In Hindustan Photo Film Workers Welfare Centre v. Govt of India & Ors, the Madras High Court said that the Voluntary Retirement Scheme (VRS) package, equal to salary for 72 months, paid to willing employees of Hindustan Photo Film (HPF) Manufacturing Company Limited in Ooty is in the nature of compensation and therefore, no income tax should be deducted in respect of such income. On their part, employees who accept the package shall vacate and hand over possession of the quarters within one month from the date on which they receive the monetary benefits, the court said.
Earlier, the Government of India had recommended a scheme to give relief to the employees of HPF. This proposal was approved by the Cabinet Committee on Economic Affairs and such approval was a non-plan budgetary support. The Government of India did not authorise the HPF to bring out a VRS package and had approved a non-plan budgetary support, which is in the nature of a grant given by the Central Government to the Company for a specific purpose and a specific reason.
The petitioners challenged the VRS and the consequential circular issued by the HPF and seek for payment of 72 months salary instead of 60 months salary, as proposed in the VRS scheme, not to deduct income tax on the amount payable to them and till the VRS is accepted and not to evict them from the quarters.
The Revenue, on the other hand, contended that the package given to the workmen is a VRS package and it would fall within Section 10(10C)(viii) and accordingly, taxable if the receipt exceeds the exempted limit.
Allowing the petition filed by the employees of HPL, Justice T S Sivagnanam said that, “The benefit, which will accrue to the employees, is in the nature of compensation, which is pursuant to a decision taken by the government of India specifically for the employees of HPF. Therefore, the amount would be exempted from income tax in terms of the first proviso under Section 10(10B) of the IT Act. Therefore, the provisions of the Section 10(10B) of the Income Tax Act, 1961 are attracted and accordingly, the same shall not fall within the definition of income, while computing the total income of concerned employee and income tax cannot be deducted from the severance package paid to the employees of HPF.”
With several directions, the bench, however, refused to strike down the VRS circular and the connected proceedings.
Read the full text of the Judgment below.
