2017 (3) TMI 1270 - HC - Indian Laws

Challenge to the VRS scheme - Package having been received by the workmen as compensation pursuant to the decision taken by the Central Government to offer special protection to the employees of HPF - exempted from deduction to income tax - VRS scheme - Held that - The declaratory relief sought for to declare the proceedings dated 20.03.2014, and the circular dated 21.03.2014, as illegal, is rejected and the relief sought for to pay 72 months, salary stands rejected. It is 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. Pursuant to interim orders dated 22.12.2015, the amounts deducted towards income tax was directed to be kept in deposit to the credit of the Writ Petition in Indian Bank, High Court Branch. In the light of the finding rendered supra holding that no income tax is recoverable from the severance package, the amount deducted as income tax shall be disbursed to the respective employees by the respondents. It is reiterated that in these writ petitions, the Court has considered the VRS package and the consequential circular issued by the HBF relief sought for, for payment of 72 months salary instead of 60 months salary as proposed in the VRS Scheme and not to deduct income tax on the amount payable to them as in respect of recovery which were sought to be made pursuant to the circular dated 10.07.2013 and 01.07.2013 were already been quashed by this Court in W.P.Nos.24460, 24355 and 25491 of 2013 dated 29.11.2016. The respondents shall comply with the above directions within a period of one month from the date of receipt of a copy of this order as during the pendency of these writ petitions, all the employees have exercised their right to accept the severance package though without prejudice to their rights in the writ petition. Now the writ petition has been finally disposed of, it is only the implementation of the severance package which shall be done within one month from the date of receipt of a copy of this order. As agreed to by the employees of the HBF, all the employees on receipt of the severance packages in terms of the above direction shall vacate and hand over vacant possession of the quarters within a period of one month from the date on which they received the monetary benefits.

Summary

Issues Involved:
1. Legality of the Voluntary Retirement Scheme (VRS) package announced for Hindustan Photo Film Manufacturing Company Ltd. (HPF) employees.
2. Entitlement of employees to 72 months' salary on the 2007 pay scale and arrears.
3. Deduction of income tax from the severance package.
4. Occupation of staff quarters by employees post-VRS.

Detailed Analysis:

1. Legality of the Voluntary Retirement Scheme (VRS) Package:
The petitioners, consisting of the employees' union and officers' association of HPF, challenged the VRS package announced by the respondents on 20.03.2014 and the subsequent circular dated 21.03.2014, claiming it was unfair and illegal. They argued that the compensation should be treated as a closure compensation rather than a voluntary retirement scheme, as the decision to close the company was taken on 28.06.2013. The court, however, found that the package, although termed as VRS, was a special package designed to offer relief to the employees due to the continuous losses and eventual winding up of HPF. The court held that the nomenclature of the package was irrelevant and what mattered was the purpose, which was to provide financial support to the employees. Therefore, the court rejected the claim that the package was illegal and upheld its validity.

2. Entitlement to 72 Months' Salary on the 2007 Pay Scale and Arrears:
The petitioners sought payment of 72 months' salary on the 2007 pay scales instead of the 60 months proposed in the VRS scheme, along with arrears. The court noted that the Central Government had sanctioned a specific amount of ?181.54 crores as a non-plan budgetary support for the VRS package, calculated on the 2007 notional pay scale. The court found that the employees had already accepted the VRS package and received benefits after deductions. Therefore, the court rejected the petitioners' claim for 72 months' salary and arrears, stating that the relief sought did not flow from the main prayer to quash the VRS proceedings.

3. Deduction of Income Tax from the Severance Package:
The petitioners contended that the compensation received under the VRS should be exempt from income tax under Section 10(10B) of the Income Tax Act, 1961, as it was a severance package due to the closure of the company. The respondents argued that the package fell under Section 10(10C) and was taxable if it exceeded the exemption limit. The court held that the package was a special privilege granted to the employees of HPF and fell within the definition of compensation under Section 10(10B). Therefore, the court ruled that the severance package was exempt from income tax, and the amounts deducted as income tax should be refunded to the employees.

4. Occupation of Staff Quarters by Employees Post-VRS:
The court noted that employees who had opted for the VRS continued to occupy the staff quarters, causing financial strain on the management. The court directed that all employees who received the severance package should vacate the quarters within one month from the date they received the monetary benefits.

Conclusion:
The court partly allowed the writ petitions, rejecting the declaratory relief sought by the petitioners to declare the VRS proceedings as illegal and the claim for 72 months' salary. However, it held that the severance package was exempt from income tax and directed the refund of the deducted amounts. The court also ordered the employees to vacate the staff quarters within one month of receiving the severance benefits.