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IN THE HIGH COURT OF BOMBAY
V.P. Tipnis, J.
The Hindustan Lever Employees Union.... Petitioners.
Versus
Regional Provident Fund Commissioner, Maharashtra Goa
and others.... Respondents.
Writ Petition Nos. 527 with 530 527 of 1992, decided on 29-9-1994.
Advocates appeared :
Mrs. Pushpa Menon, for petitioners.
P.M. Pradhan with R.C. Master, for respondent No. 1.
P.K. Rele, for the respondent No. 2.
Sections 2 (b) and 6-Encashment of leave-Amounts paid towards to be included in basic wages-Words and Pharses-Meaning of words Basic wages.
Held, Section 6 clearly refers to basic wages being payable to each of the employees. Now, admittedly, each and every employee of Hindustan Lever Limited is free and entitled to receive the amount by way of encashment of leave. Therefore, the said amount is payable to each and every employee if warranted by the case of a particular employee. So far as the definition of "basic wages" is concerned, it is a definition specifying what is meant by basic wages. It refers to all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him and but for exclusion specifically made, it would have included even those items mentioned under Section 2 (b) (i), (ii) and (iii). However, cash value of any food concession, any dearness allowance, house overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment and any presents made by the employer are specifically excluded. Now, unless the payment falls in anyone of these specifically mentioned excepted categories, every emolument which is earned by an employee while on duty or on leave on holidays with wages in either case in accuracy with the terms of the contract of employment and which are paid or payable in cash to him must be included within basic wages. As stated earlier, every employee is entitled to en cash leave as per the rules. Thus, the amount is definitely payable to each of the employees, subject to his satisfying the requirements that he is so entitled for encashment of leave. In view of the definition of "basic wages", if an employee who has earned leave goes on leave, his salary or wages can obviously fall within the term "basic wages". There is no good ground to hold that in the event of his not availing the leave but encashing it, the amount which he gets in such encashment should be excluded from the basic wages, within the definition of "basic wages" as given in Section 2(b) of the Act.
2. The petitioners are trade unions representing the employees of respondent No. 2 - Hindustan Lever Limited. It appears that for a considerable period, running over several years, respondent No. 2 has been including the amount of leave encashment in the amount of emoluments for the purpose of calculating the employers as well as the employees contribution towards payment of provident fund. However, by letter dated 3-7-1991 which was in reply to the letter sent by the Central Secretary, Hindustan Lever Mazdoor Sabha, the Regional Provident Fund Commissioner, Maharashtra and Goa, informed that according to the provisions of section 6 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the "Act"), provident fund contribution is payable on basic wages, dearness allowance and retaining allowance, if any. The said provision does not provide for any deduction of provident fund on leave encashment which does not form part of wages as defined therein. Further, the leave encashment is not earned wages and, therefore deduction of provident fund contribution on it is not envisaged. In view of the aforesaid, the action of the employer, viz., Hindustan Lever Limited, in discontinuing the provident fund deduction on leave encashment will not cause any reduction in the existing benefits being available to the members. In a letter dated 11-3-1991 it appears that the Regional Provident Fund Commissioner, Maharashtra and Goa, informed the Asstt. Manager (Funds), Hindustan Lever Limited, that as regard provident fund deduction on leave encashment it may be noted that such payment is not an earned wages and as such provident fund is not liable to be deducted on such wages i.e. encashment of leave. These directions of the Regional Provident Fund Commissioner, Maharashtra and Goa, are impugned in these two petitions.
3. Mrs. Menon, learned Counsel appearing for the petitioners in both the petitions, has contended that the orders are passed without giving any hearing or without any notice to the employees or to their unions and as such, the orders are in breach of the principles of natural justice. Secondly, she contended that the establishment is an exempted establishment and such exclusion of encashment of leave from the emoluments for the purposes of contribution to provident fund amounts to reduction of total quantum of benefits of provident fund and the same cannot be done without the leave of the Central Government as provided in section 17(3)(b). She further contended that it also amounts to change in the conditions of service and inasmuch as the requirements of section 9-A of the Industrial Disputes Act are not followed, the change cannot be lawfully and validly effected. Lastly, she contended that the Income-tax department considers the amount received by way of encashment of leave as earned wages and also imposes a tax under the provisions of the Income-tax Act and it is unfair that the Income-tax authorities for the purpose of tax include amount of encashment of leave into earned wages while the same amount is being deducted by the Provident Fund Commissioner from the amount of emoluments for the purposes of section 6 of the Act. To show that the amount of encashment of leave is taxable, Mrs. Menon has cited a decision of a Division Bench of the Karnataka High Court reported in 1985(5) Income-tax Reports 48. Mrs. Menon also contended that on proper reading of the definition of "basic wages" and on proper reading of section 6 of
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