V.M.JOHNY vs. STATE OF KERALA,

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DEVAN RAMACHANDRAN WEDNESDAY, THE 24TH DAY OF JULY 2019 / 2ND SRAVANA, 1941 WP(C).No.1310 of 2019 PETITIONER/S: V.M.JOHNY, AGED 57 YEARS, DEPUTY MANAGER, KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD., REGIONAL OFFICE, IDUKKI-685602. BY ADVS. SRI.ELVIN PETER P.J. SRI.K.R.GANESH SRI.V.RAJASEKHARAN NAIR RESPONDENTS: 1 STATE OF KERALA, REPRESENTED BY ITS SECRETARY, DEPARTMENT OF CO- OPERATION, SECRETARIAT, THIRUVANANTHAPURAM-695001. 2 THE REGISTRAR OF CO-OPERATIVE SOCIETIES(GENERAL), THIRUVANANTHAPURAM-695001. 3 THE ADDITIONAL REGISTRAR (OFFICER ON SPECIAL DUTY), THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD., STATUE JUNCTION, THIRUVANANTHAPURAM-695001. 4 THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD., REPRESENTED BY ITS MANAGING DIRECTOR, STATUE JUNCTION, THIRUVANANTHAPURAM-695001. 5 THE MANAGING DIRECTOR, THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD., STATUE JUNCTION, THIRUVANANTHAPURAM-695001.

WP(C).Nos.1310 & 1342 of 2019 -2- 6 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2 (1), RANGE-2, AYAKAR BHAVAN, KOWDIAR, THIRUVNANTHAPURAM. (ADDL.R6 IS IMPLEADED AS PER ORDER DATED 27-03-2019 IN I.A. NO. 1/2019.) BY ADVS. SMT.C.S.SHEEJA,SR.GP SMT.NISHA GEORGE,SC SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT SRI.M.SASINDRAN,SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 24.07.2019, ALONG WITH WP(C).1342/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

WP(C).Nos.1310 & 1342 of 2019 -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DEVAN RAMACHANDRAN WEDNESDAY, THE 24TH DAY OF JULY 2019 / 2ND SRAVANA, 1941 WP(C).No.1342 of 2019 PETITIONER/S: 1 THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK TECHNICAL STAFF ASSOCIATION, REG NO.170/83,STATUE, THIRUVANANTHAPURAM-695 001, REP. BY ITS GENERAL SECRETARY SRI. M.RAJAN. 2 S.KALYANAKRISHNAN, REGIONAL MANAGER, THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD, REGIONAL OFFICE,PALAKKAD-678 001. BY ADVS. SRI.ELVIN PETER P.J. SMT.N.R.REESHA SRI.K.R.GANESH RESPONDENT/S: 1 STATE OF KERALA, REPRESENTED BY ITS SECRETARY, DEPARTMENT OF CO- OPERATION, SECRETARIAT, THIRUVANANTHAPURAM-695 001. 2 THE REGIONAL OF CO-OPERATIVE SOCIETES (GENERAL), THIRUVANANTHAPURAM-695 001.

WP(C).Nos.1310 & 1342 of 2019 -4- 3 THE ADDITIONAL REGISTRAR, (OFFICE ON SPECIAL DUTY), THE KERALA STATE CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD, STATUE JUNCTION, THIRUVANANTHAPURAM-695 001. 4 THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD, REPRESENTED BY ITS MANAGING DIRECTOR, STATUE JUNCTION, THIRUVANANTHAPURAM-695 001. 5 THE MANAGING DIRECTOR, THE KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD, STATUE JUNCTION, THIRUVANANTHAPURAM-695 001. 6 ADDL R6. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1), RANGE-2, AYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM. (ADDITIONAL 6TH RESPONDENT IS IMPLEADED AS PER THE ORDER DATED 4.4.2019 IN I.A.NO.1/2019). BY ADVS. SMT.C.S.SHEEJA, SR. GP SMT.NISHA GEORGE,SC SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT SRI.M.SASINDRAN,SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 24.07.2019, ALONG WITH WP(C).1310/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

WP(C).Nos.1310 & 1342 of 2019 -5- JUDGMENT These writ petitions have been filed by the employees of the Kerala State Co-operative Agricultural & Rural Development Bank (hereinafter referred to 'the Bank' for short) and an Association of these employees, alleging that the resolution adopted by the Bank on 12.10.2017, a copy of which is on record as Ext.P5 in both these writ petitions, are contrary to law, particularly to the extent to which it says that the applicable deductions towards Income Tax at source will be enforced after the year 2018, but not prior to that. The petitioners say that Ext.P5 resolution appears to have been adopted by the Bank solely on the basis of an audit objection as regards the maintenance of a Superannuation Fund by the Bank, but not with respect to the Tax payable on payments from it and therefore, that Ext.P5 resolution is contrary to law. 2. I notice that after these writ petitions were admitted, on the basis of certain orders from this Court, the petitioners have brought the Income Tax Department as an additional respondent on the party array. The said respondent has now filed a statement on record, wherein the following

WP(C).Nos.1310 & 1342 of 2019 -6- averments have been made: "3. It is submitted that the Board decisions reflected in Exhibit P5 regarding deduction of tax at source from the payments effected with effect from 01-04-2018 from the SRBF to the retired employees and also to include the SRBF contributions credited to the accounts of the employees in their Form 16 statement from the FY 2017-18 are in accordance with Income Tax law and therefore no interference on the part of the Hon'ble Court is called for. The petitioners in the present writ petition seem to be only aggrieved against the decision to effect TDS from the payments made to the retired employees from SRBF with effect from 01-04-2018. The main ground in support of this contention is that no such deduction was made in respect of payments made from SRBF prior to 01-04-2018 and therefore the decision involves violation of Article 14 of the Constitution. With regard to the liability of the payments to taxation the petition does not contain any averment other than reference to the SLP no.2737/2016 granted by the Supreme Court against the decision of this Hon'ble High Court in ITA No.103/2011 and the stay granted against the recovery of the demand. Though it is suggested in the writ petition that the issue whether the tax burden should be saddled upon the employees made out of the SRBF is pending consideration before the

WP(C).Nos.1310 & 1342 of 2019 -7- Hon'ble Supreme Court, it is submitted that it is far from true. The SLP 2737/2016 has been filed by M/s.Kerala State Co-operative Agricultural and Rural Development Bank, the employer of the petitioners against the confirmation of disallowances of the claim u/s 80P of the Income Tax Act and claim of expenditure by way of contribution towards SRBF in that assessee's assessment. The contribution to SRBF was allowed as it was paid not to an approved superannuation fund. Only contributions to approved superannuation fund are allowable as deduction u/s 36 (1)(iv) of the Income Tax Act. In the petitioners case the question involved is whether the payments out of SRBF which is an unapproved superannuation fund is assessable as income under the head salary in their individuals hands. Therefore the reliance on the SLP admitted and stay granted in the case of the petitioner's employer has no relevance in the present context. Admittedly the payments made out of SRBF to the retired employees is from an unapproved fund maintained by the employer for providing retirement benefits to the employees. Such payments received by a former employee is in the nature of “profits in lieu of salary” u/s 17 (3) (iii) (B). The fact that there was no TDS from the payments made prior to 01-04- 2018 also has no relevance in the present context. It appears that the employer failed in its duty in deducting tax from such payments for the earlier

WP(C).Nos.1310 & 1342 of 2019 -8- periods and the Revenue is entitled to recover the TDS amounts omitted to be deducted and remitted to the government by a resort to appropriate steps." 3. Sri.Christopher Abraham, learned Standing Counsel for the Income Tax Department, pertinently submits that the terms of Ext.P5 resolution, to the extent to which it confines the deduction of tax at source only on the payments from the Superannuation Fund made after 01.04.2018, are also legally untenable since every payment made from the said Fund is taxable under Section 17(3) of the Income Tax Act, because these amounts can only be construed to be either "profits in lieu of salary" or "deferred salary". According to him, therefore, Ext.P5 is in error to the extent to which it says that income tax is payable only by the persons who retired after 01.04.2018 and obtains payment from the Fund. He submits that the Income Tax Department, therefore, reserves their right to take appropriate action, if so warranted. 4. In answer to the above, Sri.George Poonthottam, learned senior counsel, assisted by Smt.Nisha George, learned counsel appearing for the respondent Bank, submits that they were constrained to adopt Ext.P5 resolution only because they were threatened with super cession by the

WP(C).Nos.1310 & 1342 of 2019 -9- official respondents for allegedly not having rectified certain audit objections with respect to the Superannuation Fund. He says that the Bank has nothing against the petitioners and that they were constrained to resolve to deduct amounts in future only because they were advised that this is necessary when the payments are to be made with to the employees from the Fund, though the earlier payments had been made without such deductions. 5. The learned Senior Government Pleader, Smt.C.S.Sheeja, appearing for the official respondents, submits that statutory action had been initiated against the Bank, as mentioned by its learned senior counsel on account of various allegations and not merely for the payment of amounts under the Superannuation Fund. She says that as regards the Fund is concerned, the specific objection was that it was being maintained without obtaining the prior approval of the competent Statutory Authorities, as is mandated by the Kerala Co-operative Societies Act. She says that therefore, Ext.P5 resolution cannot be found to be in error and that the petitioners cannot obtain locus to challenge the same. 6. I have considered the afore submissions but I

WP(C).Nos.1310 & 1342 of 2019 -10- do not deem it necessary to go into the intrinsicate details of all the allegations and counter allegations made in the case . This is because, the only issue germane in this writ petition is whether Ext.P5 resolution is valid in law-with the petitioners alleging that it is not so and that they are entitled to receive the benefits under the Superannuation Fund without deduction of Income Tax at source; while Sri.Christopher Abraham, learned Standing Counsel for the Income Tax Department, contends to the contrary and asserts that they have the right to proceed against the employees, including the petitioners, if so warranted in future. 7. In the afore circumstances, I cannot find the challenge against Ext.P5 to be well founded and I do not deem it necessary to consider the question whether the deduction as suggested therein is necessary under the provisions of the Income Tax Act. I am choosing not to answer it because the afore extracted averments in the counter affidavit of the Income Tax Department clearly indicate that they assert statutory right to claim such amounts and to proceed against the payments from the Superannuation Fund as taxable income; and therefore, it is only when the Income Tax

WP(C).Nos.1310 & 1342 of 2019 -11- Department decides to take action will these issues be necessary for final adjudication. In the afore circumstances, I am constrained, being without any other option, to dismiss these writ petitions; but leaving liberty to the petitioners to seek refund or credit of the amounts deducted by the Bank, as per their individual entitlement in law. Sd/- DEVAN RAMACHANDRAN vv JUDGE

WP(C).Nos.1310 & 1342 of 2019 -12- APPENDIX OF WP(C) 1310/2019 PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE RULES LAID DOWN FOR THE SRBF BY THE BANK. EXHIBIT P2 TRUE COPY OF THE PROCEEDINGS DATED 14.1.1983 ISSUED BY THE 2ND RESPONDENT. EXHIBIT P3 TRUE COPY OF THE ORDER DATED 30.7.2010 ISSUED BY THE COMMISSIONER OF INCOME TAX. EXHIBIT P4 TRUE COPY OF THE INTERIM ORDER DATED 1.2.2016 IN SLP NO.2737/2016 OF THE HON'BLE SUPREME COURT. EXHIBIT P5 TRUE COPY OF THE DECISION OF THE BOARD OF DIRECTORS OF THE BANK DATED 12.10.2017. EXHIBIT P6 TRUE COPY OF THE ORDER DATED 28.11.2018 ISSUED BY THE 3RD RESPONDENT. EXHIBIT P7 TRUE COPY OF THE ORDER DATED 30.10.2018 ISSUED BY THE 3RD RESPONDENT.

WP(C).Nos.1310 & 1342 of 2019 -13- APPENDIX OF WP(C) 1342/2019 PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE RULES LAID DOWN FOR THE SRBF BY THE BANK EXHIBIT P2 TRUE COPY OF THE PROCEEDINGS DATED 14.1.1983 ISSUED BY THE 2ND RESPONDENT EXHIBIT P3 TRUE COPY OF THE ORDER DATED 30.7.2010 ISSUED BY THE COMMISSIONER OF INCOME TAX EXHIBIT P4 TRUE COPY OF THE INTERIM ORDER DATED 1.2.2016 IN SLP NO 2737/2016 OF THE HON'LE SUPREME COURT. EXHIBIT P5 TRUE COPY OF THE DECISION OF THE BOARD OF DIRECTORS OF THE BANK DATED 12.10.2017 EXHIBIT P6 TRUE COPY OF THE ORDER DATED 28.11.2018 ISSUED BY THE 3RD RESPONDENT EXHIBIT P7 TRUE COPY OF THE ORDER DATED 30.10.2018 ISSUED BY THE 3RD RESPONDENT //TRUE COPY// PA TO JUDGE