Executive Instructions Cannot Amend Statutory Provisions: Kerala HC Quashes BSNL Corporate Office Letter Mandating TDS on Leave Encashment [Read Order]

The Kerala High Court recently reaffirmed that executive instructions cannot amend or override statutory provisions. The observation was made while quashing a corporate office letter issued by Bharat Sanchar Nigam Limited (BSNL) that mandated deductionof tax at source (TDS) on leave encashment benefits of certain employees that had been absorbed from the Department of Telecommunications (DoT).

A writ petition was filed by the Sanchar Nigam Pensioners' Welfare Association, an association of retired employees of BSNL.

The petitioners were originally employees of DoT but later opted for absorption into BSNL once DoT was converted into the public sector undertaking. The petitioners subsequently availed the Voluntary Retirement Scheme (VRS) introduced by BSNL in 2019.

While computing their retirement benefits, BSNL deducted tax at source on the leave encashment amounts by relying on a Corporate Office letter dated 04.05.2012, which directed that such payments be subjected to tax deduction.

The petitioners challenged the deduction contending that the corporate office letter was issued disregarding statutory provisions, and that they should be treated as having retired from central government service for the purposes of ‘leave encashment’ as under Section 10(10AA)(i) of the Income Tax Act, 1961.

It was further argued that BSNL lacked authority to issue executive instructions that effectively modified the statutory framework governing tax exemption on leave encashment.

Senior Counsel O.V. Radhakrishnan appearing for the petitioners argued that the impugned communication attempted to alter the statutory scheme under the Income Tax Act and therefore could not be sustained in law.

Mathews K. Philip appearing for BSNL submitted that the petitioners had retired from the service of BSNL and not from the Central Government and therefore the deduction of tax at source was justified.

Jose Joseph appeared for the Income Tax Department.

Justice Harisankar V. Menon examined the statutory provisions within the Income Tax Act alongside the Central Civil Services (Pension) Rules (CCS Rules) which governed the absorption of government servants into public sector undertakings. The Court formed the opinion that the corporate office communication could not be sustained if it conflicted with statutory provisions.

The High Court also referred to the decision of the Supreme Court decision in Senior Supdt. of Post Office and Others v. Izhar Hussain (1989), where it was categorically laid down that executive instructions cannot modify or amend the statutory provisions.

Accordingly, the Kerala High Court quashed the impugned corporate office letter while granting the petitioners the benefit under Section 10(10AA)(i) to claim the exemption in their respective income tax returns.

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