1985 (4) TMI 2 - SC - Income Tax

Terminated employee is granted back wages - tax is to be deducted at source by employer - Whether the termination of service of S/Shri Sant Raj and Itwari Lal Sherya is illegal and/or unjustified and if so to what relief are they entitled - held that assessee's are entitled to spread over relief u/s 89

Summary

Issues:
1. Whether the termination of service of two workmen is illegal and/or unjustified.
2. Whether the Labour Court has the discretion to grant reinstatement or compensation.
3. Whether the compensation awarded by the Labour Court was adequate.
4. Tax implications on the compensation awarded.

Analysis:

Issue 1:
The Secretary (Labour), Delhi Administration referred an industrial dispute between the management of M/s Lufthansa German Airlines and two workmen for adjudication. The Labour Court found that the termination of the workmen constituted retrenchment under the Industrial Disputes Act, as section 25F compliance was lacking, making the termination illegal. The Labour Court had to decide on reinstatement or compensation for the workmen.

Issue 2:
The Labour Court exercised discretion to award compensation instead of reinstatement, despite the usual practice of reinstatement in cases of illegal termination. The court cited precedents emphasizing that reinstatement may be declined if circumstances make it impractical. However, the Supreme Court found an error in the Labour Court's decision, noting that the termination, if according to service rules and bona fide, should not be simultaneously illegal. The Supreme Court disagreed with the Labour Court's reasoning but upheld the decision of awarding compensation.

Issue 3:
The Supreme Court reviewed the compensation awarded by the Labour Court and found it inadequate. The Court considered the workmen's back wages for 12 years, their job nature, and entitlements like overtime and bonuses. Each workman was awarded a total compensation of Rs. 2,00,000, including back wages and compensation in lieu of reinstatement, which the Court deemed just and fair.

Issue 4:
Regarding tax implications, the Supreme Court addressed potential income tax deductions by the employer under section 192 of the Income-tax Act. The Court clarified that the workmen were entitled to relief under section 89 of the Income-tax Act since the compensation included arrears for 12 years. The Court directed the employer to assist the workmen in obtaining the necessary relief under the Income-tax Act.

In conclusion, the Supreme Court partially allowed the appeal, modifying the compensation to Rs. 3,90,000 for each workman. No costs were awarded due to the adequate compensation provided.