1984 (9) TMI 1 - SC - Income Tax

Compensation in the amount of Rs. 20,000 was awarded only in lieu of reinstatement - it is conceded that the appellant s service was liable to stand terminated under the contract of service, the back-wages would be payable only for the period commencing from the date of termination till the date on which that service will come to an end under the terms of contract - held that where compensation is awarded to dismissed workman, he is entitled to exemption of Rs. 20,000 u/s 10(10B)

Summary

Issues:
1. Calculation of compensation in lieu of reinstatement and back-wages.
2. Deduction of income tax from the compensation amount.
3. Interpretation of the judgment regarding payment of back-wages.
4. Payment of costs to the appellant.

Analysis:

1. Calculation of Compensation: The Supreme Court quantified the compensation payable to the appellant at Rs. 20,000 only in lieu of reinstatement with full back-wages. The court clarified that the compensation of Rs. 20,000 was awarded solely in lieu of reinstatement, while the back-wages were to be paid separately. The respondent was directed to pay an additional Rs. 5,000 as back-wages over and above the compensation amount.

2. Deduction of Income Tax: The respondent deducted Rs. 2,145 from the compensation amount citing the obligation to deduct income tax payable at source. However, the court deemed this deduction impermissible. It highlighted the provision under sub-s. (10B) of s. 10 of the Income Tax Act, which exempts certain compensation amounts from income tax. Since the compensation was awarded after the introduction of sub-s. (10B), the deduction made by the respondent was unjustified. The court directed the respondent to pay Rs. 2,145 with 15% interest from the date of the judgment.

3. Interpretation of Judgment: The court clarified that the compensation of Rs. 20,000 was awarded only in lieu of reinstatement, while back-wages were to be paid separately. As the appellant's service was liable to stand terminated under the contract, back-wages were payable from the date of termination until the end of the service period. The respondent was directed to pay Rs. 5,000 as back-wages in addition to the compensation amount.

4. Payment of Costs: Considering the appellant's prolonged legal battle, the court ordered the respondent to pay Rs. 2,000 as costs to the appellant. The court emphasized that all amounts directed to be paid should be settled within four weeks from the date of the judgment to ensure timely compliance.

In conclusion, the Supreme Court's judgment clarified the calculation of compensation in lieu of reinstatement and back-wages, addressed the impermissible deduction of income tax, interpreted the payment of back-wages separately from the compensation amount, and ordered the payment of costs to the appellant within a specified timeframe.