INCOME TAX PROVISIONS RELATED TO PENSIONERS AND SENIOR CITIZENS

1.  PENSION

Pension is described in section 60 of the CPC and section 11 of the Pension Act as a periodical allowance or stipend granted on account of past service, particular merits etc. Thus monthly allowance to the younger brother of a ruler was treated as a maintenance allowance and not pension (Raj Kumar Bikram Bahadur Singh Vs. CIT 75 ITR 227(MP)).

There are three important features of ‘pension’.

 (i) Pension is a compensation for past service.

(ii) It owes its origin to a past employer-employee or master-servant relationship.

(iii) It is paid on the basis of earlier relationship of an agreement of service as opposed to an agreement for service. This relationship terminates only on the death of the concerned employee.

Pension received from a former employer is taxable as ‘Salary’. Hence, the various deductions available on salary income, including relief u/s 89(1) for the arrears of pension received would be granted to pensioners who received their pension from, a nationalized bank and in other cases their present Drawing & Disbursing Officers. Similarly, deductions from the amount of pension of standard deduction and adjustment of tax rebate u/s 88 and 88B shall be done by the concerned bank, at the time of deduction of tax at source from the pension, on furnishing of relevant details by the pensioner. Instructions in above regard were issued by R.B.I. ’s Pension Circular (Central Service No. 7/C D.R./ 1992(Ref. No. DGBA:GA(NBS) No. 60/GA64-(II CVL-91-92 dated 27.4.92).

Pension to officials of UNO is exempt from taxation. Section 2 of the UN (Privilege & Immunities) Act, 1947 grants tax exemption to salaries/emoluments paid by U.N. The Karnataka High Court had held that u/s 17 of the Income Tax Act, salary has been defined as including pension, therefore, if salary received from U.N. is exempt, so shall be the pension. This decision was accepted by the CBDT vide circular No. 293 dated 10.02.1981.

2.  FAMILY PENSION

Family pension is defined in Section 57 as a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of death.

Pension and family pension are qualitatively different. The former is paid during the lifetime of the employee while the latter is paid on his death to surviving family members. However, in case of family pension, since there is no employer-employee relationship between the payer and the payee, therefore, it is taxed as ‘Income from Other Sources’ in the hands of the nominee(s). In respect of family pension, deduction u/s 57(iia) of Rs. 15000 or 1/3rd of the amount received, whichever is less, is available.

3.  SENIOR CITIZEN

Under the Income Tax Act, a senior citizen is a person who at any time during the previous year has attained the age of 65 years or more. There are certain benefits available to senior citizen under the Income Tax Act:-

(i) The maximum amount not chargeable to tax in respect of senior citizens has been increased to Rs.2,40,000 w.e.f. A.Y. 2010-11. Thus, no tax is payable by a senior citizen if the total income is upto Rs.2.4 lacs for the A.Y. 2010-11.

(ii) Benefits provided by Finance Act 2007: The deduction available u/s 80D for medical insurance premium paid is to be increased to Rs.20,000 for senior citizens. Secondly, the deduction available u/s 80DDB in respect of expenditure incurred on treatment of specified diseases is to be increased to Rs.60,000 for senior citizens.

TAXABILITY OF RETIREMENT BENEFITS

On retirement, an employee normally receives certain retirement benefits. Such benefits are taxable under the head ‘Salaries’ as “profits in lieu of Salaries” as provided in section 17(3). However, in respect of some of them, exemption from taxation is granted u/s 10 of the Income Tax Act, either wholly or partly. These exemptions are described below:-

1.  GRATUITY (Sec. 10(10)):

(i)       Any death cum retirement gratuity received by Central and State Govt. employees, Defence employees and employees in Local authority shall be exempt.

(ii)      Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-

(a)      For every completed year of service or part thereof, gratuity shall be exempt to the extent of fifteen days Salary based on the rate of Salary last drawn by the concerned employee.

(b)      The amount of gratuity as calculated above shall not exceed Rs 10 Lakh.

(iii) In case of any other employee, gratuity received shall be exempt subject to the following limits:-

(a) Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service

(b) Rs. 10 Lakhs whichever is less.

Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the same, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs. 10 Lakhs.

As per Board’s letter F.No. 194/6/73-IT(A-1) dated 19.6.73, exemption in respect of gratuity is permissible even in cases of termination of employment due to resignation. The taxable portion of gratuity will quality for relief u/s 89(1).

Gratuity payment to a widow or other legal heirs of any employee who dies in active service shall be exempt from income tax(Circular No. 573 dated 2 1.8.90). 


2. COMMUTATION OF PENSION (SECTION 10(10A)):

(i)       In case of employees of Central & State Govt. Local Authority, Defence Services and Corporation established under Central or State Acts, the entire commuted value of pension is exempt.

(ii)      In case of any other employee, if the employee receives gratuity, the commuted value of 1/3 of the pension is exempt, otherwise, the commuted value of Y2 of the pension is exempt.

Judges of S.C. & H.C. shall be entitled to exemption of commuted value upto Y2 of the pension (Circular No. 623 dated 6.1.1992).

3.  LEAVE ENCASHMENT (Section 10(10AA)):

(i) Leave Encashment during service is fully taxable in all cases, relief u/s 89(1) if applicable may be claimed for the same.

(ii)      Any payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt.

(iii)     In case of other employees, the exemption is to be limited to the least of following:

(a) Cash equivalent of unutilized earned leave (earned leave entitlement can not exceed 30 days for every year of actual service)

(b) 10 months average salary

(c) Leave encashment actually received. This is further subject to a limit of Rs.3,00,000 for retirements after 02.04.1998.

(iv)  Leave salary paid to legal heirs of a deceased employee in respect of privilege leave standing to the credit of such employee at the time of death is not taxable.

For the purpose of Section 10(10AA), the term ‘Superannuation or otherwise’ covers resignation (CIT Vs. R.V. Shahney 159 ITR 1 60(Madras).

4. RETRENCHMENT COMPENSATION (Sec. 10(10B)):

Retrenchment compensation received by a workman under the Industrial Disputes Act, 1947 or any other Act or Rules is exempt subject to following limits:-

(i)       Compensation calculated @ fifteen days average pay for every completed year of continuous service or part thereof in excess of 6 months.

(ii)      The above is further subject to an overall limit of Rs.5,00,000 for retrenchment on or after 1.1.1997 (Notification No. 10969 dated 25.6.99).

5.  PAYMENT FROM PROVIDENT FUND (Sec. 10(11), Sec. 10(12)):

Any payment received from a Provident Fund, (i.e. to which the Provident Fund Act, 1925 applies) is exempt. Any payment from any other provident fund notified by the Central Govt. is also exempt. The Public Provident Fund(PPF) established under the PPF Scheme, 1968 has been notified for this purpose. Besides the above, the accumulated balance due and becoming payable to an employee participating in a Recognised Provident Fund is also exempt to the extent provided in Rule 8 of Part A of the Fourth Schedule of the Income Tax Act.

6.  PAYMENT FROM APPROVED SUPERANNUATION FUND (Sec.10(13)):


Payment from an Approved Superannuation Fund will be exempt provided the payment is made in the circumstances specified in the section viz. death, retirement and incapacitation.


7.  COMPENSATION ON VOLUNTARY RETIREMENT OR ‘GOLDEN HANDSHAKE’ (Sec. 10(10C)):

(i) Payment received by an employee of the following at the time of voluntary retirement, or termination of service is exempt to the extent of Rs. 5 Lakh:

(a)      Public Sector Company.

(b)      Any other company.

(c)      Authority established under State, Central or Provincial Act.

(d)      Local Authority.

(e)      Co-operative Societies, Universities, IITs and Notified Institutes of Management.

(f)       Any State Government or the Central Government.

(ii)   The voluntary retirement Scheme under which the payment is being made must be framed in accordance with the guidelines prescribed in Rule 2BA of Income Tax Rules. In case of a company other than a public sector company and a co-operative society, such scheme must be approved by the Chief Commissioner/Director General of Income-tax. However, such approval is not necessary from A.Y. 2001- 2002 onwards.

(iii)     Where exemption has been allowed under above section for any assessment year, no exemption shall be allowed in relation to any other assessment year. Further, where any relief u/s 89 for any assessment year in respect of any amount received or receivable or voluntary retirement or termination of service has been allowed, no exemption under this clause shall be allowed for any assessment year.

QUORUM

Introduction

To decide over a matter there must be some minimum number of persons. This is called quorum. There must be a number which can be divided as majority and minority by their opinions and stance. This minimum number is called quorum. For instance, if there are fifteen members in an association, if the prescribed quorum is fixed to five members for a meeting. It means that to commence a meeting there must be minimum five members. These five members can be divided in 3:2. Three is the majority opinion and two is the minority opinion. And the decision taken in the meeting which had quorum is valid and binding on the other members of the association. If the decision is passed without a quorum then it is null and void. So the concept quorum is must for every association, assembly, meetings and others where people assemble to decide over a matter with an interest in mind to reach over a reasonable resolution. The law also recognizes the quorum. Without a quorum a meeting, assembly does not commence to transact its business. So quorum is must and inevitable.

Meaning of Quorum

The word quorum is the Latin term which means -of whom-. The word quorum denotes the number of members of any body of persons. Whose presence is requisite in order that business may be validly transacted by the body, and that its act may be legal.
The term is derived from the wording of the commission appointing justices of peace, which runs -we have assigned you, and every two or more of you, and every two or more of you [of Whom (quorum) anyone of you shall be one] our justice to inquire the truth more- whence the justices so named were usually called justices of the quorum.
Quorum means the number (as a majority) of officers or members of a body that when duly assembled is legally competent to transact business. In other words, quorum means existence of a body of persons of whom a certain specified number are competent to transact the business as a whole.

According to Oxford Dictionary, the term quorum means, number of members that must be present to constitute a valid meeting.

Quorum is a Latin term which means ‘minimum number of members who must be present at a meeting as required by law or rule'. The main purpose of having quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority members.

In Punjab University v. Vijay Singh Lamba, Justice Chandrachud observed as -quorum is the minimum number of members of any body of persons whose presence is necessary in order to enable that body to transact its business validly so that its acts may be lawful.

Quorum is the minimum number of members, on whose attendance any validly called meeting can commence its deliberations. It must be noted that such a number of effective members, i.e. members qualified to take part in and to decide upon the questions brought before the meeting, constitute a quorum.

The term quorum is not specifically defined under the Indian Companies Act, 1956. But the term is referred in section 174 of Act.

(SECTION 174 OF THE COMPANIES ACT SPEAKS OF QUORUM FOR A MEETING )

1)      Unless the articles of the company provide for a larger number, five members personally present in the case of public company other that a public which has become such by virtue of section 43 A and two members personally present in the case of any other company shall be the quorum for a meeting of the company.

2)      Unless the articles of the company otherwise provide, the provisions of the sub-sections (3), (4) and (5) shall apply with respect to the meetings of a public or private company.

3)      If within half an hour from the time appointed for holding a meeting of the company, a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved.

4)      In any other case, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the Board may determine.

5)      If at the adjourned meeting also, a quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall be a quorum.

The provision contained in this clause may be overridden by the articles. This clause seeks to remove a practical difficulty in respect of section 43 A public companies where there may be less than 5 members. It is therefore, proposed to modify section 174 and provide for 2 members to a form a quorum.
Some companies may provide the definition and meaning of quorum in their articles.

Necessity for Quorum

Quorum for a public company

The Quorum for a public company the quorum is 5 members personally in attendance at the meeting. No proxy is counted in forming the quorum. On the language of the section 174 it appears that these 5 members may be entitled to vote on all resolutions or only in respect of one resolution on none at all. If the Chairman finds that the minimum number of 5 members is present, he can proceed with the business of the meeting. At this juncture the question of taking part in discussion or voting for or against any motion does not arise. But it has been held that the quorum must be effective members, members competent to take part in and to decide upon the questions brought before the meeting.

Quorum for a private company

The quorum at general meetings of private companies and section 43A public company is 2 members personally present, unless the articles of the company provide for a larger number.

Waiting period for Quorum

The articles of the company may provide as to how long from the appointed time the members will wait for quorum and if no quorum is present within the waiting time what will be fate of the meeting. But if the articles do not provide for such eventualities then the provision of this section will apply. The persons assembled at the appointed place shall wait for half an hour.

Rules regarding Quorum

As regards quorum at the general meetings, the following rules must be followed:

a) For the purpose of ascertaining quorum, only members present in person, and not by proxies, are to be counted. Even the Articles cannot provide for counting of proxies for the purpose of quorum. However, exception to this rule is there in sections 167 and 186.

b) Preference shareholders and equity shareholders without voting rights present in the meeting are not to be counted for the purpose of quorum except where the proposed business includes any item directly affecting preference shareholders or they have earned voting rights.

c) Joint shareholders are treated as single member for purposes of counting quorum.
In Transcontinental Hotel Ltd., In re , in this Australian case the articles of association of a limited company required that a quorum of two members should be personally present at a meeting of the company to pass a special resolution. It was held that the presence of two persons who were registered as joint holders was a sufficient compliance with the articles of association. In other words, for purpose of quorum, two joint holders were treated as two members of the company.

d) A member present in two or more capacities, for instance, as an individual member and trustee, may be counted as two members personally present for the purposes of the quorum.

e) If a company is a member of another company, it may authorize a person by a resolution to act as its representative at a meeting of the latter company, and then such a person shall be deemed to be a member present in person and counted for the purpose of quorum (section 187).

However, the donee of general power of attorney cannot be equated with that of a representative appointed under section 187. If the member concerned desires to appoint the donee as proxy, he can do so but in that case, the donee can act only in the same way as any other proxy. Where two or more companies being members of another company appoint a single person as their representative, then each of such companies will be counted in quorum at a meeting of the latter company.

f) Where the President of India or the Governor of a State holds shares in a company and appoints a person to act as his representative as a meeting of that company, then such person shall be deemed to be a member present in person and counted for the purposes of quorum (section 187A).

g) Where the total number of members of a company is reduced below quorum fixed by the Articles, the rule as to quorum will be deemed to be satisfied if all the members of the company attend the meeting in person.

One man meeting

If only one member turns up then can be called as a meeting was the question arose in Sharp v. Dawes , in this case there were several shareholders in a company. A meeting was called for the purpose of making a call. Only one shareholder attended the meeting. He, however, held the proxies of other shareholders. He took the chair and passed a resolution for making call and then proposed and passed a vote of thanks. In giving judgment in the Court of Appeal, Lord Coleridge said: -The word ‘meeting' prima facie means a coming together of more than one person…. This was not a meeting within the meaning of the Act-.

When the Central Government or the Tribunal calls a meeting under section 167 or 186 respectively it may be directed that one member of the company present in person or by proxy shall be deemed to constitute a meeting. This course was adopted in L. Opera Photographic Ltd., Re , in a company consisting of two members with 51:49 holding, the majority shareholder was not able to remove the other from directorship because under the articles a meeting without the other attending was not possible. So the majority applied for a court (here it would be CLB) order that a meeting should be called at which the attendance of one would be the quorum. Since the majority shareholder had a statutory right to remove the other from directorship his right could not be vetoed by quorum requirements and therefore, the court passed necessary orders.
In general, one person cannot validly constitute a meeting even if he holds all proxies for all members. On the other hand, in the following circumstances, one person shall form the quorum for a general meeting:

a) In case of a ‘class meeting' (i.e. a meeting of a class of shareholders) if all shareholders of a particular class are held by one person.

b) If there is only one creditor or debenture holder, he shall constitute quorum for the creditors/ debenture holders meeting.

c) Company Law Board (now Central Government/ Tribunal) may issue directions under section 167 or section 186 that one member, present in person or by proxy shall constitute a quorum.

Quorum for Meetings of Directors (Section 287)

The quorum for a meeting of the Board of Directors is one-third of its total strength (any fraction to be rounded off as one) or two directors, whichever is higher. If, at any time, the number of interested directors exceeds or is to 2/3rd of the total strength, the remaining directors, that is to say, the number of directors who are not interested, present at the meeting, being not less than two, shall be the quorum of such meeting. Interested directors are not taken for quorum according to section 300. However, this does not apply to private company. It should be noted that in case of Board meetings, quorum is required throughout the meeting.

If a meeting cannot be held for want of a quorum, it stands adjourned till the same day in the next week. If that day is a public holiday, the meeting will be held at the next succeeding day which is not a public holiday. The quorum requirement does not become dispensed with because one out of two directors is abroad. A meeting attended by only one director was held valid in case of Hood Sailmakers Ltd., v. Axford.

Rationality behind the quorum

The rationality behind the quorum can be explained by the below reasons---

1) Quorum validates the meeting and the resolutions passed

Without a quorum a meeting is invalid. The quorum must be in attendance before a meeting can advance to business. Any resolution conceded at a meeting will be invalid. Regulation 49 of Table-A of the Act provides that no business should be transacted unless a quorum of members is present at a general meeting at the time when a meeting proceeds to business. In such a case, the quorum need not be present throughout the meeting. Quorum at the beginning will validate all decisions. Without the quorum the meeting will be invalid so the quorum should be present.

2) Avoids minority decisions

The major rationale of having quorum is to avoid decisions being taken at a meeting by a small minority which may emerge to be objectionable to the vast majority members . It offends the interest of the majority members.

3) Quorum in meeting proceeds business

The quorum must be present in a meeting to proceed to business. This means if there are some adequate members in a meeting then a business can be transacted. So that everyone should know the affairs of the meeting of the company and it is a natural justice that he should be made note of the business being transacted. No business can be transacted at any meeting unless a quorum of members is present at the time when the meeting proceeds to business.

In Re Hartley Baird , at a meeting of a class of ordinary shareholders called to agree to a proposed reduction of capital, the necessary quorum was present when the meeting began, but before the vote was taken the number of members present was reduced below the quorum because one member, who opposed to the resolution, had left the meeting. It was held on the true construction of Articles 52 and 53 (England Companies Act) is sufficed that a quorum was present at the beginning of the meeting, when it proceeded to business, and the subsequent departure of a member reducing the number below that required for a quorum did not invalidate the proceedings of the meeting after his departure.

In Henderson v. Louttit , it was said that it would be a highly inconvenient, not to say unnatural, meaning…. To hold that all that is necessary to the validity of the proceedings is that, at the earliest stage of the meeting, a quorum should be present, but that after the real business of the meeting is started and under consideration the quorum might go away.

4) Quorum dissolves the meeting

If within half an hour from the time of a meeting a quorum is not present the meeting shall dissolved if it was called upon requisition. But in other cases the meeting is automatically adjourned to re-assemble on the same day in the next week. And if at the re-assembled meeting also a quorum is not present a quorum is not present within a half an hour, as many members as are actually present shall constitute the quorum. So if the quorum is not present the meeting is automatically dissolved.

5) To differentiate persons in meeting

The quorum always differentiates the persons who are present at a meeting. It differentiates the proxies, representatives, interested directors etc, for the sake of commencement of the meeting. The quorum wants certain persons to be present at the meeting to form a quorum and transact the business.

6) To avoid one person passing resolutions

The quorum prescribed for a meeting avoids one person to constitute a meeting and passing resolutions. Because one person cannot constitute a meeting and it is against the purpose of meeting. Actually meeting means meeting of 2 or more persons, how a single person can constitute a meeting. There must be at least two faces and two voices in the meeting, and then the purpose of the meeting is fulfilled. So by observing quorum a single person constituting a meeting can be avoided. The authority of this statement has been to a certain extent undermined by London Flats Ltd., a meeting was attended by two members. The chairman was the majority shareholder. The other member proposed a name for appointment as liquidator. The chairman moved an amendment and proposed himself. Thereupon the other member left. The chairman by his majority votes confirmed his appointment. The court refused to uphold the appointment on the ground the any further proceedings, after the other member had left, were a nullity. Their decision is good inasmuch as it provided to the company an independent liquidator, but the reason advanced may lead to wrong results. It should not be the law that minority shareholders, realizing that they cannot defeat a resolution by the constitutional process of voting against it, should be able to frustrate the wishes of the majority by walking out of the meeting.