2017 (6) TMI 1396 - HC - Income Tax

Implementation of the severance package - approval of VRS package for the employees of wound up company employees - income tax recoverable from severance package - Appellant Company was declared as a Sick Industrial Company and the Board for Industrial and Financial Reconstruction (BIFR) recommended the winding up - Non-Plan Loan from the lump sum provision for 'implementation of Voluntary Retirement Scheme and Statutory Dues' is provided for implementation of VRS at 2007 notional pay scales without any arrears as one time relaxation of DPE guidelines for all the employees of HPF - Ld' Single Judge while rejecting the claim of the employees to declare the proceedings dated 20.03.2014 and 21.03.2014 as illegal, directed implementation of the severance package within one month and on receipt of the severance packages, the employees were directed to vacate and hand over vacant possession of the quarters within a period of one month. It was also held that no income tax is recoverable from severance package. HELD THAT - It appears that though all the workmen had opted for VRS Scheme now different decision is taken by the Government without any consideration. In view of the policy decision by the Cabinet Committee, we feel it not to accept the stand taken by the person in-charge of the Department to file appeal against the order already passed, wherein the Central Government's view was to offer VRS to all workmen. The stand of the Central Government now that only some had been come forward to opt for VRS Scheme early appears to be redundant. Admittedly, it is the Cabinet Committee of the Central Government took the policy decision to offer VRS Scheme. The consent of the remaining workmen once again seeking for VRS Scheme although late, was already accepted as noted in this Court's order dated 29.11.2016, when the Central Government assured that VRS funds will be released to all workmen. When such of petitions are filed by the remaining workmen through the association seeking for extension of the benefit, the decision taken by the person on behalf of the Central Government it appears to be without appreciating the Scheme floated by the Government to protect the interests of the workmen to put an end of the litigation to settle the VRS to all the workmen. It appears the workmen in the writ petitions have already accepted VRS Scheme. Counsel appearing for the company contends that when the valuable quarters which are in occupation of the workmen, unless they vacate they will be in a difficult position to proceed further for liquidation In such view of the matter while dismissing the appeals preferred by the Government of India, the writ appeal filed by the Hindustan Photo Films Company is disposed of directing the Company not to initiate proceedings to wind up the Company so as to create a charge on some other person. The first charge over the assets of the company is in favour of the workmen. Since the Central Government has undertaken to settle the matter through VRS Scheme the rights of the workmen is transferred to the Central Government to that extent. So far as the liability of the company, if any in respect of other bank authorities or any other persons would come later. We appreciate the decision which was taken by the Central Government in time without standing on any technicality when it floated in the Cabinet as a policy decision to settle the claims of the workmen by way of VRS Scheme. Some of the workmen opted for VRS Scheme and some of them having apprehensions have opted for the same at subsequent stage. The appeals filed by the Government are unsustainable. The person who was in-charge of the Department who did not understand the settlement mooted out by the Central Government. However, the decision taken by the person who is in-charge of the department, to file the appeals against the order of the learned Single Judge, without placing the matter before the Cabinet, we feel it a non-est decision. We direct the Central Government to expedite the VRS Scheme, preferably within a period of two months, before that, deposit the amount. So far as the case of the company is concerned as indicated above since the burden of the company is taken over by the Central Government in the VRS Scheme and first charge over the assets of the company is in favour of the workmen. Because the company is facing the burden of winding up and other aspects, if there is any claim other than the Central Government Scheme, then it could be delayed elsewhere. We modify the order of the learned Single Judge to the effect that there is no burden on the company to that extent. So far as the liquidation proceedings is concerned, the first charge over the assets of the company will be on the Central Government since they step into the shoes of the workmen by taking over to discharge the burden of the company by way of VRS Scheme and for the remaining charge is concerned it is for the liquidator to decide on the issue. Accordingly, we dispose of the appeal filed by the Company, modifying the order of the learned Single Judge. Two months time is granted to the Central Government to implement the VRS Scheme from the date of receipt of this order.

Summary

Issues:
1. Challenge to the order passed by the learned Single Judge regarding severance package implementation and vacation of quarters.
2. Challenge to the common order passed by the learned Single Judge by the Secretary, Government of India.
3. Dispute over the VRS package approval and implementation for employees of a Public Sector Undertaking.
4. Claim of Income Tax Department for TDS deduction from the VRS amount payable to employees.

Issue 1:
The Hindustan Photo Films Manufacturing Company Limited challenged the order of the learned Single Judge regarding the implementation of the severance package and vacation of quarters by the employees. The Single Judge directed compliance within one month, emphasizing that no income tax is recoverable from the severance package. The management and Central Government appealed against this order, questioning the legality of the directions given.

Issue 2:
The Secretary, Government of India, challenged the common order passed by the learned Single Judge in multiple writ petitions filed by the employees union. The dispute arose from the approval and communication of the VRS package for the employees of the company, following the declaration of the company as a Sick Industrial Company by BIFR and AAIFR. The Cabinet Committee on Economic Affairs approved the VRS package, providing a Non-Plan Loan for its implementation at 2007 pay scales without arrears.

Issue 3:
The judgment highlighted the policy decision of the Central Government to offer a VRS scheme for the employees of the Hindustan Photo Films Manufacturing Company Limited, a Public Sector Undertaking. Despite initial opt-outs, most workers eventually accepted the VRS scheme. The Court emphasized the importance of honoring the policy decision and protecting the interests of the workmen, especially in the context of the company's winding-up proceedings.

Issue 4:
The Income Tax Department's claim for TDS deduction from the VRS amount payable to the employees was a significant issue. The Court noted the potential TDS amount and the department's willingness to consider representations from the workmen regarding the deduction. It was observed that TDS may not be applicable in this case, and any disputes regarding tax deductions should be handled without hindering the rights of the department to challenge the findings.

In a comprehensive analysis, the judgment addressed the legal challenges surrounding the severance package implementation, VRS approval and implementation, and the Income Tax Department's claim for TDS deduction. The Court emphasized the importance of honoring policy decisions, protecting workmen's interests, and ensuring fair treatment in the context of the company's financial challenges.