Reduced remuneration payment during continuing service was held taxable as income, not compensation for loss of employment.

A lump sum received by an employee or director for a reduction in remuneration, while service continues, is treated as a revenue receipt and assessable as income; it is not compensation for loss of employment within the relevant definition. Because the assessee remained in service as governing director on reduced pay, the amount represented the commuted value of the salary reduction rather than payment for cessation of employment. Authorities concerning total termination of service were distinguished on that basis, and the receipt was held taxable.

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Issues: Whether the sum of Rs. 10,000 received by the assessee was liable to be assessed as income or was compensation for loss of employment within the meaning of explanation 2 to section 7(1) of the Indian Income-tax Act, 1922.

Analysis: The assessee's service had not been terminated and he continued as governing director, though on reduced remuneration. The amount received represented the commuted value of the reduction in his remuneration, not compensation for cessation of employment. Such a receipt was held to be a revenue receipt and therefore assessable as income. Authorities dealing with cases of total cessation of service were distinguished on that basis.

Conclusion: The sum of Rs. 10,000 was taxable as income and not exempt as compensation for loss of employment.

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