Lump-sum consent payment cannot face unilateral deductions absent clear authority; tax deduction applies only to salary income.
A lump-sum payment under a consent order could not be subjected to unilateral deductions unless the order or applicable law clearly authorised them. The court held that Section 192 of the Income-tax Act applies only to income chargeable under the head "Salaries", so the employer was not justified in treating the entire sum as salary or deducting tax at source, licence fee, or electricity charges. The employee was also held entitled to interest on amounts wrongfully withheld, including the balance remaining unpaid after tax refund, but not to costs or compensatory costs because of non-disclosure of the refund.
Issues: (i) whether the employer was entitled to deduct income-tax at source and other amounts from the sum of Rs. 1,50,000 payable under the Supreme Court consent order; (ii) whether the employee was entitled to interest on the amounts wrongfully withheld and on the balance remaining unpaid after the income-tax refund.
Issue (i): Whether the employer was entitled to deduct income-tax at source and other amounts from the sum of Rs. 1,50,000 payable under the Supreme Court consent order.
Analysis: The consent order required payment of the entire lump sum without any deduction, and the amount represented several heads of dues, not wholly salary. Section 192 of the Income-tax Act, 1961 applies only to income chargeable under the head 'Salaries'. On the facts, the employer was not justified in treating the whole amount as salary and deducting tax at source. Nor was there authority under the consent order to deduct licence fee or electricity charges.
Conclusion: The deduction of tax at source and the other deductions were not justified and were not allowable against the petitioner.
Issue (ii): Whether the employee was entitled to interest on the amounts wrongfully withheld and on the balance remaining unpaid after the income-tax refund.
Analysis: The petitioner had not received the full amount due under the consent order, and the employer continued to withhold part of the sum even after the tax refund was received. The Court treated the withheld amount as payable from the date of non-payment and held that interest was warranted on the sum wrongly retained, though no compensatory costs were awarded in view of the petitioner's non-disclosure of the refund.
Conclusion: The petitioner was entitled to interest on the withheld amounts, but not to costs or compensatory costs.
Final Conclusion: The appeal was allowed in part by directing payment of the outstanding sum with interest, while declining costs and rejecting the employer's claimed deductions.
Ratio Decidendi: A lump-sum amount directed to be paid under a consent order cannot be subjected to unilateral deductions unless the order or the applicable law clearly authorises them, and tax deduction at source under Section 192 of the Income-tax Act, 1961 is permissible only to the extent the payment is actually chargeable as salary.
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