Query No. 28 Subject: Reimbursement of travel expenses etc., to employees on retirement.1
A. Facts of
the Case
1. One of the
objectives of a government company incorporated under the Companies
Act, 1956, is
to set up thermal power plants in various geographical locations in the
country and to supply bulk power to the various State Electricity
Boards/successor entities. The company
is governed by the provisions of the Electricity (Supply) Act, 1948. As the
government has not prescribed any
format for the
statement of accounts
for the central undertakings engaged in generation
of electricity, the company is preparing its accounts as per Schedule VI to the
Companies Act, 1956, since inception and the same have been accepted by various
audit agencies.
2. As per the
Travelling Allowance Rules of the company, an employee on retirement is entitled to certain payments, as
admissible to a serving employee on
transfer, depending upon his
status/pay range, to meet
the expenses of travel for himself and members of his family, and
shifting of baggage for proceeding to home town or any place in India where he
intends
(i) Reimbursement
of single journey fare for self and members of his family by the mode and class
of travel as per his entitlement.
(ii) Reimbursement
of conveyance charges for journeys between airport/railway station/bus stand
and residence. (iii) Daily
allowance as per entitlement towards food and incidentals for the period of
journey from the headquarters to the destination station.
(iv) Reimbursement
of actual expenses towards transportation of baggage by goods train upto
certain limits as per entitlement, transportation of conveyance by passenger
train, mileage allowance for carriage of personal effects from residence to
railway station and vice-versa, octroi duty, entry taxes, terminal taxes and
insurance charges on household effects and conveyance, etc., subject to
production of receipts. (v) Transfer
grant equal to one month of his wage/salary (Pay plus Dearness Allowance)
subject to a maximum of Rs.10,000 on fulfilment of the following conditions:
(a) The transfer
involves change of station of posting and residence; (b) The transfer
involves actual breaking and setting up of establishment; (c) The
company’s accommodation in possession of the employee at the old station of his
posting is vacated; and (vi) Reimbursement
of package charges subject to ceiling as per entitlement. The amount with regard to the above benefits is required to
be claimed by the employee within six months of retirement. 3. The
company’s contention is that since the amounts are paid only to employees who actually shift out of their last place of posting,
the said expense
4. During the
review of accounts of the company for the year 2001-02, the government
auditors observed that the
above benefit is a
retirement benefit and is in the nature of a Defined Benefit
Scheme. Auditors were of the view that
as per Accounting Standard (AS) 15, ‘Accounting for Retirement Benefits in the Financial Statements of Employers’,
provision should have been made every year in the accounts for accruing
liability on account of this facility
calculated according to
actuarial valuation. In
support of the observation, reference was made by the
auditors to the opinion of the Expert Advisory Committee to query no. 11 given at
pages 60-66 of Volume XVIII
5. The
company’s contentions in the matter are as follows: (i) The facts
of the case referred to in the above opinion of the Expert Advisory Committee
are different from those of the company under consideration. In the case
referred to in the earlier opinion of the Expert Advisory Committee, all
employees, at their option, are entitled to a lumpsum payment equal to one
month’s salary last drawn as ‘Settlement Allowance’ irrespective of the place
of settlement. In other words, even if
an employee does not change his place of residence on retirement, he is
entitled to the lumpsum payment. No such lumpsum ‘Settlement Allowance’ is
admissible to the employees in the case of the company under consideration. In
the given case, a retiring employee is reimbursed expenses on travel for self
and family and for shifting his baggage to his home town or any place in India
other than the place of his last posting. In case the employee does not shift
out of the last place of posting within 6 months of retirement, no amount is payable.
(ii) It may be
mentioned that at the time of joining the company, the employees are reimbursed
joining expenses for self and family and for shifting of baggage to the place
of posting. On the same analogy, reimbursement of journey fare and expenses for
shifting of baggage from the place of posting to the home town/place of
settlement is made at the time of retirement and the same cannot be said to be
a retirement benefit to the employees similar to gratuity, post-retirement
medical reimbursement, etc. (iii) Further, the
amounts payable by the company to the retiring employees for travel expenses
cannot be reasonably estimated in view of the number of variables such as the
place of last posting, place where the employee would like to settle, family
size, expenses likely to be incurred, etc., which cannot be foreseen to
facilitate reasonable estimation by the company or by actuarial valuation. Even
assuming the said reimbursement is a ‘retirement benefit’, keeping in view the provisions of paragraph 2 of AS 15 which
provides that “this statement does not apply to those retirement benefits for
which the employer’s obligation cannot be reasonably estimated, e.g., ad-hoc
ex-gratia payments made to employees on retirement”, the company is of the view
that the same is not covered by AS 15.
B . Query 6. The querist
has sought the opinion of the Expert Advisory Committee on the following
issues:
(a) Whether the
reimbursement of journey fare and other expenses for shifting baggage, to
employees who settle at a place other than the place of last posting on
retirement, as per the company’s rules is a ‘retirement benefit’. (b) Whether the
provisions of AS 15 are applicable to such reimbursement C. Points considered
by the Committee 7. The
Committee notes that Accounting Standard (AS) 15, ‘Accounting for Retirement
Benefits in the Financial Statements of Employers’, issued by the Institute of
Chartered Accountants of India, deals with accounting for retirement benefits
in the financial statements of employers. The Committee notes that paragraph 2
of AS 15 states as follows: “2. Retirement
benefits usually consist of: (a) Provident
fund (b) Superannuation/pension (c) Gratuity (d) Leave
encashment benefit on retirement (e) Post-retirement
health and welfare schemes (f) Other
retirement benefits. This Statement applies to retirement benefits in the form of
provident fund, superannuation/pension and gratuity provided by an employer to
employees, whether in pursuance of requirements of any law or otherwise. It also applies to retirement benefits in the form of leave
encashment benefit, health and welfare schemes and other retirement benefits,
if the predominant characteristics of these benefits are the same as those of
provident fund, superannuation/pension or gratuity benefit, i.e. if such 8. The
Committee notes that AS 15 clearly states that the Standard applies
“Defined contribution schemes are retirement benefit schemes
under which amounts to be paid as retirement benefits are determined by
contributions to a fund together with earnings thereon.” “Defined benefit schemes are retirement benefit schemes
under which amounts to be paid as retirement benefits are determinable usually
by reference to employee’s earnings and/or years of service.” 9. From the
above, the Committee observes that reimbursement of journey fares etc., on
retirement is neither a defined contribution scheme, nor a defined benefit scheme.
It is not a defined
contribution scheme because
no contributions are to be made to a fund for the payment of the
obligation arising under the scheme.
Further, the essence of a defined benefit scheme
D. Opinion
10. On the basis
of the above, the Committee is of the following opinion on the issues raised in
paragraph 6: (a) The
reimbursement of journey fare and other expenses for shifting baggage, to
employees who settle at a place other than the place of last posting on
retirement, as per the company’s rules is not a retirement benefit.
(b) In view of
(a) above, the provisions of AS 15 are not applicable to such a reimbursement.
|