ALL INDIA BLUE STAR EMPLOYEES FEDERATION vs UNION OF INDIA and Others

DR. B. P. SARAF, J.

By this writ petition the petitioner, which is a trade union of the employees of the respondent No. 4 company, seeks to challenge the validity of the provisions of cl. (10C) of s. 10 of the IT Act, 1961, and r. 2BA of the IT Rules, 1962 on the ground of violation of Arts. 14 and 21 of the Constitution of India. The petitioners also seek to challenge the approval granted by the Chief CIT, Mumbai to the voluntary retirement scheme of the respondent No. 4 company.

To deal with the challenge of the petitioner, it would be expedient to set out the provisions of cl. (10C) of s. 10 of the Act a:id r. 2BA of the Rules. Sec. 10 contains various clauses, income falling under which do not form part of the total income. Clause (10C) was inserted in that section for the first time w.e.f. 1st April, 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 bv 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 is 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" w.e.f. 1st April, 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 scheme of the said companies governing the payment of such amount are framed in accordance with such guidelines as may be prescribed for the public sector companies or for other companies and such guidelines may, inter aha, include criteria of economic viability and such schemes in relation to companies( other han public sector companies) are approved by the

Chief CIT or, as the case may be, Director- General in this behalf."

With a view to extending the benefit of exemption under this clause to authorities established under the Central and State Acts and to local authorities it was again substituted by the Finance Act, 1993, by the following w.e.f. 1st April, 1993 :

"(10C) : Any amount received by an employee of

(i) a public sector company; or

(ii) any other company" or

(iii) an authority established under a-Central, State or Provincial Act; or

(iv) a local authority;

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 lakh rupees

Provided that the schemes of the said companies or authorities, as the case may be, governing the payment of such amount are framed in accordance with buch guidelines (including inter alia criteria of economic viability) as may be prescribed and such schemes in relation to companies referred to in sub-cl. (ii) are approved by the Chief CIT or, as the case may be, Director- General in this behalf:

Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year."

The benefit of this exemption was extended w.e.f. 1st April, 1995, to the employees of cooperative societies, universities, I.I.T. and institutes of management notified by the Central Government in this behalf by amending this clause by the Finance Act, 1994. Clause (10C), as amanded by the Finance Act, 1994, which is operative w.e.f. 1st April, 1996, reads as follows

"(10C) : Any amount received by an employee of

(i) a public sector company-, or

(ii) any other company; or

(iii) an authority established under a Central, State or Provincial Act-, or

(iv) a local authority-, or

(v) a co-operative society-, or

(vi) a university established or incorporated by or under a Central State or Provincial Act and an institution declared to be a university under s. 3 of the University Grants Commission Act, 1956 (3 of 1956), or

(vii) an Indian Institution of Technology within the meaning of cl. (g) of s. 3 of the Institutes of Technology Act, 1961 (59 of 1961); or

(viii) such institution of management as the Central Government may by notification in the Official Gazette specify in this behalf, at the time of voluntary retirement, in accordance with any amount does not exceed five lakh rupees :

Provided that the schemes of the said companies or authorities or societies or universities or the institutes referred to in sub-cls. (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 viab1ty) as may b6 prescribed and such schemes in relation to companies referred tc, in sub-cl. (n) or co-operative societies referred to in sub-cl. (v) are approved by tilo Chief CIT or, as the case may be, Director- General in this behalf-,

Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year."

The guidelines contemplated by the first proviso to cl. (10C) of s. 10 were prescribed by incorporating r. 2BA in the Rules w.e.f. 18th Aug., 1992, This rule was amended w.e.f. 26th Feb., 1993. However, by IT (Twentieth Amendment) Rules, 1993, r. 2BA was substituted with retrospective effect from the date of its insertion viz., 18th Aug., 1997. Certain amendments were made therein thereafter from time to time. Rule 2BA, as amended, reads as follows

"213A. The amount received by an employee of

(i) a public sector company-, or

(ii) any other company; or

(iii) an authority established under a Central, State or Provincial Act; or

(iv) a local authority; or

(v) a co-operative society,- or

(vi) a university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under s. 3 of the University Grants Commission Act, 1956 (3 of 1956),- or

(vii) an Indian Institute of Technology within the meaning of cl. (g) of s. 3 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 shall be exempt under cl. (10C) of s. 10 only if the scheme of voluntary retirement framed by the aforesaid company or authority or cooperative society or university or institute as the case may be, is in accordance with the following requirements, namely :

(i) it applies to an employee who has completed 10 years of service or completed 40 years of age :

(ii) it applies to all employees (by whatever name called) including workers and executives of a company or of an authority or of a co-operative society, as the case may be, excepting Directors of a company or of a cooperative society;

(iii) the scheme of voluntary retirement has been drawn to result in overall reduction in the existing strength of the employees;

(iv) the vacancy caused by the voluntary retirement is not to be filed up,-

(v) the retiring employee of a company shall not be employed in another company or concern belonging to the same management; and

(vi) the amount receivable on account of voluntary retirement of the employee does not exceed the amount equivalent to (three months) salary for each completed year of service of salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation. "

Explanation Jn this rule, the expression "salary" shall have the same meaning as is assigned to it in cl. (a) of r. 2 of Part A of the Fourth Schedule."

In the instant case, the respondent No. 4, Blue Star Ltd. framed a voluntary retirement scheme. The scheme was drawn to reduce the surplus und 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 CIT. The petitioner union is aggrieved by the approval given by the Chief CIT to the above voluntary retirement scheme of the respondent No. 4 company. The petitioner union also seeks to challenge the constitutional validity of s. 10(10C) of the Act and r. 2BA of the Rules on the ground of violation of Arts. 14 and 21 of the Constitution of India.

Mr. Grover, learned counsel for the petitioner union, submits that cl. (10C) of s. 10 of the Act is violative of Arts. 14 and 21 of the Constitution as it does not provide for an opportunity of hearing to the employees or their union before granting approval to the voluntary retirement scheme of the employees. He also submits that r. 2BA does not take into consideration the economic viability which is one of the essential requirements for approval a scheme for the purposes of s. 10(10C) of the Act. His contention is that s. 10(10C) of the Act and r. 2BA of the Rules should be struck down as unconstitutional as they encourage reduction in the existing strength of employees of a company. According to Mr. Grover the benefit of this provision should Le made available only to the companies which are suffering losses and that too after hearing the employees.

On behalf of the Union of India and the Chief CIT an affidavit has been filed by Smt. Leela Ramachandran, ITO (HQ) Technical, Mumbai. It is pointed out in the said affidavit that the order dt. 7th Oct., 1997, passed by the Chief CIT is strictly in conformity with law and has been passed after being satisfied that the scheme meets the requirements of s. 10(10C) and r. 2BA. It is contended that the criteria laid down in r. 2BA, in particular cls. (iii) and (v) thereof, is to ensure that the scheme is formulated with a view to reducing the existing strength of the employees and that the posts becoming vacant on account of the scheme are not filled up by any other dubious method. Mr. Deodhar, learned counsel for the respondents, drew our attention to a decision of the Supreme Court in Shashikant Laxman Kale vs . Union of India : [1990]185ITR104(SC) wherein the challenge to the validity of cl. (10C) of s. 10 of the Act, as originally inserted by the Finance Act, 1987, was repelled by the Supreme Court.

We have perused the above decision of the Supreme Court. In that case the validity of s. 10(10C) was challenged on the ground that the denial of the benefit to an employee of a private sector company at the time of his voluntary retirement which amounted to an invidious distinction between public sector and private sector employees in the matter of taxation was arbitrary. Repelling this challenge, the Supreme Court observed thus :

"Once the impugned provision contained in the newly inserted cl. (10C) of s. 10 of the IT 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 if 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 provisions or its fall out and not its true object. It is similar to the incentive given to the tax payers to invest in the public sector bonds by non inclusion of the interest earned thereon in the taxpayer''s total income which promotes the true object of raising the resources of the public sector for its growth and modernisation. The real distinction between the true object of an enactment and the effect thereof, even though appearing to be blurred at times, has to be borne in mind, particularly in a situation like this. With this perspective, keeping in view the true object of the impugned enactment, there is no doubt that employees of the private sector who are left out of the ambit of the impugned provision do not fall in the same class as employees of the public sector and the benefit or the fall out of the provision being available only to the public sector employees cannot render the classification invalid or arbitrary. This classification cannot, therefore, be faulted. "

(Emphasis, italicised in print, supplied)

We have carefully considered the provisions of cl. (10C) of s. 10 of the Act and r. 213A of the Rules and the decision of the Supreme Court referred to above. It is clear from the provisions of cl. (10C) of s. 10 of the Act that it is intended to give benefit to the employees who seek voluntary retirement. Sub-cls. (iii) and (v) of r. 2BA are intended to streamline the industry to cure it of one of its ailments of overstaffing. Care has been taken to ensure that in the garb of voluntary disclosure scheme to deal with the problem of overstaffing, the employers do not resort to some dubious means to retrench the existing workmen with a view to employing some new workers. The provisions in these two clauses are intended to ensure that the voluntary retirement scheme is really used to deal with the problem of overstaffing. This provision is an incentive to unwanted personnel to seek voluntary retirement thereby enabling the public sector or the private sector or the co-operative sector to achieve the true objective of dealing with the problem of overstaffing. It is an incentive for growth and modernisation. We also do not find any merit in the contention of the learned counsel for the petitioner that r. 2BA of the Rules which contains guidelines for approval of the scheme for voluntary retirement, does not take into consideration the criterion of economic viability. Item (iii) of 4. 2BA specifies that the scheme of voluntary retirement should be drawn 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,

thus not be in accordance with the guidelines prescribed for the purpos&- of cl. (10C) of s. 10 of the Act. This section, therefore, cannot be rega''.-icu'' ill any manner, as violative of Arts. 14 and 21 of the Constitution. In fact, the challenge to the validity of this clause had been repelled by Supreme Court in Shashikant La=, an Kale (supra) as 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 private sector, cooperative societies, Central and State Governments etc. In Shashikant Laxman Kale (supra) the validity of this clause was challenged on the ground that its benefit was confined to public sector undertakings only. The case of the petitioner in that case was this cl-wase should have covered all employees including private sector employees. Its validity was, therefore, challenged on the ground of discrimination between public sector and private sector. It was contended that this clause must be so construed as to apply to all employees, equally whether of the public or private sector in order to uphold its validity. The Supreme Court, repelled the challenge to the constitutional validity of this clause on the ground that it was not necessary to extend the benefit to all the employees including those of private sector companies. The Supreme Court held that this clause provides an incentive to the employees who resorted to voluntary retirement scheme which would help in turn to overcome the problem of overstaffing. In view of the above decision of the Supreme Court, we do not find any merit in the challenge to the provisions of cl. (10C) of s. 10 of the Act and r. 2BA of the rules in this writ petition on the ground of violation of Arts. 14 and 21 of the Constitution of India.

We also do not find any merit in the submissions of learned counsel for the, petitioner that the petitioner union or the workmen should be heard by the Chief CIT before giving approval to the voluntary retirement scheme because, in our opinion, the approval given by the Chief CIT to the voluntary retirement scheme is in no way detrimental to the employees who seek voluntary retirement under such scheme. On the other hand, the very object of this provision is to give benefit of tax exemption to such employees in respect of amounts received by them under the voluntary retirement scheme

For the reasons jet out above, we do not find any merit in this writ petition. This petition, is therefore, dismissed at the admission stage itself.

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