HIGH COURT OF ORISSA: CUTTACK W.P.(C) No.28343 of 2011 In the matter of an application under Articles 226 & 227 of the Constitution of India. -------Coal Mines Officer’s Association, Talcher Area (Sub-Branch), Represented by Sri Umakanta Mohanty, At/P.O. Talcher, Dist: Angul, At present General Manager, Mahanadi Coal Fields Ltd. … Petitioner -VersusChairman-cum-Managing Director, Coal India Ltd., 10 Netaji Subash Road, Kolkata-700001 and others … Opp. Parties For Petitioner : Mr. B.K. Mahanti, Sr. Advocate M/s. Bibek A. Mohanti, S.K. Mishra, A.R.Mohanty, M. Raul & M. Wright. For Opp. Parties : M/s. S. Ray & A.C. Rath (Caveator)) ---------- P R E S E N T: THE HONOURABLE THE CHIEF JUSTICE SHRI V.GOPALA GOWDA AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Judgment:
08. 10.2012 B.N.Mahapatra,J.This writ petition has been filed with a prayer to quash the order dated 29.9.2011 passed by opp. Party no.1-Chairman-cum- 2 Managing Director, Coal India Limited under Annexure-1 wherein opp. Party no.1 held that no scope is found to exist to pay “Up-keep Allowance”. to executive cadre employees of Coal India Ltd. and of its subsidiary companies over and above perquisites already implemented. Further prayer of the petitioner is to issue a writ of mandamus or any other appropriate order directing opp. Party no.1 not to discriminate between the members of petitioner-Association and Non-executive members of the same company.
2. Petitioner’s case in a nutshell is that it is an Association of executives employed by opp. Party no.2-Coal India Limited and opp. Party no.3 -Mahanadi Coal Fields Limited (subsidiary of Coal India Limited) and it is registered under the Trade Union Act, 1926. By order of opp. Party nos. 2 and 3, they are working at Talcher and opp. Party no.3 allots residential accommodation and provides other amenities without any discrimination to all employees irrespective of class they belong to. From the salary of the employees, Opp. Party nos. 2 and 3 deduct income tax U/s.192 and deposit the same with the Central Government. The opp. Parties by an unreasonable classification, discriminate the members of the petitioner-Association in taking decision not to reimburse the tax deducted and paid on that part of the house rent allowance (hereinafter mentioned as ‘perquisites’), while it is reimbursing same to the non- 3 executives by paying an equivalent amount known as “up-keep allowance”..
3. Clause 9(a) of the Coal Mines Regulation, 1957 provides for suitable residential accommodation for the Manager and the underManager or Assistant Manager within a distance of five kilometers from all mine openings, and every Manager, under-Manager and Assistant Manager shall reside in the accommodation so provided. Accordingly, opp. Party nos. 2 and 3 have provided residential accommodation in the colonies for every employee, whether executive or non-executive near about the place of work of the Coal Fields, which are mostly at remote places and alternative accommodations are not available.
4. Providing of quarters is a perquisite under the I.T. Act and each of the employees who enjoys the benefits is taxed under the head “salary”. under the I.T. Act, 1961. Opp. Party nos. 2 and 3 as employers are obliged to deduct tax at source U/s. 192 of the I.T. Act and deposit it in time with the Central Government. For the Assessment Years 2008-09 and 2009-10 the opposite parties 2 and 3 deposited the tax, but did not make any deduction from the salary of non-executives and kept in abeyance till further orders. But the perquisites tax was sought to be deducted from the salary of executives. The petitioner-Association made representation to the Hon’ble Minister of Coal, requesting him not to deduct the perquisite tax. Since no action was taken by the opposite 4 parties, the petitioner filed writ petition bearing W.P.(C) No.1533 of 2011 and this Court by order dated 01.02.2011 directed that no recovery of perquisite tax on house allotted to the petitioner be made till the next date. In the said writ petition opposite party no.3 filed a counter inter alia relying upon the office order dated 12.5.2011 of the Board of Directors of opp. Party no.2 approved for payment of up-keep allowance to the wage board employees (non-executives) who are residing in company’s quarters and come under the purview of perquisite tax. After hearing the parties, the petitioner was directed to file representations which was directed to be disposed of within a period of one month from the date of filing of the said representations. Pursuant to such order, the petitioner filed representations under Annexure-4. Opp. Party no.1 without giving any opportunity of hearing to the petitioner and taking into consideration some ex parte documents refused to grant upkeep allowance to the members of the petitioner-Association for the reason that Central Public Sector Undertakings are guided by DPE under the Ministry of Heavy Industries. Hence, the present writ petition.
5. Mr.B.K. Mahanti, learned Senior Advocate appearing for the petitioner submitted that the order passed under Annexure-1 is hit by Articles 14 and 19 of the Constitution of India by making a hostile discrimination between the non-executive and executive employees. An arbitrary decision has been taken under Annexure-1 relying on un-tested 5 materials and without hearing the members of the petitioner-Association. Opp. Party no.1 passed the impugned order taking into consideration the ex parte materials, like the restraint on it not to pay more than 50% allowance.
6. Further, placing reliance upon the cases in Rupa Ashoka Hurra v. Ashok Hurra and another, (2002) 2 SCC 38.and Maneka Gandhi v. Union of Inida (1978) 1 SCC 248.Mr. Mohanti submitted that the decision rendered in violation of audi altaram partem is null and void. In support of his above contention, he also relied upon some other judgments of the Hon’ble Supreme Court.
7. Placing reliance on the decision of the Hon’ble Supreme Court in Arun Kumar V. Union of India and others, 2007 (1) SCC 732.Mr. Mohanti submitted that though Rule 3 is intra vires, valid, but it is always open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of Sec. 17(2)(ii) of the Act. If the accommodation is provided by the employer as a part and parcel of his duty as agent to live in the bank house, such an income could not be regarded as part of income. It is further submitted that providing of quarters by all employers, as a part and parcel of the employees duty, is not perquisite and not an income. Placing reliance in the case of Hochstrasser v. Mayes, 1960 AC 37.(HL), it was submitted that the 6 Court must be satisfied that the service agreement was the causa causans and not merely the causa sine qua not of the receipt of the profit. Mr. Mohanti further submitted that the object of Rule 3 is to extend relief to employees and keeping in view the said purpose, it has to be interpreted liberally. In support of his submission reliance was also placed on the decision of the Supreme Court in CIT, Bombay v. British Bank of Middle East MANU/SC/0510/2001. It is submitted that Rule 3 would apply to those cases where ‘concession’ has been shown by an employer in favour of an employee in the matter of rent respecting accommodation. ‘Charging provision’ is found in the Act of Parliament [Section 17(2)(ii)]., ‘machinery component’ is in the subordinate legislation (Rule 3). The latter will apply only after liability is created under the former. Unless the liability arises under Section 17(2)(ii) of the Act, Rule3 has no application and the method of valuation for calculating concessional benefits cannot be resorted to. Placing reliance on ILM Cadija Umma submitted v. S. Don Manis Appu; that if literal reading of AIR 193.PC 63.Mr. Mohanti a prima facie definition leads to absurdity, a restricted meaning may have to be given to avoid the absurdity.
8. Mr. S. Ray, learned counsel appearing for opposite parties submitted that facts stated in the writ petition are not correct. It is not correct to say that though both executive and non-executive even taken 7 from different source, but for the purpose of their pay, service condition, discipline and other perquisites like provision of quarters, education to the children of the employees, facility of medical treatment for the employees and their dependents, recreation etc. are the same. Mahanadi Coal Fields Ltd. provides quarters and where the quarters are not provided, it is paying house rent to its employees.
9. Mr.Ray further submitted that the impugned order passed under Annexure-1 is a reasoned order. If the petitioner-Association’s claim for up-keep allowance will be accepted, it will exceed the ceiling of their basic pay and therefore, it will be in violation of Presidential directive and service conditions. It is also submitted that there is no hostile discrimination as alleged since executive and non-executive are two different classes and are totally different right from entering into their services with regard to the nature of duties rendered, pay scale, perquisite. Hence, the allegation made by the petitioner is totally false, frivolous and liable to be rejected. Opp. Party no.1 after considering all aspects and with due application of mind disposed of the representation rejecting the petitioner’s claim for granting up-keep allowance with a well reasoned order and therefore, the petitioner has no justifiable reason to allege that they have been subjected to hostile discrimination by refusing to grant up-keep allowance. There is huge disparity between the pay scale of the executives and non-executives and the executives are paid 8 up to 50% of the basic salary as perquisites which includes House upkeep Allowances of 5%, whereas non-executives are not getting any similar monetary perquisites. The executives cannot seek parity with the non-executives by claiming grant of up-keep allowance.
10. It is further submitted by Mr. Ray that as per Section 192 of the I.T. Act, it is the liability of the employer to recover income tax from the monthly salary of the employees and deposit the same in time with the Central Government. This is a statutory obligation and failure to comply with it attracts interest u/s.201 and penalty u/s.221 and 271 C of the Act. Salary includes perquisites under Section 17(1) and the value of rent free accommodation provided to an employee by his employer is a taxable perquisite. Therefore, for the calculation of recoverable amount of income tax from the salary of an employee, the value of the perquisite (rent-free accommodation in this case) also has to be considered. Valuation of rent-free accommodation is done according to Rule 3(1) of the Rules.
11. On the rival contentions of the parties, the questions that fall for consideration by this Court are: (i) Whether the impugned order passed under Annexure-1 by opposite party No.1 rejecting the claim of the petitioner that members of the executive and non-executive belong to same class, without affording 9 opportunity of hearing to the petitioner, is valid in law?. (ii) Whether accommodation provided to the Executives working under opposite party nos.1 and 2 could be regarded as part of their income on which tax could be deducted at source under Section 192 of the I.T. Act from the salary paid to the Executives?. (iii) 12. What order?. Question No.(i) is as to whether the impugned order passed under Annexure-1 by opposite party No.1 rejecting the claim of the petitioner that members of the executive and non-executive belong to same class, without affording opportunity of hearing to the petitioner, is valid in law?.
13. Specific stand of the petitioner is that the impugned order under Annexure-1 is hit by Articles 14 and 19 of the Constitution of India by making a hostile discrimination between the Non-executive and Executive employee. Mr. Mahanti, learned Senior Advocate submitted that every classification shall be legal, valid and permissible if that classification is founded on an intelligible differentia which must distinguish persons or things that are grouped together from others leaving out or left out and such a difference must have rational nexus to the object sought to be achieved by the statute or legislation in question.
14. Petitioner’s further case is that both Executive and Non- 10 Executive even taken from different sources, but for the purpose of their pay, service condition, discipline and other perquisites like provision of quarters, education to the children of the employees, facility of medical treatment for the employees and their dependents, recreation etc. are same.
15. The case of opposite parties is that there are two categories of employees working in Mahanadi Coalfields Ltd. One is Executive and the other is Non-executive (Workmen). The entry of executives and nonexecutives are from two different sources. The executives are posted as Executive Management Trainees in E1 grade, whereas normally the nonexecutives are posted as general mazdoors Cat-1 which is the lowest non-executive pay scale. In so far as Executives are concerned, the pay and allowances are fixed as per guidelines issued by Department of Public Enterprises, Government of India and so far as non-executives are concerned, their pay and allowances are fixed by way of agreement which is called as ‘National Coal Wages Agreement’ and is finalized after discussion with five Central Trade Unions like INTUC, CITU, Bharatiya Majdoor Sangha etc. There is difference between two classes basically in service condition, career growth, recruitment done, Leave Rules, House Rent accommodation, duration of wages revision of executives and nonexecutives. In the official revision pay scale order, it is provided that board level and below board level executives of Coal India Ltd. and its 11 subsidiary companies w.e.f. 1.1.2007 are entitled to get 5% of basic pay towards house up-keep allowance per month for purchase of curtains, wall paintings, hangings, carpets, decorative materials, cutlery and other household appliances etc.
16. According to Mr. B. Mahanti, learned Senior Advocate, since no opportunity of hearing was provided to the petitioner before passing the impugned order under Annexure-1, which has civil consequence, the same is violative of the principles of natural justice and therefore, the same is not sustainable in law.
17. In Maneka Gandhi vs. Union of India, (1978) 1 SCC 248.the Hon’ble Supreme Court held that the decision rendered in violation of audi altarem partem is null and void. In S.L. Kapoor vs. Jagmohan, (1980) 4 SCC 379.it was extended to orders passed by quasi judicial authorities. In Mercury Energy Ltd. vs. Electricity Corporation, Newzealand, (1994) 1 WLR 521.the court declared an order of the Minister to be a nullity, if it was passed without hearing. [Also See Bhagawati vs. Ramchand, AIR 196.SC 1767.State of Orissa vs. Binaparni, AIR 196.SC 1269.SDO vs. Gopal Chandra, AIR 197.SC 1190.State vs. Mahadevan, (1988) 4 SCC 669].. In Sahara India (Firm) Lucknot Vs. Commissioner of Income Tax, Central-I and another, (2008) 14 SCC 15.at page 157 and Rajesh Kumar vs. Dy. C.I.T., (2007) 2 SCC 181.the Hon’ble 12 Supreme Court held that giving an opportunity of hearing is a must, where the Assessing Officer asks for special audit having regard to the nature and complexity of the accounts of the assessee and the interest of the revenue. The Hon’ble Supreme Court in some other cases held that administrative order, if it operates to the prejudice of assessee and entails civil consequences, opportunity of hearing should be given to the assessee. The court further held that natural justice implies to a duty to act fairly, i.e., fair-play in action.
18. The expression ‘civil consequence’ encompasses infraction of not merely property of personal rights but of civil liberties, material deprivations and non-pecuniary damages. Under its wide umbrella comes everything that affects a citizen in his civil life. Unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice, because in that event the court would not ignore the legislative mandate, the requirement of giving reasonable opportunity of being heard before an order is made, is generally read into the provisions of a statute, particularly when the order has adverse civil consequences for the party affected. The two fundamental maxims of natural justice are (i) audi altarem partem and (ii) nemo judex in causa sua. Thus, the observance of principles of natural justice is the pragmatic requirement of fair play in action”
19. Petitioner’s specific case is that the employer provides residential accommodation to the employees. Opposite Party Nos. 2 and 3 deduct tax at source under Section 192 of the Act and deposit it with the Central Government and do not reimburse to the employees, who are executive. The opposite parties, by an unreasonable clarification discriminate the members of the petitioner-Association in taking a decision not to reimburse the tax paid on that part of the house rent allowance (for short ‘perquisites’) to members of the petitioner- Association while they are reimbursing it to the non-executives by paying equivalent amount known as “Up-keep Allowances”.. Further, both the members of executive and non-executive belong to same class, i.e., I.T. assessee. Therefore, opposite party No.1 before rejecting the petitioner’s claim that the members of the executive and non-executives belong to the same class and the members of the petitioner-Association are not entitled to get “Up-keep Allowance”. of 5% is required to give an opportunity of personal hearing to the members of the petitionerAssociation in view of the settled position of law mentioned above.
20. In view of the above, the impugned order passed under Annexure-1 by opposite party No.1 rejecting the claim of the petitioner that members of the executive and non-executive belong to same class without affording opportunity of hearing to the petitioner is not valid in law”
21. Question No.(ii) is as to whether accommodation provided to the Executives working under Opposite party no.1 could be regarded as part of their income on which tax could be deducted at source under Section 192 of the I.T. Act from the salary paid to the Executives.
22. Petitioner’s specific case is that since accommodation is provided by the employer as part and parcel of his duty as agent to live in the accommodation, such an income could not be regarded as part of the income of the members of the petitioner. Therefore, no tax at source is deductible from the income under Section 192 of the Act.
23. Whether the accommodation provided by the employer is part and parcel of his duty as agent to live in the accommodation and therefore such an income could not be regarded as part of the income of the members of the petitioner-Association would depend upon the factual scenario and nature of evidence produced. Without examining the evidence it cannot be definitely said whether the quarters provided by the employer to the members of the petitioner-Association is not perquisite and therefore not an income. The nature of the income in respect of accommodation provided by the employer cannot be decided in the writ petition because the relevant material can be more factually examined by the Assessing Authority. This Court cannot examine the materials as an original forum”
24. At this juncture, it is necessary to extract here the relevant portion of Section 192 of the Act: “192.(1) Any person responsible for paying any income chargable under the head “Salaries”. shall, at the time of payment, deduct income-tax on the amount payable at the average of income tax 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.”
25. Salary includes perquisites as provided under Section 17(1) of the I.T. Act and under Section 17(2)(i) ‘perquisite’ includes the value of rent free accommodation provided to the assessee by his employer. Valuation of the rent free accommodation is done according to Rule 3 of the I.T. Rules, 1962.
26. It is further necessary to extract the relevant portion of Section 197 of the Act:
“197. Certificate for deduction at lower rate (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J.194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. 16 (2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. (3) (2A) The Board may, having regard to the convenience of assesses and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.”
27. Therefore, in view of the above statutory provision, it is open to the members of the petitioner-Association to make an application as provided under sub-section (1) of Section 197 to the Assessing Officer and satisfy him that no tax is deductible from the salary on account of the accommodation provided by the employer to them. In such event, the Assessing Officer has to examine the case of the petitioner and if he is satisfied that the members of the petitioner-Association are entitled to be issued with certificate of “No deduction of Income Tax”. he shall issue such certificate and on production of such certificate before opposite party No.1, opposite party No.1 is bound not to deduct tax until such certificate is cancelled. Thus, a statutory remedy is available to the petitioner under Section 197 of the Act. Section 197 is a complete provision so far as deduction of tax at source is concerned.
28. In the result, the impugned order under Annexure-1 is set aside with a direction to opposite party No.1 to decide the claim of the 17 petitioner as to whether the members of the petitioner-Association and non-executives belong to the same class and the executives are entitled to 5% “Up-keep Allowance”. as the non-executives are getting after giving an opportunity of hearing to the petitioner, within a period of one month from the date of production of certified copy of this judgment.
29. With the aforesaid observation and direction, the writ petition is disposed of. ………………………... B.N.Mahapatra, J.V. Gopala Gowda,C.J.I agree. ………………………. Chief Justice Orissa High Court, Cuttack Dated 8th October, 2012/ssd