1998 (6) TMI 69 - HC - Income Tax

Issues Involved:

1. Constitutional validity of clause (10C) of section 10 of the Income-tax Act, 1961, and rule 2BA of the Income-tax Rules, 1962.
2. Approval granted by the Chief Commissioner of Income-tax to the voluntary retirement scheme of the respondent company.
3. Opportunity of hearing to employees or their union before granting approval to the voluntary retirement scheme.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Clause (10C) of Section 10 of the Income-tax Act, 1961, and Rule 2BA of the Income-tax Rules, 1962:

The petitioner, a trade union, challenged the validity of clause (10C) of section 10 of the Income-tax Act, 1961, and rule 2BA of the Income-tax Rules, 1962, on the grounds of violation of articles 14 and 21 of the Constitution of India. Clause (10C) was originally inserted to extend the benefit of exemption to employees of public sector undertakings at the time of their voluntary retirement. It was subsequently amended to include employees of other companies, authorities established under Central and State Acts, local authorities, co-operative societies, universities, IITs, and institutes of management.

The Supreme Court in Shashikant Laxman Kale v. Union of India [1990] 185 ITR 104 upheld the validity of clause (10C), stating that it was intended to streamline the public sector by addressing overstaffing, thus promoting the national economy. The court emphasized that the provision was an incentive for employees to opt for voluntary retirement, which was essential for the growth and modernization of the public sector.

The High Court, referencing this decision, found that the provisions of clause (10C) and rule 2BA were designed to benefit employees seeking voluntary retirement and ensure that voluntary retirement schemes were genuinely addressing overstaffing issues. The court concluded that these provisions were not violative of articles 14 and 21 of the Constitution.

2. Approval Granted by the Chief Commissioner of Income-tax to the Voluntary Retirement Scheme of the Respondent Company:

The petitioner also challenged the approval granted by the Chief Commissioner of Income-tax to the voluntary retirement scheme of the respondent company. The scheme aimed to reduce surplus and unproductive manpower to improve productivity and operational efficiency. The petitioner's counsel argued that the approval process did not consider the economic viability of the scheme, which is a requirement under section 10(10C).

The court noted that the Chief Commissioner's approval was in conformity with the law and that the scheme met the requirements of section 10(10C) and rule 2BA. The criteria in rule 2BA, particularly clauses (iii) and (v), ensured that the scheme aimed at reducing the existing strength of employees without filling the vacancies through dubious means. The court found that the scheme's compliance with these criteria addressed the issue of economic viability.

3. Opportunity of Hearing to Employees or Their Union Before Granting Approval to the Voluntary Retirement Scheme:

The petitioner's counsel argued that the lack of an opportunity for employees or their union to be heard before the approval of the voluntary retirement scheme violated their rights under articles 14 and 21. The court rejected this argument, stating that the approval process did not adversely affect employees seeking voluntary retirement. Instead, it provided them with the benefit of tax exemption on the amounts received under the scheme.

The court emphasized that the objective of the provision was to incentivize voluntary retirement, thereby addressing overstaffing and promoting economic efficiency. The approval by the Chief Commissioner was found to be beneficial to the employees, and thus, there was no requirement for a hearing.

Conclusion:

The High Court dismissed the writ petition at the admission stage, finding no merit in the challenges raised. The court upheld the constitutional validity of clause (10C) of section 10 of the Income-tax Act and rule 2BA of the Income-tax Rules, and confirmed the legality of the approval granted by the Chief Commissioner of Income-tax to the voluntary retirement scheme of the respondent company.

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