ORDER
M.K. Chaturvedi, J. M.
1. These two appeals by the assessee are directed against the order of the CIT(A), Pune, and pertain to the asst. yrs. 1990-91 and 1991-92. Since the issues involved are identical, for the sake of convenience, these appeals are consolidated and disposed of by a common order.
2. Briefly the facts : The assessee is a company. It has its place of business at Shivsagar Estate, Block A, Dr. Annie Besant Road, Bombay-400 018. It is assessed by the ITO, TDS Circle, Thane. During the relevant assessment years, the assessee initiated a Scheme of Voluntary Separation, in respect of the workmen employed at its factory at Kalwa, Thane. In the asst. yr. 1990-91, a total of 56 workmen opted for this Scheme of Voluntary Separation, while in the asst. yr. 1991-92, 13 workmen opted for this scheme.
3. Under the Voluntary Separation Scheme, the workmen were entitled to receive various amounts of compensation in accordance with the terms of settlement. The said workmen were immediately prior to their separation were said to be employed by the assessee to carry out the work of a manual, unskilled, skilled, technical, operational, clerical or supervisory nature. It was stated that no workman was employed by the assessee-company in the managerial or administrative capacity.
4. In computing the income chargeable under the head “Salaries” for the purpose of deduction of income-tax at source under s. 192 of the IT Act, 1961 (hereinafter referred as “the Act”), the assessee-company allowed each workman covered by the Scheme, the benefit of exemption of Rs. 50,000 as per the provisions of s. 10(10B) of the Act. The assessee-company also filed annual returns of salaries under s. 206 of the Act, r/w r. 37. The factum of exemption made under s. 10(10B) of the Act was reflected in the said returns.
5. The Assessing Officer (AO) in his order passed under s. 201 of the Act, took the view that assessee had wrongly allowed exemption under s. 10(10B) of the Act. He was of the opinion that the Scheme of Voluntary Separation adopted by the assessee was not a scheme of retrenchment. Besides, the recipients of the compensation were held not to be workmen as defined in s. 2(s) of the Industrial Disputes Act. Consequently, AO raised the demand of Rs. 34,33,276 and Rs. 9,09,090 by way of tax for the asst. yrs. 1990-91 and 1991-92 respectively together with interest under s. 201(1A) of the Act.
6. Being aggrieved by the order of the AO, assessee filed appeals thereagainst before the CIT(A)-II, Pune. The CIT(A) took the view that AO was justified in holding that the recipients of the compensation under the Voluntary Separation Scheme were not entitled to the exemption under s. 10(10B) of the Act. Accordingly, assessee was not justified in treating the said compensation as exempt. However, he held that the future compensation payable by the assessee to certain workmen who had opted for the monthly scheme had not accrued for the asst. yrs. 1990-91 and 1991-92 and that the assessee was under no obligation to deduct the tax thereon. Being aggrieved by the said order, the assessee-company filed appeals before the Tribunal.
7. Shri S. E. Dastur and Shri R. Murlidhar, learned counsel for the assessee, appeared before us. It was contended that the CIT(A) was not correct in deciding the following three issues against the assessee :
(a) that the Voluntary Separation Scheme did not amount to retrenchment;
(b) that the recipients of the compensation were not workmen as defined in the Industrial Disputes Act;
(c) the assessee wrongly allowed Rs. 50,000 as the lump sum amount under s. 10(10B).
8. In order to substantiate the contention that the Voluntary Separation Scheme did amount to retrenchment, the learned counsel relied on the following precedents :
(i) Y. R. Rege vs. ITO (ITA No. 104/Bom/81, dt. 31st Dec., 1981)
(ii) ITO vs. GSI (BCAJ Jan. 1983, p. 23)
(iii) CIT vs. S. R. Kulkarni (BCAJ May 87 p. 117)
(iv) V. Vaideeswaran vs. ITO (1983) 16 TTJ (Mad) 401.
9. The learned counsel further contended that the provisions of s. 201 can be applied only when the employer either does not deduct the tax, or after deducting it fails to pay the tax as required by the Act. Sec. 192 requires that the employer should deduct the amount of tax on the estimated income of the employee. While framing the estimate, the employer is expected to act honestly and fairly. If, there is no mala fide on the part of the assessee then no action can be taken under s. 201 for short deduction of the tax. For this proposition learned counsel relied on the decision of the Tribunal in Procter & Gamble India Ltd. vs. ITO (ITA Nos. 781 to 784/Bom/90 dt. 18th Sept., 1995).
10. Shri A. P. Pawar, learned Departmental Representative, appeared before us. It was vehemently contended that assessee did not comply with the prescription of law. Default was committed in making the short deduction of tax. Voluntary Separation Scheme was different from retrenchment scheme. The compensation was not given to the ‘workmen’. As such, conditions contained under s. 10(10B) were not satisfied.
11. The learned Departmental Representative stated that the said compensation was paid on the basis of Voluntary Separation Scheme. This scheme was arrived at by the company after entering into settlement with various trade unions and employees association. The Voluntary Separation Scheme of the assessee-company was open to management staff also. Under this scheme, an employee was required to make request for voluntary retirement from the company though an option for lump sum payments or monthly payments of the amount of compensation was also admissible to him.
12. It was further stated that the facts of the present case are different from that of the decisions relied on by the learned counsel for the assessee. In those cases, the issue of exemption under s. 10(10B) of the Act was considered in the context of the terms of the scheme framed by the concerned organizations. The terms and conditions of the scheme of two organisations cannot be similar and, therefore, it cannot be said that Voluntary Separation Scheme was of the nature of retrenchment. Besides, in the cases relied upon by the learned counsel, the issue was not about short deduction of tax at source, but of deciding whether remuneration on which tax had already been deducted was liable to tax or not.
13. The scheme of the assessee-company is not meant to reduce the surplus staff. The liability to deduct tax at source rests with the employer. The proviso (ii) of s. 10(10B) cannot be applied by the employer to bring its case in an exemption section and then not deducting tax at source. The employer cannot attach a meaning to an expression, which is absent. There was no ambiguity in regard to the non-applicability of the provision of s. 10(10B).
14. It was further submitted that the second condition of s. 10(10B) of the Act, that it applies to workmen was also not satisfied. There is no evidence to show that various employees in relation to which exemption under s. 10(10B) was claimed fell in the category of workmen. Learned Departmental Representative, further relied on the order of the Revenue authorities.
15. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. Sec. 201 of the Act, stipulates the consequences, which follow in the eventuality of failure to deduct or pay the amount of TDS. The defaulter is treated as an assessee in default. Penalty provisions as contemplated under s. 221 of the Act may be invoked. Such person is also liable to pay interest on the amount of such tax from the date on which such tax was deductible to the date when such tax is actually paid. These consequences are without prejudice to each other and both operate simultaneously even against persons, who, being liable fail to make deduction of tax at source.
16. The liability that is cast upon the person under s. 201 of the Act is not because of any notice of demand, but because of the operation of the statute itself. Once the liability is attached no further demand is needed to recover the tax and interest due thereon. But where the tax is not deductible at source under the relevant provision, the further questions of paying such tax to Central Government within any period of time and the payment of interest under s. 201(1)/(1A) do not arise.
17. In the case of Y. R. Rege (supra), the Tribunal held that the assessee was a workman and compensation awarded to him under the Voluntary Separation Scheme was a compensation to the workman for the retrenchment of the services under the provisions of the Industrial Disputes Act. In this case, the Tribunal relied on the decision of the Labour Court, Madras, rendered on identical facts.
18. In the case of Shri G. S. I. (supra), the assessee was an employee with I. B. M. W. T. Corporation, Bombay. Under the Voluntary Separation Scheme, the assessee was to receive an amount in three equal instalments. The first instalment was received during the year. AO included the entire sum ignoring the conditions of Voluntary Separation Scheme programme. The Tribunal held that the amount received under the Voluntary Separation Scheme is income only in the year of receipt and the same would be eligible for exemption under s. 10(10B) of the Act.
19. In the case of S. R. Kulkarni (supra), the assessee was an employee. He was entitled to receive three instalments in respect of the amount due on Voluntary Separation Programme. The assessee offered for taxation only the first instalment. He made a claim of exemption under s. 2(24) and under s. 10(10B) of the Act. AO rejected the claim. AAC relying on the decision in the case of another employee, Y. R. Rege, held that the same was exempt under s. 10(10B) of the Act. The Tribunal upheld the order of the AAC.
20. In the case of V. Vaideeswaran (supra), the assessee received compensation from the employer on termination of contract. The Tribunal held that it was not approved as payment ‘in lieu of salary’. The receipt was by way of a gift from the principal and was a capital receipt not chargeable to tax in the hands of the assessee. The assessee’s claim that it was exempt under s. 10(10B) was not decided by the Tribunal as the income was found to be a capital receipt.
21. The expression “workman” has been defined in cl. (c) of the Expln. to s. 10(10B) r/w s. 2(s) of the Industrial Disputes Act, 1947, so as to mean ‘any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal or discharge or retrenchment has led to that dispute, but does not include any such person –
(i) who is subject to Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or
(ii) who is employed in the Police Service or as an officer or other employee of a prison; or
(iii) who is employed mainly in a managerial or administrative capacity; or
(iv) who being employed in supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensum or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.
22. Adverting now to the requirement of s. 10(10B) we find that exemption is available in respect of any compensation received by a workman (as defined in aforesaid para) –
(i) under the Industrial Disputes Act, 1947 (14 of 1947), or
(ii) under any other Act or Rules, orders or notifications issued thereunder; or
(iii) under any standing orders; or
(iv) under any award, contract of service or otherwise, at the time of his retrenchment.
23. Under s. 192 of the Act, person responsible for paying income chargeable under the head ‘Salaries’, is required to make TDS on the estimated income of the assessee. The word ‘estimate’ connotes approximate calculation or judgment. It stresses the element of uncertainty in venturing an opinion. It involves a personal appraisal or a value judgment. An estimate is based on the pertinent facts available at the time, the implication being that other unknown factors might enter at a later stage. An estimate also involves a consideration of the different aspects of a thing, or a weighing the pros and cons, with the attendant possibility of error in judgment. While making the estimate an employer is required to act honestly and fairly. The prescription of s. 201 of the Act comes into play only when the act of short deduction is bereft of the bona fide reasoning.
24. On the question, whether the Voluntary Separation Scheme did amount to retrenchment, we find that the Tribunal in the cases cited (had) supra given the answer that it may amount to retrenchment. We need not to go into merit as no specific reasoning is attributed to counter the precedents relied upon. It is true that the precedent is only a ratiowise luminosity within the edifice of facts. But when question is connected with the making of estimate, the attendant possibility of error cannot be overlooked. What we got to see whether the view taken in the matter could be taken as a possible view. Revenue authorities did not examine the terms and conditions of the present scheme with reference to the law laid down in the precedents.
It was categorically stated before us that the workmen immediately prior to their separation were employed by the assessee to carry out the work of a manual, unskilled, skilled, technical, operational, clerical or supervisory nature. No workman was employed by the company in the managerial or supervisory capacity. No contrary finding is given in the order. No specific case was pointed out to reveal that this particular employee did not satisfy the test of s. 10(10B) due to that particular reason.
25. In view of the above, it can be presumed that while forming the opinion that a sum of Rs. 50,000 is deductible under s. 10(10B) of the Act, in respect of each of the workers who opted for Voluntary Separation Scheme, assessee acted honestly and fairly and there was no mala fide on the part of the assessee. Accordingly, in our opinion, the case of the assessee falls beyond the ken of s. 201. We direct the AO to delete the additions.
26. In the result, appeals of the assessee stand allowed.