Highlights of (AIS) Annual Information Statement

 50 Transactions to be reported in New Annual Information Statement  

The Income Tax Department has announced the roll-out of a new statement namely Annual Information Statement (AIS) which would provide you with almost all details about your financial transactions during the year. So far, the Income Tax Department has been issuing Form 26AS to provide information related to taxable income and tax deducted at source (TDS), which will now be replaced with the Annual Information Statement (AIS). The new AIS statement will provide comprehensive information of the taxpayer and will be significantly useful while preparing the tax return. The information will be provided in AIS after removing duplicate information and taxpayers can download such information in PDF, JSON, CSV formats. 

A taxpayer can submit online feedback if the information is erroneous or refers to another person/year, or is duplicate Here’s the list of Top 50 Transactions to be reported in the New Annual Information Statement.

1.Salary 

Employer submits detailed breakup of salary, perquisites, profits in lieu of salary etc paid to the employee in Annexure II of the TDS statement (24Q) of the last quarter. This information is also provided by the employer to the employee (taxpayer) in Part B (Annexure) of Form 16. AIS displays all the financial transactions such as, salary income, dividend income, interest income from saving/fixed deposits, sale and purchase of securities, etc. With the help of all such financial information, it would be easy for a taxpayer to report the correct information in the income tax return 

2. Rent Received 

Tenants responsible for paying rent are liable to deduct tax at source on payment of rent. Deductor reports details of amount paid/credited, date of payment, details of Tax deduction made etc. in Form 26Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. Tenant (Individual/HUF) paying a rent of more than 50,000 is liable to deduct tax while making payment to the landlord. Tenant reports details of rent paid amount paid/credited, property details, date of payment and tax deduction details etc. pertaining to rent paid in Form 26QC. 

3. Dividends 

Dividend paid/declared by all companies (reporting entity) is reported under Statement of Financial Transactions (SFT). Company paying/distributing dividend is liable to deduct TDS from the amount paid subject to the threshold applicable in the act and report through form 26Q (quarterly statement). This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

4. Interest from savings bank 

Interest paid/credited/accrued on saving account is reported under Statement of Financial Transactions (SFT). 

5. Interest from deposit

Bank/deductor at the time paying/crediting interest on deposits is liable to deduct tax from deposit holder paid subject to the threshold applicable in the act. This information is reported by the Bank/deductor in form 26Q (quarterly statement). This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

6. Interest from others

 

Interest paid/credited/accrued on others (other than savings account, term deposit, recurring deposit) is reported under Statement of Financial Transactions (SFT).  Bank/deductor at the time paying/crediting other interest (interest on securities) is liable to deduct tax from deposit holder paid subject to the threshold applicable in the act. This information is reported by the Bank/deductor in form 26Q (quarterly statement). This information is provided by the deductor to the deductee (taxpayer) in Form 16A 

7. Interest from income tax refund 

Interest received on Income Tax Refund in the financial year is liable to be taxed as Income from other sources. 

8. Rent on plant & machinery

Tenant paying rent is liable to deduct tax at applicable rate as per the Act from rent paid. Details of rent on Plant & Machinery is reported by the deductor in TDS form 26Q. Tenant furnishes the details of rent paid on quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

9. Winnings from lottery or crossword puzzle 

Payer is liable to deduct tax at applicable rate as per act from winnings from lottery or crossword puzzle etc. Information about winnings is reported by payer in TDS form 26Q. Information is reported on quarterly basis. Income is taxable at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

10. Winnings from horse race 

Payer is liable to deduct tax at applicable rate as per act from winnings from Horse race. Information about winnings is reported by payer in TDS form 26Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

11. Receipt of accumulated balance of PF from employer u/s 111

Employer/recognised provided fund reports information about accumulated balance due to an employee in form 26Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

12. Interest from infrastructure debt fund 

Information relating to interest paid is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

13. Interest from specified company by a non-resident u/s 115A(1)(a)(iiaa)

Information relating to interest paid is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

14. Interest on bonds and government securities

Information relating to interest paid is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

15. Income in respect of units of non-resident u/s 115A(1)(a)(iiab) 

Information about income in respect of units of Non Resident is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

16. Income and long-term capital gain from units by an offshore fund u/s 115AB(1)(b) 

Information about income and long-term capital gain from units payable to an off shore fund is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

17. Income and long-term capital gain from foreign currency bonds or shares of Indian companies u/s 115AC 

Information about income and long-term capital gain from foreign currency bonds or shares of Indian companies is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

18. Income of foreign institutional investors from securities u/s 115AD(1)(i)

Information about income of foreign institutional investors from securities is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

19. Insurance commission

Information about insurance commission received is reported by the payer in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

20. Receipts from life insurance policy 

Receipts from life insurance policy are exempt under section 10(10D) subject to conditions specified therein. If such conditions are not met, the receipts become taxable and tax is also deducted u/s 194DA. The information is reported by the payer in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

21. Withdrawal of deposits under national savings scheme 

Withdrawals from NSS are taxable. Tax is also deducted on such withdrawals and reported in Form 26Q by the payer on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

22. Receipt of commission etc. on sale of lottery tickets 

Commission on lottery business is subject to tax deduction under section 194G. The payer reports such information in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A 

23. Income from investment in securitization trust

Income from investment made in securitization trust is subject to tax deduction. The payer reports such information in Form 27Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A.

24. Income on account of repurchase of units by MF/UTI 

Receipt of income on account of repurchase of units by MF/UTI is subject to tax deduction under section 194F. The payer reports such information in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

25. Interest or dividend or other sums payable to government 

Income from interest or dividend or other sums payable is not subject to tax deduction. The payer reports such information in Form 26Q on a quarterly basis. This information is provided by the deductor to the deductee (taxpayer) in Form 16A 

26. Payment to non-resident sportsmen or sports association u/s 115BBA 

Information pertaining to amount paid to non-resident sportsmen or sports association is reported by deductor in form 27Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

27.  Sale of land or building

Sales consideration of immovable property transferred is reported under Statement of Financial Transactions (SFT). The information will be shown in AIS of all sellers to enable submission of feedback. Sale of immovable property is also reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. Information related to receipts under specified agreement is reported by person making payment for specified agreement entered into. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. 

28. Receipts from transfer of immovable property 

Information related to receipts from transfer of immovable property is reported by buyer of property in Form 26QB. This information is provided by the deductor to the deductee (taxpayer) in Form 16B. 

29. Sale of vehicle 

Sale of motor vehicle is reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. 

30. Sale of securities and units of mutual fund 

In the SFT reporting of depository transactions, the estimated sale consideration for the debit transaction is determined on the best possible available price of the asset with the depository (e.g. end of day price). The taxpayer will be able to modify the sales consideration and other related information before filing the return. In the SFT reporting of depository transactions, the estimated sale consideration for the debit transaction is determined on the best possible available price of the asset with the depository (e.g. end of day price). The taxpayer will be able to modify the sales consideration and other related information before filing the return. 

31. Off market debit transactions 

In the SFT reporting of depository transactions, the depository reports details of off market debit transactions. The value of transaction is computed on the basis of end of day price of the security. In case, the consideration is available, the same is also shown. 

32. Off market credit transactions 

In the SFT reporting of depository transactions, the depository reports details of off market credit transactions. The value of transaction is computed on the basis of end of day price 

33. Business receipts 

Information pertaining to amount paid to contractor is reported by contractee in form 26Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. Information pertaining to amount paid to the service provider is reported by recipient of services in form 26Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A 

34. Business expenses

 

Information pertaining to purchase of alcoholic liquor is reported by tax collector in TCS form 27EQ (quarterly statement). This information is provided by the collector to the taxpayer in Form 27D. 

35.  Rent payments 

Information is reported by person making payment in form 26QC. This information is provided by the deductor to the taxpayer in Form 16C 

36. Miscellaneous payments

Information is reported by person making payment in form 26QD. This information is provided by the deductor to the taxpayer in Form 16D. Purchase of bank drafts or pay orders may be reported in Form 61 if PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person 

37. Cash deposits 

Information pertaining to cash deposits in an account other than current account is reported by reporting entity in form 61A. The information will be shown in AIS of all account holders to enable submission of feedback. Information pertaining to cash deposits in current account is reported by reporting entity in form 61A. The information will be shown in AIS of all account holders to enable submission of feedback. 

38. Cash withdrawals

Information pertaining to Cash withdrawals from current account is reported by reporting entity in form 61A. The information will be shown in AIS of all account holders to enable submission of feedback. Sometimes, cash withdrawals from accounts other than current account are reported by the Reporting Entity in SFT-004. The information will be shown in AIS of all account holders to enable submission of feedback. Information pertaining to Cash withdrawals is reported by reporting entity through TDS statement 26Q. This information is provided by the deductor to the taxpayer in Form 16A. 

39. Cash payments 

Information pertaining to Cash payments for goods and services is reported by reporting entity in form 61A. Information pertaining to Purchase of bank drafts or pay orders or banker’s cheque in cash is reported by reporting entity in form 61A. Information pertaining to Purchase of prepaid instruments in cash is reported by reporting entity in form 61A. 

40. Outward foreign remittance/purchase of foreign currency 

Information of outward foreign remittance is reported by authorised dealer in form 15CC. Information about Remittance under LRS for educational loan taken from financial institutions mentioned in section 80E (Third proviso to Section 206C(1G)) is reported by authorised dealer through TCS form 27EQ for specified foreign remittances made by remitter PAN.Information about Remittance under LRS for purpose other than for purchase of overseas tour package or for educational loan taken from financial institution (Section 206C(1G(a))) is reported by authorised dealer through TCS form 27EQ for specified foreign remittances made by remitter PAN. 

41. Receipt of foreign remittance 

Information relating to payment of royalty or fees for technical services etc., paid to non- residents is reported by deductor in form 27Q. This information is provided by the deductor to the deductee (taxpayer) in Form 16A. Information is reported by authorised dealer in form 15CC for foreign remittances made by remitter PAN. Information of receipt of foreign remittance by a remittee is reported by authorised dealer in form 15CC. 

42. Foreign travel 

Information is reported by deductor in TCS form 27EQ (quarterly statement). This information is provided by the collector to the taxpayer in Form 16D. Payment in connection with travel to any foreign country may be reported in Form 61 if the PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. 

43. Purchase of immovable property 

Information relating to immovable property is reported by the Property Registrar through SFT. The information will be shown in AIS of all buyers to enable submission of feedback. Buyer at the time of making payment towards purchase of property is liable to deduct tax from the amount paid to the seller subject to the threshold applicable. This information is reported in form 26QB. Seller of property reports the details of property buyer in schedule CG of ITR. Payment for purchase of immovable property may be reported in Form 61 if the PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. 

44. Purchase of vehicle

 

Information is reported by deductor in TCS form 27EQ (quarterly statement). This information is provided by the collector to the taxpayer in Form 16D. Payment for purchase of motor vehicle may be reported in Form 61 if the PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. 

45. Purchase of time deposits 

Information relating to Purchase of Time deposits is reported by reporting entity (such as the bank) in the Statement of Financial Transaction (SFT). Information pertaining to investment in Time deposit is reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. 

46. Purchase of securities and units of mutual funds 

Information is reported by reporting entity in the Statement of Financial Transaction (SFT). Purchase of shares (including share application money). Information is reported by reporting entity in the Statement of Financial Transaction (SFT). Information is reported by reporting entity (such as mutual fund companies) in the Statement of Financial Transaction (SFT). 

47. Credit/Debit card 

Information pertaining to application for issuance of credit/debit card is reported in Form 61 where PAN is not furnished by the transacting party. PAN is populated based on aadhaar and other attributes of the person. 

48. Balance in account 

Details of bank account other than saving and time deposits opened during the year , as reported in Form 61. Bank account with balance exceeding 50,000 at the closing of Financial year, as reported in Form 61. 

49. Income distributed by business trust 

Information relating to income from units of a business trust is reported by payer in form 27Q. Information is reported on quarterly basis and is chargeable to tax at special rate. 

50. Income distributed by investment fund 

This information is reported by the deductor in Form 26Q on a quarterly basis

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Cashless Settlement under Mediclaim Insurance

 What is TPA and PPN ?

Third Party Administrator (TPA): It is an intermediary company between an insured and the insurer or the insurance company. Approved by the Insurance Regulatory and Development Authority of India (IRDAI),

It helps the insured in getting cashless claims for hospitalisation under mediclaim policy.

Preferred Provider Network (PPN): For some hospitals, the health care charges for health insurance policyholders are quite higher than the reasonable rate of treatment. Keeping this in mind, insurance companies have a Preferred Provider Network (PPN) of hospitals which agree to work at rationalised rates for specific procedures.

What is the PPN rate in health insurance?

Health insurance is a technical concept wherein there are a lot of complicated jargons used in the policy. That is why a customer is to be guided on the meaning and implication of the technical concepts of their health insurance plan. Guidance is sought two times – one when a customer buys the policy and two when there is a claim. In fact, at the time of claim, a client wants help to understand the claim process.

Health claims, as you must know, are settled in two ways–

Cashless settlement

Reimbursement

Cashless settlements are the easiest as the hospital bills are directly taken care of by the insurance company. As such, a client does not have to bear the financial burden of medical expenses. In fact, if client buys a health insurance plan offered by public sector health insurers, he gets the benefit of PPN rates. Do you know what the benefit is ? Let’s see-

What are the PPN and PPN rates?

PPN in health insurance stands for Preferred Provider Network. It is a network of hospitals which are tied up with the health insurance company to provide cashless health claim settlements to policyholders.

PPN rates are specialized rates listed by PPNs for customers of public sector health insurance companies with which the insurance company has a tie-up. PPN rates are specified for a list of specified illnesses only.

When does the PPN rate apply?

PPN rates would be applicable only if –

1. The health plan is bought from a Government health insurance company. There are four such companies which are –

The New India Assurance Company Limited

Oriental Insurance Company Limited

United India Insurance Company Limited

National Insurance Company Limited

2. The illness is a listed illness as prescribed by the insurance companies

3. Medical treatments are taken at the networked hospital of the insurance companies (PPN)

PPN rate v/s Cash rate v/s non-PPN rate

Now you know what PPN rates are. But do you know how they are different from other rates applicable in health insurance claim settlements?

Every hospital, which has a tie-up with an insurance company, maintains three different rates for the same treatment. They are–

PPN rates applicable for claim settlements under plans offered by public sector health insurers

Cash rates applicable if there is no health insurance claim and the treatment costs are payable by the patient in cash

Non-PPN rates applicable for claim settlements under plans offered by private health insurance companies which are tied-up with the hospital

Let’s understand with an example–

Hospital ABC has three rates for angioplasty–

PPN Hospitalization rate	Cash rate	Non-PPN Hospitalization rate
INR 1.5 lakhs	INR 2 lakhs	INR 2 lakhs or more

Fig: Example Table

For the example mentioned above, if a customer has a policy issued by any of the four Government health insurance companies, the claim for angioplasty would be at INR 1.5 lakhs. In the absence of a health plan, or in case of reimbursement claims, the applicable rate would be INR 2 lakhs. If a customer has a health plan offered by a private health insurance company, the claim could be more than INR 2 lakhs.

This has also been stated in a MoneyLife article by M.Ramadoss, Chairman, New India Assurance Company that “insurer-funded healthcare cost is more than individual funded cost”. The PPN rates have come into play to handle this situation.

The bottom line

If a clients buy a health insurance plan from public sector health insurance companies, educate them about the concept of PPN rates. This would help them avail cashless claim settlements at the networked hospitals and also result in reduced claims. Since the claims would be reduced, the amount of remaining sum insured would become higher which can be used by your customers for future claims.

 

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

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State of Punjab and others etc. Vs. Rafiq Masih (White Washer) etc. - Recoveries by the employers, would be impermissible in law . . .(ii) Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.

SCI (2014.12.18) in State of Punjab and others etc. Vs. Rafiq Masih (White Washer) etc.   [CIVIL APPEAL NO. 11527 OF 2014 (Arising out of SLP(C) No.11684 of 2012)] laid down guidelines for recovery of excess payments made to employees/retirees;

# 12. It is not possible to postulate all situations of hardship, which would govern employees on the issue of recovery, where payments have mistakenly been made by the employer, in excess of their entitlement. Be that as it may, based on the decisions referred to herein above, we may, as a ready reference, summarise the following few situations, wherein recoveries by the employers, would be impermissible in law: 

• (i) Recovery from employees belonging to Class-III and Class-IV service (or Group ‘C’ and Group ‘D’ service).

• (ii) Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.

• (iii) Recovery from employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.

• (iv) Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.

• (v) In any other case, where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’s right to recover.

Excerpts of the Orders,

# 1. Leave granted.

# 2. All the private respondents in the present bunch of cases, were given monetary benefits, which were in excess of their entitlement. These benefits flowed to them, consequent upon a mistake committed by the concerned competent authority, in determining the emoluments payable to them. The mistake could have occurred on account of a variety of reasons; including the grant of a status, which the concerned employee was not entitled to; or payment of salary in a higher scale, than in consonance of the right of the concerned employee; or because of a wrongful fixation of salary of the employee, consequent upon the upward revision of pay scales; or for having been granted allowances, for which the concerned employee was not authorized. The long and short of the matter is, that all the private respondents were beneficiaries of a mistake committed by the employer, and on account of the said unintentional mistake, employees were in receipt of monetary benefits, beyond their due.

# 3. Another essential factual component in this bunch of cases is, that the respondent-employees were not guilty of furnishing any incorrect information, which had led the concerned competent authority, to commit the mistake of making the higher payment to the employees. The payment of higher dues to the private respondents, in all these cases, was not on account of any misrepresentation made by them, nor was it on account of any fraud committed by them. Any participation of the private respondents, in the mistake committed by the employer, in extending the undeserved monetary benefits to the respondent-employees, is totally ruled out. It would therefore not be incorrect to record, that the private respondents, were as innocent as their employers, in the wrongful determination of their inflated emoluments.

# 4. The issue that we have been required to adjudicate is, whether all the private respondents, against whom an order of recovery (of the excess amount) has been made, should be exempted in law, from the reimbursement of the same to the employer. For the applicability of the instant order, and the conclusions recorded by us hereinafter, the ingredients depicted in the foregoing two paragraphs are essentially indispensable.

# 5. Merely on account of the fact, that the release of these monetary benefits was based on a mistaken belief at the hands of the employer, and further, because the employees had no role in the determination of the employer, could it be legally feasible, for the private respondents to assert, that they should be exempted from refunding the excess amount received by them? Insofar as the above issue is concerned, it is necessary to keep in mind, that the following reference was made by a Division Bench of two Judges of this Court, for consideration by a larger Bench: 

• "In view of an apparent difference of views expressed on the one hand in Shyam Babu Verma and Ors. vs. Union of India & Ors. (1994) 2 SCC 521 and Sahib Ram Verma vs. State of Haryana (1995) Supp. 1 SCC 18; and on the other hand in Chandi Prasad Uniyal and Ors. vs. State of Uttarakhand & Ors. (2012) 8 SCC 417, we are of the view that the remaining special leave petitions should be placed before a Bench of Three Judges. The Registry is accordingly directed to place the file of the remaining special leave petitions before the Hon'ble the Chief Justice of India for taking instructions for the constitution of a Bench of three Judges, to adjudicate upon the present controversy." (emphasis is ours)

The aforesaid reference was answered by a Division Bench of three Judges on 8.7.2014. While disposing of the reference, the three-Judge Division Bench, recorded the following observations in paragraph 7:

• “7. In our considered view, the observations made by the Court not to recover the excess amount paid to the appellant-therein were in exercise of its extra-ordinary powers under Article 142 of the Constitution of India which vest the power in this Court to pass equitable orders in the ends of justice.” (emphasis is ours)

Having recorded the above observations, the reference was answered as under:

• “12. Therefore, in our opinion, the decisions of the Court based on different scales of Article 136 and Article 142 of the Constitution of India cannot be best weighed on the same grounds of reasoning and thus in view of the aforesaid discussion, there is no conflict in the views expressed in the first two judgments and the latter judgment.

• 13. In that view of the above, we are of the considered opinion that reference was unnecessary. Therefore, without answering the reference, we send back the matters to the Division Bench for its appropriate disposal.” (emphasis is ours)

# 6. In view of the conclusions extracted hereinabove, it will be our endeavour, to lay down the parameters of fact situations, wherein employees, who are beneficiaries of wrongful monetary gains at the hands of the employer, may not be compelled to refund the same. In our considered view, the instant benefit cannot extend to an employee merely on account of the fact, that he was not an accessory to the mistake committed by the employer; or merely because the employee did not furnish any factually incorrect information, on the basis whereof the employer committed the mistake of paying the employee more than what

was rightfully due to him; or for that matter, merely because the excessive payment was made to the employee, in absence of any fraud or misrepresentation at the behest of the employee.

# 7. Having examined a number of judgments rendered by this Court, we are of the view, that orders passed by the employer seeking recovery of monetary benefits wrongly extended to employees, can only be interfered with, in cases where such recovery would result in a hardship of a nature, which would far outweigh, the equitable balance of the employer’s right to recover. In other words, interference would be called for, only in such cases where, it would be iniquitous to recover the payment made. In order to ascertain the parameters of the above consideration, and the test to be applied, reference needs to be made to situations when this Court exempted employees from such recovery, even in exercise of its jurisdiction under Article 142 of the Constitution of India. Repeated exercise of such power, “for doing complete justice in any cause” would establish that the recovery being effected was iniquitous, and therefore, arbitrary. And accordingly, the interference at the hands of this Court. 

# 8. As between two parties, if a determination is rendered in favour of the party, which is the weaker of the two, without any serious detriment to the other (which is truly a welfare State), the issue resolved would be in consonance with the concept of justice, which is assured to the citizens of India, even in the preamble of the Constitution of India. The right to recover being pursued by the employer, will have to be compared, with the effect of the recovery on the concerned employee. If the effect of the recovery from the concerned employee would be, more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery. In such a situation, the employee’s right would outbalance, and therefore eclipse, the right of the employer to recover.

# 9. The doctrine of equality is a dynamic and evolving concept having many dimensions. The embodiment of the doctrine of equality, can be found in Articles 14 to 18, contained in Part III of the Constitution of India, dealing with “Fundamental Rights”. These Articles of the Constitution, besides assuring equality before the law and equal protection of the laws; also disallow, discrimination with the object of achieving equality, in matters of employment; abolish untouchability, to upgrade the social status of an ostracized section of the society; and extinguish titles, to scale down the status of a section of the society, with such appellations. The embodiment of the doctrine of equality, can also be found in Articles 38, 39, 39A, 43 and 46 contained in Part IV of the Constitution of India, dealing with the “Directive Principles of State Policy”. These Articles of the Constitution of India contain a mandate to the State requiring it to assure a social order providing justice – social, economic and political, by inter alia minimizing monetary inequalities, and by securing the right to adequate means of livelihood, and by providing for adequate wages so as to ensure, an appropriate standard of life, and by promoting economic interests of the weaker sections.

# 10. In view of the afore-stated constitutional mandate, equity and good conscience, in the matter of livelihood of the people of this country, has to be the basis of all governmental actions. An action of the State, ordering a recovery from an employee, would be in order, so long as it is not rendered iniquitous to the extent, that the action of recovery would be more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer, to recover the amount. Or in other words, till such time as the recovery would have a harsh and arbitrary effect on the employee, it would be permissible in law. Orders passed in given situations repeatedly, even in exercise of the power vested in this Court under Article 142 of the Constitution of India, will disclose the parameters of the realm of an action of recovery (of an excess amount paid to an employee) which would breach the obligations of the State, to citizens of this country, and render the action arbitrary, and therefore, violative of the mandate contained in Article 14 of the Constitution of India.

# 11. For the above determination, we shall refer to some precedents of this Court wherein the question of recovery of the excess amount paid to employees, came up for consideration, and this Court disallowed the same. These are situations, in which High Courts all over the country, repeatedly and regularly set aside orders of recovery made on the expressed parameters.

(i). Reference may first of all be made to the decision in Syed Abdul Qadir v. State of Bihar, (2009) 3 SCC 475, wherein this Court recorded the following observation in paragraph 58:

• “58. The relief against recovery is granted by courts not because of any right in the employees, but in equity, exercising judicial discretion to relieve the employees from the hardship that will be caused if recovery is ordered. But, if in a given case, it is proved that the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or in cases where the error is detected or corrected within a short time of wrong payment, the matter being in the realm of judicial discretion, courts may, on the facts and circumstances of any particular case, order for recovery of the amount paid in excess. See Sahib Ram v. State of Haryana, 1995 Supp. (1) SCC 18, Shyam Babu Verma v. Union of India, (1994) 2 SCC 521, Union of India v. M. Bhaskar, (1996) 4 SCC 416, V. Ganga Ram v. Director, (1997) 6 SCC 139, Col. B.J. Akkara (Retd.) v. Govt. of India, (2006) 11 SCC 709, Purshottam Lal Das v. State of Bihar, (2006) 11 SCC 492, Punjab National Bank v. Manjeet Singh, (2006) 8 SCC 647 and Bihar SEB v. Bijay Bahadur, (2000) 10 SCC 99.” (emphasis is ours)

First and foremost, it is pertinent to note, that this Court in its judgment in Syed Abdul Qadir’s case (supra) recognized, that the issue of recovery revolved on the action being iniquitous. Dealing with the subject of the action being iniquitous, it was sought to be concluded, that when the excess unauthorised payment is detected within a short period of time, it would be open for the employer to recover the same. Conversely, if the payment had been made for a long duration of time, it would be iniquitousto make any recovery. Interference because an action is iniquitous, must really be perceived as, interference because the action is arbitrary. All arbitrary actions are truly, actions in violation of Article 14 of the Constitution of India. The logic of the action in the instant situation, is iniquitous, or arbitrary, or violative of Article 14 of the Constitution of India, because it would be almost impossible for an employee to bear the financial burden, of a refund of payment received wrongfully for a long span of time. It is apparent, that a government employee is primarily dependent on his wages, and if a deduction is to be made from his/her wages, it should not be a deduction which would make it difficult for the employee to provide for the needs of his family. Besides food, clothing and shelter, an employee has to cater, not only to the education needs of those dependent upon him, but also their medical requirements, and a variety of sundry expenses. Based on the above consideration, we are of the view, that if the mistake of making a wrongful payment is detected within five years, it would be open to the employer to recover the same. However, if the payment is made for a period in excess of five years, even though it would be open to the employer to correct the mistake, it would be extremely iniquitous and arbitrary to seek a refund of the payments mistakenly made to the employee. In this context, reference may also be made to the decision rendered by this Court in Shyam Babu Verma v. Union of India (1994) 2 SCC 521, wherein this Court observed as under:

• “11. Although we have held that the petitioners were entitled only to the pay scale of Rs 330-480 in terms of the recommendations of the Third Pay Commission w.e.f. January 1, 1973 and only after the period of 10 years, they became entitled to the pay scale of Rs 330- 560 but as they have received the scale of Rs 330-560 since 1973 due to no fault of theirs and that scale is being reduced in the year 1984 with effect from January 1, 1973, it shall only be just and proper not to recover any excess amount which has already been paid to them. Accordingly, we direct that no steps should be taken to recover or to adjust any excess amount paid to the petitioners due to the fault of the respondents, the petitioners being in no way responsible for the same.” (emphasis is ours)

It is apparent, that in Shyam Babu Verma’s case (supra), the higher payscale commenced to be paid erroneously in 1973. The same was sought to be recovered in 1984, i.e., after a period of 11 years. In the aforesaid circumstances, this Court felt that the recovery after several years of the implementation of the pay-scale would not be just and proper. We therefore hereby hold, recovery of excess payments discovered after five years would be iniquitous and arbitrary, and as such, violative of Article 14 of the Constitution of India.

(ii). Examining a similar proposition, this Court in Col. B.J. Akkara v. Government of India, (2006) 11 SCC 709, observed as under:

• “28. Such relief, restraining back recovery of excess payment, is granted by courts not because of any right in the employees, but in equity, in exercise of judicial discretion to relieve the employees from the hardship that will be caused if recovery is implemented. A government servant, particularly one in the lower rungs of service would spend whatever emoluments he receives for the upkeep of his family. If he receives an excess payment for a long period, he would spend it, genuinely believing that he is entitled to it. As any subsequent action to recover the excess payment will cause undue hardship to him, relief is granted in that behalf. But where the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or where the error is detected or corrected within a short time of wrong payment, courts will not grant relief against recovery. The matter being in the realm of judicial discretion, courts may on the facts and circumstances of any particular case refuse to grant such relief against recovery.” (emphasis is ours)

A perusal of the aforesaid observations made by this Court in Col. B.J. Akkara’s case (supra) reveals a reiteration of the legal position recorded in the earlier judgments rendered by this Court, inasmuch as, it was again affirmed, that the right to recover would be sustainable so long as the same was not iniquitous or arbitrary. In the observation extracted above, this Court also recorded, that recovery from employees in lower rung of service, would result in extreme hardship to them. The apparent explanation for the aforesaid conclusion is, that employees in lower rung of service would spend their entire earnings in the upkeep and welfare of their family, and if such excess payment is allowed to be recovered from them, it would cause them far more hardship, than the reciprocal gains to the employer. We are therefore satisfied in concluding, that such recovery from employees belonging to the lower rungs (i.e., Class-III and Class-IV - sometimes denoted as Group ‘C’ and Group ‘D’) of service, should not be subjected to the ordeal of any recovery, even though they were beneficiaries of receiving higher emoluments, than were due to them. Such recovery would be iniquitous and arbitrary and therefore would also breach the mandate contained in Article 14 of the Constitution of India.

(iii). This Court in Syed Abdul Qadir v. State of Bihar (supra) held as follows:

• “59. Undoubtedly, the excess amount that has been paid to the appellant teachers was not because of any misrepresentation or fraud on their part and the appellants also had no knowledge that the amount that was being paid to them was more than what they were entitled to. It would not be out of place to mention here that the Finance Department had, in its counter-affidavit, admitted that it was a bona fide mistake on their part. The excess payment made was the result of wrong interpretation of the Rule that was applicable to them, for which the appellants cannot be held responsible. Rather, the whole confusion was because of inaction, negligence and carelessness of the officials concerned of the Government of Bihar. Learned counsel appearing on behalf of the appellant teachers submitted that majority of the beneficiaries have either retired or are on the verge of it. Keeping in view the peculiar facts and circumstances of the case at hand and to avoid any hardship to the appellant teachers, we are of the view that no recovery of the amount that has been paid in excess to the appellant teachers should be made.” (emphasis is ours)

Premised on the legal proposition considered above, namely, whether on the touchstone of equity and arbitrariness, the extract of the judgment reproduced above, culls out yet another consideration, which would make the process of recovery iniquitous and arbitrary. It is apparent from the conclusions drawn in Syed Abdul Qadir’s case (supra), that recovery of excess payments, made from employees who have retired from service, or are close to their retirement, would entail extremely harsh consequences outweighing the monetary gains by the employer. It cannot be forgotten, that a retired employee or an employee about to retire, is a class apart from those who have sufficient service to their credit, before their retirement. Needless to mention, that at retirement, an employee is past his youth, his needs are far in excess of what they were when he was younger. Despite that, his earnings have substantially dwindled (or would substantially be reduced on his retirement). Keeping the aforesaid circumstances in mind, we are satisfied that recovery would be iniquitous and arbitrary, if it is sought to be made after the date of retirement, or soon before retirement. A period within one year from the date of superannuation, in our considered view, should be accepted as the period during which the recovery should be treated as iniquitous. Therefore, it would be justified to treat an order of recovery, on account of wrongful payment made to an employee, as arbitrary, if the recovery is sought to be made after the employee’s retirement, or within one year of the date of his retirement on superannuation.

(iv). Last of all, reference may be made to the decision in Sahib Ram Verma v. Union of India, (1995) Supp. 1 SCC 18, wherein it was concluded as under:

• “4. Mr. Prem Malhotra, learned counsel for the appellant, contended that the previous scale of Rs 220-550 to which the appellant was entitled became Rs 700-1600 since the appellant had been granted that scale of pay in relaxation of the educational qualification. The High Court was, therefore, not right in dismissing the writ petition. We do not find any force in this contention. It is seen that the Government in consultation with the University Grants Commission had revised the pay scale of a Librarian working in the colleges to Rs 700-1600 but they insisted upon the minimum educational qualification of first or second class M.A., M.Sc., M.Com. plus a first or second class B.Lib. Science or a Diploma in Library Science. The relaxation given was only as regards obtaining first or second class in the prescribed educational qualification but not relaxation in the educational qualification itself. 

• 5 . Admittedly the appellant does not possess the required educational qualifications. Under the circumstances the appellant would not be entitled to the relaxation. The Principal erred in granting him the relaxation. Since the date of relaxation the appellant had been paid his salary on the revised scale. However, it is not on account of any misrepresentation made by the appellant that the benefit of the higher pay scale was given to him but by wrong construction made by the Principal for which the appellant cannot be held to be at fault. Under the circumstances the amount paid till date may not be recovered from the appellant. The principle of equal pay for equal work would not apply to the scales prescribed by the University Grants Commission. The appeal is allowed partly without any order as to costs.” (emphasis is ours)

It would be pertinent to mention, that Librarians were equated with Lecturers, for the grant of the pay scale of Rs.700-1600. The above pay parity would extend to Librarians, subject to the condition that they possessed the prescribed minimum educational qualification (first or second class M.A., M.Sc., M.Com. plus a first or second class B.Lib. Science or a Diploma in Library Science, the degree of M.Lib. Science being a preferential qualification). For those Librarians appointed prior to 3.12.1972, the educational qualifications were relaxed. In Sahib Ram Verma’s case (supra), a mistake was committed by wrongly extending to the appellants the revised pay scale, by relaxing the prescribed educational qualifications, even though the concerned appellants were ineligible for the same. The concerned appellants were held not eligible for the higher scale, by applying the principle of “equal pay for equal work”. This Court, in the above circumstances, did not allow the recovery of the excess payment. This was apparently done because this Court felt that the employees were entitled to wages, for the post against which they had discharged their duties. In the above view of the matter, we are of the opinion, that it would be iniquitous and arbitrary for an employer to require an employee to refund the wages of a higher post, against which he had wrongfully been permitted to work, though he should have rightfully been required to work against an inferior post.

# 12. It is not possible to postulate all situations of hardship, which would govern employees on the issue of recovery, where payments have mistakenly been made by the employer, in excess of their entitlement. Be that as it may, based on the decisions referred to herein above, we may, as a ready reference, summarise the following few situations, wherein recoveries by the employers, would be impermissible in law: 

• (i) Recovery from employees belonging to Class-III and Class-IV service (or Group ‘C’ and Group ‘D’ service).

• (ii) Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.

• (iii) Recovery from employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.

• (iv) Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.

• (v) In any other case, where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’s right to recover.

# 13. We are informed by the learned counsel representing the appellant- State of Punjab, that all the cases in this bunch of appeals, would undisputedly fall within the first four categories delineated hereinabove. In the appeals referred to above, therefore, the impugned orders passed by the High Court of Punjab and Haryana (quashing the order of recovery), shall be deemed to have been upheld, for the reasons recorded above.

# 14. The appeals are disposed of in the above terms.

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