Full Judgment Text
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PETITIONER:
O.P. BHANDARI
Vs.
RESPONDENT:
INDIAN TOURISM DEVELOPMENT CORPORATION LTD. & ORS.
DATE OF JUDGMENT26/09/1986
BENCH:
THAKKAR, M.P. (J)
BENCH:
THAKKAR, M.P. (J)
NATRAJAN, S. (J)
CITATION:
1987 AIR 111 1986 SCR (3) 923
1986 SCC (4) 337 JT 1986 586
1986 SCALE (2)523
CITATOR INFO :
F 1988 SC 286 (5,6)
R 1990 SC1054 (23,24)
F 1991 SC 101 (21,45,182,223,263)
ACT:
Indian Tourism Development Corporation (Conduct,
Discipline and Appeal) Rules, 1978: Rule 31(v) -
Constitutional validity of-Termination of Services by giving
ninety days’ notice or pay in lieu thereof-Whether violative
of Articles 14 and 16(1).
Labour and services-Public Sector Undertaking-High
Managerial cadre-Services of-Illegal termination-Relief
against-Reinstatement or compensation-Court’s discretion-
Quantum of compensation Factors to be considered. Employee
entitled to relief under s. 89 of the Income-tax Act read
with r. 21-A of the Income-tax Rules.
Constitution of India, Articles 12, 14, 32 and 226-
Public Sector Undertaking-A ’State’- High managerial cadre
and employees-Differential classification under service
rules-Whether permissible.
HEADNOTE:
Rule 31(v) of the Indian Tourism Development
Corporation (Conduct, Discipline and Appeal) Rules, 1978
provides that the services of an employee, who had completed
his probationary period and who has been confirmed or deemed
to be confirmed, may be terminated by giving him 90 days’
notice or pay in lieu thereof. The services of the
appellant, who was an employee of the respondent-Corporation
holding the post of Manager of a Hotel at the material time
were terminated by Memorandum No. P-B(OP)-22 dated 18th
September, 1984, in exercise of the powers under the said
rule by giving him pay for three months in lieu of notice.
Aggrieved by the said order the appellant filed a writ
petition in the High Court assailing the constitutional
validity of r. 31(v) of the said Rules, which was summarily
dismissed.
Allowing the appeal by special leave, the Court,
^
HELD: 1. The Indian Tourism Development Corporation is
an
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924
instrumentality of the State and, therefore, ’State’ within
the parameters of Article 12 of the Constitution of India.
[927D-E]
Central Inland Water Transport Corporation Ltd. & Anr.
v. Brojo Nath Ganguly & Anr., [1986] 3 S.C.C. 156 applied.
2.1 Rule 31(v) of the Indian Tourism Development
Corporation (Conduct, Discipline and Appeal) Rules, 1978, is
unconstitutional and void, for such a rule which provides
for termination of the services of the employees of the
respondent-Corporation simply by giving ninety days’ notice
or by payment of salary for the notice period in lieu of
such notice, cannot co-exist with Articles 14 and 16(1) of
the Constitution of India. The fundamental right embedded in
these Articles is not a mere paper tiger nor is it so
ethereal that it can be nullified or eschewed by a simple
device of framing a rule which authorises termination of the
services of an employee by merely giving a notice of
termination. [930D-E;928F;929F]
2.2 The tenure of service of a citizen who takes up
employment with the State cannot be made to depend on the
pleasure or whim of the competent authority unguided by any
principle or policy, nor his services allowed to be
terminated on an irrational ground arbitrarily or
capriciously. The authorities cannot be invested with
uncontrolled discriminatory power to practise on
considerations not necessarily based on the welfare of the
organisation but possibly based on personal likes and
dislikes, personal preferences and prejudices.
Provincialism, casteism, nepotism, religious fanaticism, and
several other obnoxious factors may in that case freely
operate on the mind of the competent authority in deciding
whom to retain and whom to get rid of. And these dangers are
not imaginary ones. They are very much real in organisations
where there is a confluence of employees streaming in from
different States. Such a rule as in the instant case, is
capable of robbing an employee of the dignity, and making
him a supine person whose destiny is at the mercy of the
concerned authority. The impugned rule, therefore, deserves
to be quashed. [928H; 929A-B; D-F]
Central Inland Water Transport Corporation Limited &
Anr. v. Brojo Nath Ganguly & Anr., [1986] 3 S.C.C. 156;
State Electricity Board v. D. B. Ghosh, [1985] 2 S.C.R.
1014, referred to.
3.1 The Court has full discretion in the matter of
granting relief to suit the needs of the matter at hand. If
satisfied that ends of justice so demand, the Court can
certainly direct that the employer shall have the
925
option not to reinstate, provided the employer pays
reasonable compensation as indicated by it. [932G]
3.2 In the sphere of employer-employee relations in
public sector undertakings, to which Article 12 of the
Constitution of India is attracted, it cannot be posited
that reinstatement must invariably follow as a consequence
of holding that an order of termination of service of an
employee is void. Though in regard to workmen and employees,
reinstatement would be a rule, and compensation in lieu
thereof a rare exception, as regards the high level
managerial cadre the matter deserves to be viewed from an
altogether different perspective. [932A-C]
3.3 The public sector needs to be managed by capable
and efficient personal with unimpeachable integrity and the
requisite vision, who enjoy the fullest confidence of the
policy makers. It is but in public interest that such
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undertakings or their Board of Directors are not compelled
and obliged to entrust their managements to personnel in
whom, on reasonable grounds, they have no trust or faith and
with whom they are in a bonafide manner unable to function
harmoniously as a team. These factors have to be taken into
account by the Court at the time of passing the
consequential order. [932E-G]
In the instant case, it cannot be said that the
apprehension voiced by the respondent-Corporation as regards
the negative consequences of reinstatement is unreasonable.
The relations between the parties appear to have been
strained beyond the point of no return. The Trade Union of
the employees has lodged a strong protest and even held out
a threat of strike, in the context of some acts of the
appellants. Such unrest among the workmen is likely to have
a prejudicial effect on the working of the undertaking which
would prima facie be detrimental to the larger National
Interest. In such a situation neither the undertaking nor
the appellant can improve their image or performance. It is,
therefore, a fit case for granting compensation in lieu of
reinstatement. [933A-C]
4. In the private sector the managerial cadre of
employees is altogether excluded from the purview of the
Industrial Disputes Act and similar labour legislations. It
can cut the dead wood and can get rid of a managerial cadre
employee in case he is considered to be wanting in
performance or in integrity. Not so in the public sector
under a rule similar to r. 31(v). Public sector undertakings
may under the circumstances be exposed to irreversible
damage at the hands of an employee belonging to a high
managerial cadre on account of the faulty policy
926
decisions or on account of lack of efficiency or probity of
such an employee. The very existence of the undertaking may
be endangered beyond recall. Such a situation can be
remedied by enacting a regulation permitting the termination
of the employment of employee belonging to higher managerial
cadre, if the undertaking has reason to believe that his
performance is unsatisfactory or inadequate, or there is a
bonafide suspicion about his integrity, these being factors
which cannot be called into aid to subject him to a
disciplinary proceeding. If termination is made under such a
rule or regulation, perhaps it may not attract the vice of
arbitrariness or discrimination condemned by Articles 14 and
16(1) of the Constitution of India, inasmuch as the factors
operating in the case of such an employee will place him in
a class by himself and the classification would have
sufficient nexus with the object sought to be achieved.
[931A-H]
[Taking into account various factors, compensation
equivalent to 3.33 years’ salary (including allowances as
admissible) on the basis of the last pay and allowances
drawn by the appellant was determined to be a reasonable
amount to award in lieu of reinstatement, with statutory
relief under s. 89 of the Income-tax Act, 1961 read with r.
21-A of the Income-tax Rules, 1961.] [934C-D; 936D-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1969 of
1986
From the Judgment and order dated 26.9.1984 of the
Delhi High Court in Civil Writ Petition No. 2329 of 1984.
Govinda Mukhoty, K.G. Bhagat and Mahabir Singh for the
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Appellant.
G.B. Pai, O.C. Mathur, Miss Meera Mathur, D.N. Mishra
and S. Sukumaran for the Respondents.
The Judgment of the Court was delivered by
THAKKAR, J. A CAT-scan of this appeal reveals three
problems, viz:
I. Whether a rule or regulation framed by a public
sector undertaking which is an authority under the
control of Government of India and is a ’State’
within the parameters
927
of Article 12 of the Constitution of India
empowering the employer to terminate the services
of an employee by giving notice of the prescribed
period or payment of salary for the notice period
in lieu of such notice is constitutional?
II. If it is unconstitutional, whether the
employee whose services are terminated under the
said rule or regulation is always and invariably
entitled to reinstatement? Whether option to pay
compensation in lieu of reinstatement can be given
to the employer in fit cases?
III. What would be the appropriate amount to be
reason ably awarded in lieu of reinstatement?
These are the questions which call for answers in this
appeal.’
Undisputed are the following facts, the same being
incapable of being disputed:
(1) The respondent Corporation (I.T.D.C.) is
’State’ within the parameters of Article 12 of the
Constitution of India it being an instrumentality
of the State as per the law enunciated by this
Court in Central Inland Water Transport
Corporation Limited & Anr. v. Brojo Nath Ganguly
and Anr. and Central Inland Water Transport
Corporation Limited & Anr. v. Taran Kanti Sengupta
& Anr., [1986] 3 S.C.C. 156.
(2) Appellant was an employee of the Respondent
Corporation holding the post of Manager of Hotel
Ranjit, New Delhi, at the material time when his
services were terminated by the impugned order.2
(3) Services of the Appellant were terminated in
exercise of powers under Rule 31 (v) of the ITDC
Conduct Discipline and Appeal Rules 1978, (ITDC
rules) by
1.By Special Leave arising out of W.P. No. 2329 of 1984
dismissed by the High Court of Delhi summarily by its order
dated 26.9.1984.
2. Annexure P-10, Memorandum No. P-B(OP)-22 dated 18th
September. 1984.
928
giving pay for 3 months in lieu of 3 months’
notice,3 under the said rule.
Rule 31 (v) of the I.T.D.C. Rules, the constitutional
validity of which is questioned from the platform of
Articles 14 and 16 (1) of the Constitution of India,
provides:-
"31. Termination of services:
The services of an employee may be terminated by
giving such notice or notice pay as may be
prescribed in the contract of service in the
following manner:-
i) X X X X
ii) X X X X
iii) X X X X
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iv) X X X X
v) of an employee who has completed his
probationary period and who has been
confirmed or deemed to be confirmed by
giving him 90 days’ notice or pay in
lieu thereof."
This rule cannot co-exist with Articles 14 and 16 (1) of the
Constitution of India. The said rule must therefore die, so
that the fundamental rights guaranteed by the aforesaid
constitutional provisions remain alive. For, otherwise, the
guarantee enshrined in articles 14 and 16 of the
constitution can be set at naught simply by framing a rule
authorizing termination of an employee by merely giving a
notice. In order to uphold the validity of the rule in
question it will have to be held that the tenure of service
of a citizen who takes up employment with the
3. Memorandum No. P-B (OP)-22 dated 18th September, 1984.
"Please be advised that your services are no longer
required hence stand terminated with immediate effect.
In accordance with rule No. 31(v) of ITDC Conduct,
Discipline and Appeal Rule 1978, you are hereby paid
three months pay in lieu of notice and a cheque No.
089988 dated 18.9.84 drawn on State Bank of India, New
Delhi, representing a sum of Rs.7,950 (Rupees Seven
Thousand Nine Hundred and Fifty only) is enclosed."
929
State will depend on the pleasure or whim of the competent
authority unguided by any principle or policy. And that the
services of an employee can be terminated even though there
is no rational ground for doing so, even arbitrarily or
capriciously. To uphold this right is to accord a "magna
carta" to the authorities invested with these powers to
practise uncontrolled discrimination at their pleasure and
caprice on considerations not necessarily based on the
welfare of the organisation but possibly based on personal
likes and dislikes, personal preferences and prejudices. An
employee may be retained solely on the ground that he is a
sycophant and indulges in flattery, whereas the services of
one who is meritorious (but who is wanting in the art of
sycophancy and temperamentally incapable of indulging in
flattery) may be terminated. The power may be exercised even
on the unarticulated ground that the former belongs to the
same religious faith or is the disciple of the same
religious teacher or holds opinions congenial to him. The
power may be exercised depending on whether or not the
concerned employee belongs to the same region, or to the
same caste as that of the authority exercising the power, of
course without saying so. Such power may be exercised even
in order to make way for another employee who is a favourite
of the concerned authority. Provincialism, casteism,
nepotism, religious fanatism, and several other obnoxious
factors may in that case freely operate on the mind of the
competent authority in deciding whom to retain and whom to
get rid of. And these dangers are not imaginary ones. They
are very much real in organisations where there is a
confluence of employees streaming in from different states.
Such a rule is capable of robbing an employee of his
dignity, and making him a supine person whose destiny is at
the mercy of the concerned authority (whom he must humour)
notwithstanding the constitutional guarantee enshrined in
Articles 14 and 16 of the Constitution of India. To hold
otherwise is to hold that the fundamental right embedded in
Articles 14 and 16 (1) is a mere paper tiger and that it is
so ethereal that it can be nullified or eschewed by a simple
device of framing a rule which authorizes termination of the
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service of an employee by merely giving a notice of
termination. Under the circumstances the rule in question
must be held to be unconstitutional and void. This Court has
struck down similar rules in similar situations. In State
Electricity Board v. D.B. Ghosh, [1985] 2 S.C.R. 1014,
Chinnappa Reddy J. speaking for a three-Judge Bench of this
Court has observed. that a (similar) regulation,4
authorizing the
4. Regulation 34 of Regulations framed by West Bengal State
Electricity Board reading the
930
termination of the services of a permanent employee, by
serving three months’ notice or on payment of salary for the
corresponding period in lieu thereof, was ex facie ’totally
arbitrary’ and ’capable of vicious discrimination’. And that
it was a naked ’hire and fire’ rule and parallel of which
was to be found only in the "Henary VIII clause" which
deserved to be banised altogether from employer-employee
relationship. The regulation thus offended Article 14 of the
Constitution of India and deserved to be struck down on that
account. In Central Inland Water Transport Corporation
Limited and Anr. v. Brojo Nath Ganguly and Another AND
Central Inland Water Transport Corporation Limited & Anr. v.
Tarun Kanti Sengupta and Anr. (Supra) a Division Bench of
this Court has struck down a similar rule5 in so far as it
authorized termination of employment by serving a notice
thereunder as being violative of article 14 of the
Constitution of India, inter alia, in as much as it was
capable of being selectively applied in a vicious manner by
recourse to ’pick and choose’ formula.
There is, under the circumstances, no escape from the
conclusion that Rule 31(v) of the aforesaid ITDC rules which
provides for termination of the services of the employees of
the respondent corporation simply by giving 90 days’ notice
or by payment of salary for the notice period in lieu of
such notice, deserves to be quashed. As the occasion so
demands, we feel constrained to place in focus and highlight
an important dimension of the matter. The impugned
regulation is extremely wide in its coverage in the sense
that it embraces the ’blue collar’ workmen, the ’white
collar’ employees, as also the ’gold collar’ (managerial
cadre) employees of the Undertaking. In so far as the ’blue
collar’ and ’white collar’ employees are concerned, the
quashing does not pose any problem. In so far as the ’gold
collar’ (managerial cadre) employees are concerned, the
consequence of quashing of the
"34. In case of a permanent employees, his services may
be terminated by serving three months’ notice or on
payment of salary for the corresponding period in lieu
thereof. "
5. Rule 9 (i) of (Service, Discipline and Appeal) Rules of
1979 of Central Inland Water Transport Corporation Ltd.
reading:-
"9. Termination of employment for Acts other than
misdemeanour. -(i) The employment of a permanent
employee shall be subject to termination on three
months’ notice on either side. The notice shall be in
writing on either side. The company may pay the
equivalent of three months’ basic pay and dearness
allowance, if any, in lieu of notice or may deduct a
like amount when the employee has failed to give due
notice."
931
regulation calls for some reflection. In the private sector,
the managerial cadre of employees is altogether excluded
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from the purview of the Industrial Disputes Act and similar
labour legislations. The private sector can cut the dead
wood and can get rid of a managerial cadre employee in case
he is considered to be wanting in performance or in
integrity. Not so the public sector under a rule similar to
the impugned rule. Public sector undertakings may under the
circumstances be exposed to irreversible damage at the hands
of a ’gold collar’ employee (belonging to a high managerial
cadre) on account of the faulty policy decisions or on
account of lack of efficiency or probity of such an
employee. The very existence of the undertaking may be
endangered beyond recall. Neither the capitalist world nor
the communist world (where an employee has to face a death
sentence if a charge of corruption is established) feels
handicapped or helpless and countenances such a situation.
Not being able to perform as per expectation or failure to
rise to the expectations or failure to measure up to the
demands of the office is not misconduct. Such an employee
cannot thus be replaced at all. If this situation were to be
tolerated by an undertaking merely because it belongs to the
public sector, it would be most unfortunate not only for the
undertaking but also for the Nation. The public sector is
perched on the commanding heights of the National Economy.
Failure of the public sector might well wreck the National
Economy. On the other hand the success of the public sector
means prosperity for the collective community (and not for
an individual Industrial House). The profits it makes in one
unit can enable it to run a losing unit, as also to develop
or expand the existing units, and start new units, so as to
the generate more employment and produce more goods and
services for the community. The public sector need not
therefore be encumbered with unnecessary shackles or made
lame. It is wondered whether such a situation can be
remedied by enacting a regulation permitting the termination
of the employment of employee belonging to higher managerial
cadre, if the undertaking has reason to believe, that his
performance is unsatisfactory or inadequate, or there is a
bonafide suspicion about his integrity, these being factors
which cannot be called into aid to subject him to a
disciplinary proceeding. If termination is made, under such
a rule or regulation, perhaps it may not attract the vice of
arbitrariness or discrimination condemned by Articles 14 and
16(1) of the Constitution of India, inasmuch as the factor
operating in the case of such an employee will place him in
a class by himself and the classification would have
sufficient nexus with the object sought to be achieved. Of
course it is for the concerned authorities to tackle the
sensitive problem after due deliberation. We need say no
more.
932
Time is now ripe to turn to the next question as to
whether it is obligatory to direct reinstatement when the
concerned regulation is found to be void. In the sphere of
employer-employee relations in Public Sector Undertakings,
to which Article 12 of the Constitution of India is
attracted, it cannot be posited that reinstatement must
invariably follow as a consequence of holding that an order
of termination of service of an employee is void. No doubt
in regard to ’blue-collar’ workmen and ’white collar’
employees other than those belonging to the managerial or
similar high level cadre, reinstatement would be a rule, and
compensation in lieu thereof a rare exception. In so far as
the high level managerial cadre is concerned, the matter
deserves to be viewed from an altogether different
perspective-a larger perspective which must take into
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account the demands of National Interest and the resultant
compulsion to ensure the success of the public sector in its
competitive co-existence with the private sector. The public
sector can never fulfil its life-aim or successfully vie
with the private sector if it is not managed by capable and
efficient personnel with unimpeachable integrity and the
requisite vision, who enjoy the fullest confidence of the
’policy-makers’ of such undertakings. Then and then only can
the public sector undertaking achieve the goals of
1. maximum production for the benefit of the community,
2. social justice for workers, consumers and the people, and
3. reasonable return on the public funds invested in the
undertaking.
It is in public interest that such undertakings or
their Board of Directors are not compelled and obliged to
entrust their managements to personnel in whom, on
reasonable grounds, they have no trust or faith and with
whom they are in a bonafide manner unable to function
harmoniously as a team working arm-in-arm with success in
the aforesaid three-dimensional sense as their common goal.
These factors have to be taken into account by the Court at
the time of passing the consequential order, for the Court
has full discretion in the matter of granting relief, and
the Court can sculpture the relief to suit the needs of the
matter at hand. The Court, if satisfied that ends of justice
so demand, can certainly direct that the employer shall have
the option not to reinstate provided the employer pays
reasonable compensation as indicated by the Court.
So far as the facts of this case are concerned, we are
satisfied that
933
this is a fit case for granting compensation in lieu of
reinstatement, instead of granting ’reinstatement’. For, it
cannot be said that the apprehension voiced by the
respondent-Corporation as regards the negative consequences
of reinstatement is unreasonable. We do not propose to
pronounce on the validity or otherwise of the allegations
and counter allegations made by the parties in their
respective affidavits. Suffice it to say that the relations
between the parties appear to have been strained beyond the
point of no return. The Trade Union of the employees has
lodged a strong protest and even held out a threat of
strike, in the context of some acts of the Appellant. Such
unrest among the workmen is likely to have a prejudicial
effect on the working of the undertaking which would prima
facie be detrimental to the larger National interest, not to
speak of detriment to the interest of concerned undertaking.
We are not impressed by the submission that the Union is
virtually a ’company’s Union. In any case such disputed
questions of facts cannot be resolved in this forum. We are
prima facie satisfied that the apprehension is not ill-
founded. What is more, reinstatement is perhaps not even in
the interest of the appellant as he cannot give his best in
the less-than-cordial-atmosphere and it will also result in
misery to him, let alone the other side. Neither the
undertaking nor the appellant can improve their image or
performance, or, achieve success. In fact it appears to us
that both sides will be unhappy and miserable. These are
valid reasons for concluding that compensation in lieu of
reinstatement, and not reinstatement, is warranted in the
circumstances of the present case.
Counsel for the appellant having forcefully pressed the
claim for reinstatement, has contended that in case the
Court is disinclined to order reinstatement, the appellant
ought to be awarded the full salary and allowances which
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would have accrued to him till the date of his
superannuation which is more than 8 years away. We think it
would be unreasonable to award 8 years’ salary and
allowances, as lump sum compensation in lieu of
reinstatement. We consider it unreasonable because:-
(i) To do so would tantamount to paying to the
appellant EVERY MONTH 20% OVER AND ABOVE what he
would have earned if he was continued in service
WITHOUT DOING ANY WORK as the lump sum payment of
8 years’ salary invested at 15% interest (it being
the current rate of interest) would yield a
monthly recurring amount equivalent to his current
monthly salary ’plus’ 20%;
934
(ii) To do so would be tantamount to paying to him
his present salary etc. plus 20% more every month
not only till his date of retirement but till his
death (if he lives longer) and also to his heirs
thereafter, IN PERPETUITY.
(iii) Besides, the corpus of the lumpsum amount so
paid as compensation would remain with him in-
tact.
Obvious it is, therefore, that the Court would be conferring
a ’bonanza’ on him and not compensating him by accepting
this formula. The submission, accordingly, deserves to be
repelled unhesitatingly.
In our considered opinion, compensation equivalent lo
3.33 years’ salary (including allowances as admissible) on
the basis of the last pay and allowances drawn by the
appellant would be a reasonable amount to award in lieu of
reinstatement taking into account the following factors
viz:-
1. The corpus if invested at the prevailing rate of
interest (15%) will yield 50% of the annual salary and
allowances. In other words every year he will get 50% of
what he would have earned by way of salary and allowances
with four additional advantages:
(i) He will be getting this amount without
working.
(ii) He can work somewhere else and can earn
annually whatever he is worth over and above,
getting 50% of the salary he would have earned.
(iii) If he had been reinstated he would have
earned the salary only upto the date of
superannuation (upto 55, 58 or 60 as the case may
be) unless he died earlier. As against this 50% he
would be getting annually he would get not only
beyond the date of superannuation, for his &
lifetime (if he lives longer), but even his heirs
would get it in perpetuity after his demise.
(iv) The corpus of lump sum compensation would re
main intact, in any event.
No doubt he will not have the advantage of further
promotion, but
935
then what are his prospects, given the present relationship?
Besides, the chances of promotion can be set off against the
risk of a departmental disciplinary proceeding. Factors (i),
(ii), (iii) and (iv) are of such great significance that
compensation on the basis of 50% of his annual salary and
allowances is much more to his advantage. We are thus
satisfied that compensation in lieu of reinstatement on the
aforesaid basis is more than reasonable. We. therefore.
direct that:
I -- The Respondent Corporation shall reinstate the
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appellant with full back-wages (including usual
allowances), or, at its option,
II-- The Respondent Corporation shall pay to the
appellant:-
(1) Salary including usual allowances for the
period commencing from the date of termination of
his service under the impugned order till the date
of payment of compensation equivalent to 3.33
years’ salary including usual allowances to him.
(2) Provident Fund amount payable to the appellant
and retirement benefits computed as on the date of
payment as per clause 1 shall be paid to him
within 3 months from the said date.
III- The appellant shall vacate and make over
possession of the premises provided to the
appellant by the respondent company before the
expiry of 3 months from the date of this order or
within one month of the day on which payment under
clause II is made, whichever is later.
IV - Respondent shall pay the costs to the Appellant.
V -- Interim order shall stand vacated subject to the
direction embodied in Clause III.
VI - Since the amount is being paid in one lump sum, it
is likely that the employer may take recourse to
Section 192 of the Income-tax Act, 1961 which
provides that any person responsible for paying
any income chargeable under the head ’Salaries’,
shall, at the time of payment, deduct income-tax
on the amount payable at the average rate of
936
income computed on the basis of the rates in force
for the financial year in which the payment is
made, on the estimated income of the assessee
under this head for that financial year. If,
therefore, the employer proceeds to deduct Income-
tax as provided by Section 192, we would like to
make it abundantly clear that the appellant would
be entitled to relief under Section 89 of the
Income-tax Act which provides that where by reason
of any portion of asses see’s salary being paid in
arrears or in advance by reason of his having
received in any one financial year salary for more
than 12 months or a payment which under the
provisions of clause (3) of Section 17 is a profit
in lieu of salary, his income is assessed at a
higher rate than that it would otherwise have been
assessed, the Income-tax officer shall on an
application made to him in this behalf grant such
relief as may be prescribed. The prescribed relief
is set out in Rule 21-A 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 as also the
compensation in lieu of reinstatement and the
relief should be given as provided by Section 89
of the Income-tax Act read with Rule 21-A of the
Income-tax Rules. The appellant is indisputably
entitled to the same. If any application is
required to be made, the appellant may submit the
same to the competent authority and the
Corporation shall, through its Tax Consultant,
assist the appellant for obtaining the relief.
The appeal is allowed. The order of the High Court is
set aside. Order in the aforesaid terms is passed.
P.S.S. Appeal allowed.
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