Termination compensation for loss of employment was exempt, as it was not remuneration for past services.

Lump sum amounts paid on termination of employment were treated as compensation for loss of employment and therefore exempt from income-tax under Explanation 2 to Section 7(1) of the Income-tax Act. The agreement's reference to "resignation" was read as a formal description of termination under pressure, not a voluntary surrender of office. Because the sums were payable separately from accrued dues for past service, they were not remuneration for services rendered. The unexpired term of the contract and surrounding circumstances showed that the payment was intended to compensate the employee for loss of future employment prospects.

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Issues: Whether the lump sum amounts received on termination of the assessee's employment were exempt from income-tax under Explanation 2 to Section 7(1) of the Income-tax Act.

Analysis: The payments arose from the termination of the assessee's managerial appointment and were made under the termination agreement in consideration of the loss of employment. The reference to resignation in the agreement was treated as a formal expression of termination under pressure and not as a voluntary relinquishment of office. The amounts were separately payable from the assessee's accrued dues up to the date of termination and were therefore not remuneration for past services. The surrounding circumstances and the unexpired term of the contract showed that the lump sum was intended to compensate the assessee for the loss of future employment prospects.

Conclusion: The amounts were solely compensation for loss of employment and were exempt from income-tax under Explanation 2 to Section 7(1) of the Income-tax Act, in favour of the assessee.

Ratio Decidendi: A payment made on termination of employment is exempt where it is shown to be solely compensation for loss of employment and not remuneration for past services, and the mere use of the word "resignation" does not by itself establish voluntary relinquishment of the post.

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