1992 (3) TMI 119 - AT - Income Tax

Third-party compassionate payment not taxable as salary/profits under Income-tax Act. Tribunal upholds CIT(A)'s order.

The Tribunal upheld the CIT(A)'s order, ruling that the lb35,000 payment to the assessee was not taxable as 'salary' or 'profits in lieu of salary' under ... Income From Other Sources, Profits In Lieu Issues Involved:1. Nature of the receipt of lb35,000 by the assessee.2. Taxability of the receipt under the Income-tax Act.3. Applicability of Section 17(3)(ii) of the Income-tax Act.4. Alternative contention regarding the assessment year.Issue-wise Detailed Analysis:1. Nature of the receipt of lb35,000 by the assessee:The assessee was paid lb35,000 by Macleod Russel p.l.c. (MR) after his resignation from Warren Tea Co. Ltd. (WTC). The payment was made on 24-5-1983 when the assessee visited the U.K. The primary issue was whether this amount constituted 'salary' or 'profits in lieu of salary' under Section 17(3)(ii) of the Income-tax Act.2. Taxability of the receipt under the Income-tax Act:The Assessing Officer (AO) assessed the amount as 'salary' under Section 17(3)(ii), considering it as 'profits in lieu of salary.' The CIT(A) disagreed, and the revenue appealed. The Ld. Departmental Representative argued that the receipt was taxable and referenced Section 17(3)(ii). The assessee's counsel supported the CIT(A)'s order, citing decisions from Lachhman Dass v. CIT, CIT v. Ajit Kumar Bose, and CIT v. Jamini Mohan Kar, which suggested that such receipts were not taxable under Section 17(3)(ii).3. Applicability of Section 17(3)(ii) of the Income-tax Act:The Tribunal examined whether the payment could be considered 'salary' or 'profits in lieu of salary.' It was noted that the payment was not received from the employer or former employer. MR, which paid the cheque, was never the assessee's employer. The payment was made purely on compassionate grounds, as confirmed by a certificate from MR and a letter dated 17-1-1984. The Tribunal emphasized that the payment was not referable to the contract of employment and was not an enforceable obligation. The Tribunal cited Lord Cohen's judgment in Hochstrasser (Inspector of taxes) v. Mayes, which stated that the contract of employment should be the 'causa causans' of the payment. Here, the payment was not connected to the contract of employment.4. Alternative contention regarding the assessment year:The assessee argued that even if the amount was taxable, it should be assessed in the assessment year 1985-86, not 1984-85. However, since the Tribunal concluded that the receipt was not taxable, this alternative contention was not addressed in detail.Conclusion:The Tribunal upheld the CIT(A)'s order, concluding that the payment of lb35,000 was made on compassionate grounds and did not constitute 'salary' or 'profits in lieu of salary' under Section 17(3)(ii). The payment was not made by the employer or former employer, nor was it connected to the contract of employment. Consequently, the appeal by the revenue was dismissed.