Arbitrary termination of regular public employment was invalid, and compensation in lieu of reinstatement attracted arrears-based tax relief.

A regular employee of a State instrumentality could not be terminated by a stigmatic or arbitrary order without a lawful enquiry and compliance with natural justice; the termination was therefore held illegal and invalid, and the High Court's view was reversed. The decision also treated the lump-sum compensation in lieu of reinstatement and back wages as a payment covering arrears of salary, so tax deduction and relief had to be governed by the applicable income-tax provisions for arrears, preventing an unfair tax burden on amounts spread over prior years.

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Issues: (i) whether the termination of the appellant's service was legal and valid in the light of his regular appointment, the requirements of natural justice, and the guarantees of equality under Articles 14 and 16; (ii) whether the compensation awarded in lieu of reinstatement and back wages was liable to income-tax deduction, and whether relief under the income-tax provisions was available.

Issue (i): whether the termination of the appellant's service was legal and valid in the light of his regular appointment, the requirements of natural justice, and the guarantees of equality under Articles 14 and 16.

Analysis: The appellant was treated as having entered the regular establishment after successful completion of probation. The order of termination was not supported by a lawful enquiry, despite the circumstances suggesting stigma, arbitrariness, and hostility towards an active trade union worker. The action could not be sustained either as a lawful discharge simpliciter or as a punitive removal, and it offended the constitutional guarantee against arbitrary treatment in public employment.

Conclusion: The termination was illegal and invalid, and the finding of the High Court was reversed in favour of the appellant.

Issue (ii): whether the compensation awarded in lieu of reinstatement and back wages was liable to income-tax deduction, and whether relief under the income-tax provisions was available.

Analysis: The compensation was treated as a lump-sum payment covering arrears of salary and substitute relief for reinstatement. If tax was deducted at source, the appellant was held entitled to statutory relief so that the amount would not suffer unfair tax burden on account of arrears spread over years.

Conclusion: The appellant was entitled to the benefit of deduction at source only in accordance with the income-tax provisions and to relief under the relevant provisions for arrears.

Final Conclusion: The appeal succeeded, the termination order was quashed, and monetary relief was granted in substitution of reinstatement together with directions safeguarding the appellant's tax relief entitlement.

Ratio Decidendi: A regular employee of a State instrumentality cannot be removed by an arbitrary or stigmatic order without compliance with natural justice, and compensation paid in lieu of reinstatement must be dealt with under the applicable tax-relief provisions governing arrears of salary.

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