Voluntary retirement compensation tax deduction upheld where the scheme expressly permitted source deduction and refund lay against tax authorities.

Income-tax deduction at source from voluntary retirement compensation was treated as lawful where the scheme expressly authorized deduction in accordance with the Income-tax Act and the applicable rules. The employer, having deducted and deposited the amount with the tax authorities as stipulated, was not liable to repay it to the workmen merely because the compensation might ultimately have been non-taxable; any refund claim lay against the tax department. The maintainability of a claim under section 33C(3) of the Industrial Disputes Act in such circumstances was also regarded as doubtful.

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Issues: Whether the deduction of income-tax at source from the voluntary retirement compensation paid under the scheme was lawful, and whether the workmen could recover the deducted amount from the employer under section 33C(3) of the Industrial Disputes Act.

Analysis: The compensation scheme expressly provided that income-tax payable, if any, would be deducted at source in accordance with the Income-tax Act and rules in force. The employer acted strictly in terms of that express stipulation and deposited the deducted amounts with the income-tax authorities on behalf of the workmen. Even if the compensation was ultimately not liable to tax, the appropriate remedy lay against the income-tax department by way of refund, not against the employer. The maintainability of the claim under section 33C(3) was also doubtful in such a situation.

Conclusion: The deduction made by the employer was upheld, and no further payment or repayment was payable by the employer to the workmen. The Labour Court's order was set aside.

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