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TMI Blog1998 (6) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... time with effect from April 1, 1987, by the Finance Act, 1987, to extend the benefit of exemption to the employees of public sector undertakings in respect of any payment received by them at the time of their voluntary retirement in accordance with any scheme approved by the Central Government having regard to the economic viability of the public sector company and other relevant circumstances. It reads thus : "(10C) any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf;" To extend the benefit of this clause also to the employees of companies other than public sector companies, this clause was substituted by the Finance Act, 1992, with effect from April 1, 1993, by the following : "(10C) any amount received by an employee of a public sector company or of any other company at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement : Provided that the schemes of the said companies governing the payment of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (vii) an Indian Institute of Technology within the meaning of clause (g) of section 5 of the Institutes of Technology Act, 1961 (59 of 1961); or (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify in this behalf, at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement, to the extent such amount does not exceed five lakhs rupees : Provided that the schemes of the said companies or authorities or societies or Universities or the Institutes referred to in sub-clauses (vii) and (viii), as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including, inter alia, criteria of economic viability) as may be prescribed and such schemes in relation to companies referred to in sub-clause (ii) or co-operative societies referred to in sub-clause (v) are approved by the Chief Commissioner or, as the case may be, Director-General in this behalf : Provided further that where exemption has been allowed to an employee und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivable on account of voluntary retirement of the employee, does not exceed the amount equivalent to three months' salary for each completed year of service or salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation. Explanation.---In this rule, the expression 'salary' shall have the same meaning as is assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule." In the instant case, respondent No. 4, Blue Star Ltd., framed a voluntary retirement scheme. The scheme was drawn to reduce the surplus and unproductive manpower in order to reduce cost, improve productivity and increase operational efficiency. It was made applicable to all workmen. This scheme was approved by the Chief Commissioner of Income-tax. The petitioner union is aggrieved by the approval given by the Chief Commissioner of Income-tax (the "Chief Commissioner"), to the above voluntary retirement scheme of respondent No. 4 company. The petitioner union also seeks to challenge the constitutional validity of section 10(10C) of the Act and rule 2BA of the Rules on the ground of violation of articles 14 and 21 of the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved thus (page 124 of 185 ITR) : "Once the impugned provision contained in the newly inserted clause (10C) of section 10 of the Income-tax Act, 1961, is viewed in the above perspective, keeping in mind the true object of the provision, there is no foundation for the argument that it is either discriminatory or arbitrary. There is a definite purpose for its enactment. One of the purposes is streamlining the public sector to cure it of one of its ailments of overstaffing which is realised from experience of almost four decades of its functioning. In view of the role attributed to the public sector in the sphere of national economy, improvement in the functioning thereof must be achieved in all possible ways. A measure adopted to cure it of one of its ailments is undoubtedly a forward step towards promoting the national economy. The provision is an incentive to the unwanted personnel to seek voluntary retirement thereby enabling the public sector to achieve the true object indicated. The personnel seeking voluntary retirement no doubt get a tax benefit but then that is an incentive for seeking voluntary retirement and at any rate that is the effect of the provision or its fall-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m (iii) of rule 2BA specifies that the scheme of voluntary retirement should be drawn up to result in overall reduction in the existing strength of the employees of a company. This requirement is the criterion of economic viability for framing the schemes of voluntary retirement. A scheme which does not result in overall reduction in the existing strength of the employees of a company, will thus not be in accordance with the guidelines prescribed for the purposes of clause (10C) of section 10 of the Act. This section, therefore, cannot be regarded in any manner, as violative of articles 14 and 21 of the Constitution. In fact, the challenge to the validity of this clause had been repelled by the Supreme Court in Shashikant Laxman Kale's case [1990] 185 ITR 104 as far back as in the year 1990. The only change made by the Legislature in this clause thereafter is that the benefit conferred by this clause has been extended to the private sector, co-operative societies, Central and State Governments, etc. In Shashikant Laxman Kale's case [1990] 185 ITR 104 (SC), the validity of this clause was challenged on the ground that its benefit was confined to public sector undertakings only. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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