SRI R MANJUNATHA SWAMY vs. M/S IBM INDIA PVT LTD

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WP/30568/2015HC KarnatakaKAHC01053481201523 December 2020Bench: M.NAGAPRASANNA5 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that TDS deduction on backwages paid as compensation in lieu of reinstatement is contrary to law, especially when the workman was not assessed to tax at the time of termination. The employer was directed to pay the settled amount without TDS deduction.

What were the facts?

The petitioner challenged a Labour Court award rejecting his claim for reinstatement and backwages. During the writ petition, the parties settled the dispute, but a disagreement arose regarding the employer's deduction of Tax Deducted at Source (TDS) from the settlement amount.

What were the issues?

Whether Tax Deducted at Source (TDS) is deductible from compensation paid as backwages in lieu of reinstatement, and if the workman is entitled to relief under Section 89 of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 17(3),Section 89

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 23RD DAY OF DECEMBER, 2020

BEFORE

THE HON’BLE MR. JUSTICE M. NAGAPRASANNA

WRIT PETITION NO.30568 OF 2015 (L-TER)

BETWEEN :

SRI R. MANJUNATHA SWAMY AGE 26 YEARS, S/O. R. RAJASHEKARAIAH, R/AT MANJUNATHA SWAMY NILAYA, HOSAHLLI, GOLLARAPALYA, MAGADI MAIN ROAD,VISHWANEEDAM POST, BANGALORE-560 091. ...PETITIONER (BY SRI B. RAVISHANKAR FOR J. KANIKARAJA, ADOVCATE – PHYSICAL HEARING) AND : M/S. IBM INDIA PVT. LTD. ESTEEM ASRANI, NO.3K, SARJAPUR ROAD, KORAMANGALA INDUSTRIAL LAYOUT, BANGALORE-560 034, REPRESENTED BY ITS MANAGING DIRECTOR. …RESPONDENT (BY SRI THOMAS VELLAPALLY, ADVOCATE – PHYSICAL HEARING)

THIS WRIT PETITION IS FILED UNDER ARTICLE 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE

2 AWARD DATED 31.03.2015 PASSED BY II ADDITIONAL LABOUR COURT, BANGALORE IN I.D. NO.51/2012 VIDE ANNEXURE-A.

THIS PETITION COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP THIS DAY, THE COURT MADE THE FOLLOWING :

ORDER

The petitioner in this writ petition has called in question the award of the labour Court rejecting the dispute filed by the petitioner claiming reinstatement along with full backwages.

2.

During the pendency of the writ petition, learned counsel appearing for the parties submitted that the matter is likely to be settled and had on the last date of hearing submitted that the matter has indeed been settled between the parties, what remained was only payment of money and sought a week’s time. Today, the parties would submit that they would pay the amount as settled between the parties. The only choke is with regard to deduction of TDS by the employer while settling an amount of compensation in lieu of reinstatement and backwages to the petitioner workman.

3.

The writ petition is filed challenging the order of Labour Court declining the dispute raised by the workman seeking reinstatement and backwages and the same prayer is sought in this petition. The workman was terminated by respondent employer on 30.04.2012 and the parties have entered into a settlement on 23.12.2020. Therefore, the compensation which is now payable to the workman in terms of the settlement arrived at between the parties is in the form of backwages which is spread over from the date of termination till today. Therefore, tax deducted at source from the amount of compensation payable to the workman would become contrary to law.

4.

I am fortified by a judgment of the Madras High Court in the case of D. THAKUR V. THE PRESIDING OFFICER, II ADDITIONAL LABOUR COURT, CHENNAI rendered in W.P. Nos.31904 and 31905 of 2007 by its order dated 03.12.2014, wherein learned Judge of the Madras High Court has held as follows –

4 “6. While so, during the pendency of these writ petitions, the workman and the Management entered into a compromise and the Management has agreed to pay a sum of Rs.9,00,000/- towards backwages for the period of non-employment from 30.11.1995 to 30.12.2009.

However, the Management has deducted a sum of Rs.48,610/- towards TDS payable to the Income Tax Department and a demand draft for Rs.7,78,100/- (Rupees Seven Lakhs Seventy Eight Thousand and One Hundred only) is given to the workman. Further, the Management has paid a sum of Rs.73,290/- towards gratuity for the service rendered by the workman by way of another demand draft. The Management has also agreed to pay a sum of Rs.2,50,000/- towards superannuation fund.

8.

At this juncture, it is brought to my notice that the workman need not pay income tax for the backwages since the backwages are spread over for so many years (from 30.11.1995 to 30.12.2009) and in that event, there is no reason to deduct TDS on the backwages. It is also stated that the workman is entitled to claim relief under Section 89 of the Income Tax Act.”

5.

Learned counsel appearing for respondent – employer would, however, place reliance upon Sub-Section

(3) of Section 17 of the Income Tax Act, 1961 which deals with computation of salary for the purposes of assessment of tax, “profits in lieu of salary” includes compensation for assessment of tax, it is only when the assessee was amenable to tax at the relevant point of time which

5 admittedly is not the case when the workman was terminated on 30.04.2012 was assessed to tax. Therefore, the deduction of TDS by the employer while paying compensation in terms of the settlement will be contrary to law. Therefore, the employer is directed to make good the settled amount of compensation without deduction of TDS to the petitioner. With the aforesaid observation, the writ petition stands disposed.

6.

The learned counsel appearing for respondent would submit that the amount of compensation payable as settled i.e., Rs.11,00,000/- would be paid to the petitioner workman within four weeks from today and also would undertake to issue a relieving letter to the petitioner workman.

Sd/- JUDGE

hnm

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