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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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