Termination payment taxable as salary-related income unless proved wholly compensatory, with limited appellate interference over Settlement Commission findings.

A payment received from an employer on termination of employment is taxable as salary-related income under Explanation 2 to section 7 of the Indian Income-tax Act, 1922 unless it is shown to be solely compensation for loss of employment and not remuneration for past services. The Court treated surrounding circumstances, including the Vivian Bose Commission report and doubts about the appointment letter, as relevant to characterising the receipt. It also stated that appellate interference with the Settlement Commission is limited to cases where the order is contrary to the Act, and factual findings will not be reappraised. On that basis, a substantial part of the termination payment remained taxable and no interference was warranted.

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Issues: Whether the sum of Rs. 7 lakhs received by the assessee on termination of employment was wholly compensation for loss of employment or whether a substantial part was taxable as salary-related income under Explanation 2 to section 7 of the Indian Income-tax Act, 1922; and whether the Settlement Commission's findings could be interfered with in appeal.

Analysis: The receipt was examined in the light of Explanation 2 to section 7, which treats a payment from an employer or former employer as a profit in lieu of salary unless it is paid solely as compensation for loss of employment and not by way of remuneration for past services. The Court accepted that the report of the Vivian Bose Commission was not binding on the assessee, but held that it was relevant material which could be considered along with the surrounding circumstances. The Court also found that the genuineness of the appointment letter was not conclusively decided in the original assessment proceedings and that the Settlement Commission had given multiple reasons for doubting it, including the timing of the letter, the surrounding conduct, and the special position occupied by the assessee in the company. The Court further held that it would not reappraise facts in appeal and could interfere only if the order was contrary to the Act.

Conclusion: The Court held that a substantial portion of the Rs. 7 lakhs was taxable under Explanation 2 to section 7 of the Indian Income-tax Act, 1922, and that no interference with the Settlement Commission's order was warranted.

Ratio Decidendi: A payment from an employer received on termination is taxable under the salary provisions unless it is shown to be solely compensation for loss of employment, and in appeal from the Settlement Commission the Court will interfere only where the order is contrary to the Act, not to reweigh factual findings.

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