1985 (4) TMI 3 - SC - Income Tax

Terminated employee is granted back wages - tax is to be deducted at source by employer - prescribed relief is set out in rule 21A of the Income-tax Rules. The appellant is entitled to relief under section 89 because compensation herein awarded includes salary which has been in arrears for 18 years as also the compensation in lieu of reinstatement and the relief should be given as provided by section 89

Issues Involved:
1. Status of the appellant's employment (temporary vs. regular).
2. Applicability of the Industrial Employment (Standing Orders) Act, 1946, to the Corporation.
3. Validity of the termination of the appellant's service.
4. Entitlement to protection under Articles 14 and 16 of the Constitution.
5. Allegation of victimization due to union activities.
6. Appropriate relief for wrongful termination.

Detailed Analysis:

1. Status of the Appellant's Employment:
The appellant was initially appointed as an assistant storekeeper in April 1962 and later as a storekeeper on December 7, 1963, after an open competition. He was placed on probation for six months. On January 13, 1965, he was informed that he was continued in service on a regular basis. The Supreme Court emphasized that the expression "until further orders" in the order confirming his regular appointment should be ignored as it is inconsistent with the notion of a regular appointment. Therefore, the appellant was considered a regular employee from January 13, 1965.

2. Applicability of the Industrial Employment (Standing Orders) Act, 1946:
The High Court ruled that the Corporation was not an industrial establishment under the Industrial Employment (Standing Orders) Act, 1946, and thus the Model Standing Orders were not applicable. Additionally, even if the Act applied, Section 13B would exempt the Corporation from its provisions. The Supreme Court did not delve further into this issue, focusing instead on the constitutional protections available to the appellant.

3. Validity of the Termination:
The Supreme Court found that the termination of the appellant's service was not in accordance with law or regulation. The appellant, being a regular employee, could not have his service terminated by one month's notice without an enquiry. The termination was found to be arbitrary and violative of Article 16, as several junior storekeepers were retained while the appellant was dismissed. The alleged unsatisfactory work was not substantiated by any enquiry or evidence, and the termination appeared to be a punitive action without following principles of natural justice.

4. Entitlement to Protection Under Articles 14 and 16:
The Supreme Court reaffirmed that the Corporation is an instrumentality of the State and thus subject to Articles 14 and 16 of the Constitution. The appellant was entitled to protection against arbitrary dismissal and to equality in employment. The unilateral power of termination without reasons was deemed discriminatory and violative of Article 14. The Court emphasized that any punitive action affecting livelihood must adhere to principles of natural justice.

5. Allegation of Victimization:
The Court found evidence suggesting that the appellant was victimized due to his active involvement in union activities. The secret letter dated September 6, 1967, and other communications indicated management's intent to target the appellant as a trouble-maker. The Court noted that the appellant was a protected workman and that his termination was likely a result of his union activities, rather than unsatisfactory work.

6. Appropriate Relief:
Given the long duration since the termination (nearly 18 years), the Court opted for compensation in lieu of reinstatement. The appellant agreed to accept Rs. 2 lakhs as back wages and compensation, which the Corporation conceded to pay. The Court directed the Corporation to pay this amount within four weeks and provided guidance on tax treatment under Section 192 and Section 89 of the Income-tax Act, 1961, ensuring the appellant could seek relief for the lump sum payment.

Conclusion:
The Supreme Court allowed the appeal, quashed the High Court's judgment, and directed the Corporation to pay Rs. 2 lakhs to the appellant as back wages and compensation within four weeks. The appellant was entitled to relief under Section 89 of the Income-tax Act for the lump sum payment. The appeal was allowed with no order as to costs.

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