The Madras High Court has said income tax cannot be deducted from the severance package given to employees of Hindustan Photo Film Manufacturing Company who had opted for a VRS scheme.
Justice T S Sivagnanam in his recent order allowed a prayer by the HPF Film Workers' Welfare Centre not to deduct income tax from the payout given to employees opting for VRS package.
The judge said the monetary benefit to the employees was in the nature of compensation, pursuant to the Centre's decision specifically for HPF employees.
"Therefore, the amount would be exempted from Income Tax in terms of the first proviso under Section 10(10B) of the IT Act. Accordingly, the same shall not fall within the definition of income. Income tax (wherever deducted) shall be disbursed to employees by the respondents."
Other prayers of the petitioners include better terms like payment of 72 months' salary on 2007 pay scales besides arrears and declaring the circular on VRS as illegal and unconstitutional.
The judge said if the impugned circular was held illegal and unconstitutional, then the court cannot direct the respondent to pay 72 months' salary together with arrears.
It becomes liable to be paid only after an industrial adjudication takes place, he noted.
Such relief, as sought by petitioners, cannot be acceded to on the grounds raised by them, the judge said.
Rejecting the claim to declare the circular as illegal and unconstitutional, the judge referred to the Centre's stand that there was no compulsion to accept the VRS package.
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