Termination payment under employment contract treated as taxable salary, not capital compensation for loss of employment.

Amount received on termination of service under a contract allowing notice or salary in lieu of notice was treated as contractual remuneration, not as compensation for surrender of an independent right or for breach of contract. Because the payment arose under the employment terms and represented salary payable on early termination, it fell within the salary provisions of the Income-tax Act. The amount was therefore taxable as income from employment and not a capital receipt for loss of employment.

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Issues: Whether the amount received by the assessee on termination of service was revenue income chargeable to tax as salary or a capital receipt by way of compensation for loss of employment.

Analysis: The service contract permitted termination on twelve months' notice or payment of salary in lieu of notice. The amount paid on termination was not received for surrendering any independent right or for breach of contract. It was received under the very terms of the employment agreement and represented remuneration payable in the event of early termination. On the authorities relied upon, a payment which forms part of the agreed contractual remuneration, even if described as compensation, falls within the salary provisions and is not excluded as compensation solely for loss of employment.

Conclusion: The amount of Rs. 25,200 was income from employment and was liable to tax under the Income-tax Act, not a capital receipt by way of compensation for loss of employment.

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