ii)] though payable with the monthly benefit, in terms of cl. 4.1(iii), yet the same is not a component of monthly benefit provided in cl. 4.1(i) of the scheme, as is the case with regard to cls. 4.1(iv), (v) and (vi) of the scheme. It is only the monthly benefit provided under cl. 4.1(i) of the scheme that represents the amount exempted under s. 10(10C). The amounts mentioned in cls. 4.1(ii), (iv), (v) and (vi) were already payable. The employee would have been entitled to it irrespective of voluntary retirement on termination of or superannuation from service, except in case of dismissal in which case the gratuity under cl. (iv) and medical benefit under cl. (v) would not be payable. Therefore, the amounts payable under the scheme other than those under cl. 4.1(i) are salary, etc., within the meaning of s. 17(1) or (3) as the case may be and not an amount receivable under a voluntary retirement scheme. That apart, upon voluntary retirement, the employee is deprived of further benefit of service including the leave or gratuity that would have accrued to him after such retirement if he had continued in service and that the said amount is being paid on account of retirement since preponed by reason of option for voluntary retirement. Therefore, by no stretch of imagination, these components can be included within the amounts receivable for voluntary retirement. Therefore, the contention of Mr. Banerjee and Mr. Some that this is not exempted under s. 10(10C) cannot be accepted as a whole.
13. This seems to be made clear by the clarification issued by the Department, in the guidelines for the purpose of s. 10(10C) of the IT Act clarification of queries regarding [Circular No. 640, dt. 26th Nov., 1992] (p. 757, Vol. 1, Income-tax Law, 5th Edition by Chaturvedi and Pithisaria), the Board had clarified in question No. 12 that the exemption is available on the amount of voluntary retirement, which is in addition to normal retirement benefits like provident fund, gratuity, pension etc. According to the Board, the provisions regarding income-tax exemption on the amount receivable on account of voluntary retirement are separate from the provisions, which govern taxation of provident fund, gratuity, pension, etc. In question No. 13, it was clarified that if all the conditions specified in s. 10(10C) r/w r. 2BA are satisfied, the employer need not deduct tax at source from the amount of the voluntary retirement paid to an employee.
14. Having regard to the above contention, in our view, the amount receivable under cl. 4.1(i) of the scheme, to the extent it does not exceed Rs. 5 lacs, qualifies for exemption under s. 10(10C) but not the other amounts payable under cls. (ii), (iv), (v) and (vi), etc., thereunder. Second proviso to s. 10(10C) : How far applies
15. Once we have found that the amounts payable comes under s. 10(10C) and the same is being paid in accordance with the scheme framed for voluntary retirement, now we are to examine whether it would be hit by the second proviso to s. 10(10C). The second proviso provides that exemption under cl. (10C) to the extent that the benefit of exemption is available only in one assessment year and would not be available for any other assessment year, once availed of. According to Mr. Some and echoed by Mr. Banerjee, the payment having stretched over to a longer period than one assessment year, the payments made in subsequent assessment years are hit by the said proviso. Admittedly, provisos are exemptions carved out of the principal section. But this question has to be dealt with having regard to ss. 15 and 17 r/w s. 43(2) of the IT Act.
16. Sec. 43(2) defines the expression “Pay” which includes the incurring of the liability as well, whereas s. 15(a) provides chargeability of salary to tax as soon it becomes due, though not paid. As soon the salary becomes due, the incurring of the liability is complete. As soon the liability is incurred, it becomes a deemed payment in view of the definition of ‘pay’ defined under s. 43(2). In the present case, though the amount of monthly benefit paid under cl. 4.1(i) of the voluntary retirement scheme consists of salary or benefit in lieu of salary as defined in s. 17(1) or (3) r/w s. 43(2), but the same is exempted from tax by reason of s. 10(10C). This amount became chargeable
under s. 15(a) as soon as it became due, though not paid. Under the scheme the liability to pay was incurred and the amount became payable at the time when the employee was released having opted for the voluntary retirement under the scheme. Therefore, this is an amount, which is receivable by the employee at the time of voluntary retirement according to the scheme and became chargeable to tax under cl. (a) of s. 15, even though not paid. Therefore, to the extent of rupees five lacs, the said amount is exempted from being charged to tax by reason of s. 10(10C). Even if the payment is stretched over a period of years, the same would not become chargeable to tax in any subsequent assessment year. An amount becomes chargeable once it is earned whether it is received or not. Since the employee was not in service, therefore, the deferred payment will not continue and it would not be a salary from service, neither a deferred payment of salary nor arrear payment of salary, since the scheme postulates an one time payment in consideration of voluntary retirement spread over to a period of 10 years or till the age of 58 years, whichever is earlier, in quarterly payment in advance. It is a deferred payment of the benefit receivable under the scheme. Therefore, it would not be a payment of salary outside the scope of s. 10(10C). The characteristic cannot be changed because of stretching over of the period of payment of dues under the scheme.
No estoppel in law
The question of estoppel because of option exercised with eyes open to the subsequent modification cannot be sustained. What is not otherwise taxable cannot become taxable because of admission of the assessee. Nor there can be any waiver of the right otherwise admissible to the assessee in law. The chargeability is not dependent on the admission of or waiver by the assessee. Chargeability is dependent on the charging section, which needs to be strictly construed. Referring to the decision in CIT vs. Bhaskar Mitter (1994) 73 Taxman 437 (Cal) at p. 442 (para 8), we had occasion to so hold in the decision in Maynak Poddar (HUF) vs. WTO, IT Appeal No. 84 of 1999, disposed of on 24th Feb., 2003 [reported at (2003) 181 CTR (Cal) 362—Ed.]
For all these reasons, we are unable to persuade ourselves to agree with the contention argued with ability by Mr. Some and Mr. Banerjee to the extent it relates to the amount receivable under cl. 4.1(i) of the scheme. The appeal, therefore, succeeds to that extent. The respondents shall adjust the amount of tax already deducted, in respect of the amount exempted, with the tax payable hereafter on the other amounts or on the amount beyond rupees five lacs, under the said scheme, if there be any, and refund the balance, if any, remaining out of taxes already deducted. In case any amount remaining after adjustment, in that event, such amount be refunded to the respective employees within a period of three months of the instalment last payable or within one year from date, whichever is later, by the concerned authority with whom the tax is lying in deposit. However, the respondent SAIL shall recalculate the amount adjustable or refundable, as the case may be. Such calculation relating to the respective employees shall be furnished by SAIL to the appellant as well as to the IT authority within a period of three months from communication. In order to obtain adjustment, the employee shall approach the respondent SAIL and for obtaining refund the employees shall approach the IT Department.
19. The learned counsel, appearing for the IT Department, prays for stay of operation of this judgment. Since we have indicated a long period for refund, we feel that no stay would be necessary.
MAHARAJ SINHA, j. :
I agree.
[Citation : 262 ITR 638]
