1961 (8) TMI 41 - HC - Income Tax

Payment from Punjab University deemed capital, not revenue; costs awarded to assessee.

D.N. Bhalla Versus Commissioner of Income-Tax, Delhi and Rajasthan

The court determined that the payment of Rs. 7,200 to the assessee from the Punjab University was a capital receipt, not a revenue receipt. This decision ... - Issues:1. Whether the amount of Rs. 7,200 received by the assessee from the Punjab University should be treated as a revenue receipt or a capital receipt.Analysis:The judgment pertains to a case involving the termination of services of an individual employed as the Registrar of the East Punjab University. The assessee, after objections to the termination notice, reached a mutual agreement with the University for termination. The key issue was whether the payment of Rs. 7,200 made to the assessee was in the nature of compensation for loss of employment or remuneration for past services. The relevant law under consideration was Explanation 2 to section 7(1) of the Indian Income-tax Act, 1922. This Explanation distinguished between payments made as compensation for loss of employment and those made as remuneration for past services, with only the former being non-assessable for income tax purposes.The assessee argued that the payment was solely compensation for surrendering certain rights and privileges, not in lieu of salary. The University's actions, including the mutual agreement and the characterization of the payment as compensation in a letter, supported this argument. Comparisons were drawn to similar cases where payments were deemed compensation for loss of employment. On the other hand, the department contended that the payment was in accordance with the terms of employment, specifically Regulation I, which allowed for payment in lieu of notice. Reference was made to precedents where payments made as part of the employment contract were considered assessable to income tax.The judgment highlighted the circumstances surrounding the termination, emphasizing that the notice served was not in strict compliance with Regulation I, and the subsequent mutual agreement indicated a departure from standard procedures. Drawing on legal principles from previous cases, the court concluded that the payment of Rs. 7,200 was a capital receipt, not a revenue receipt. This decision was based on the understanding that the payment was made as part of an agreement outside the normal terms of employment, signifying compensation for loss of employment rather than remuneration for past services.In conclusion, the court answered the question posed by stating that the amount of Rs. 7,200 was a capital receipt, not a revenue receipt, and awarded costs to the assessee. The judgment was delivered jointly by G. D. Khosla, CJ, and S. S. Dulat, J., with the latter concurring with the decision.