1982 (6) TMI 141 - AT - Income Tax

Ex gratia payment taxed as salary profit by appellate tribunal under Income-tax Act

V. Pathoor. Versus Income Tax Officer.

V. Pathoor. Versus Income Tax Officer. - ITD 001, 1127, TTJ 015, 534, Issues:1. Taxability of ex gratia payment received by the assessee.2. Interpretation of provisions under section 17(3)(ii) of the Income-tax Act, 1961.3. Exemption under section 10(10) and section 10(3) of the Income-tax Act, 1961.Analysis:1. The assessee, a retired employee, received a total amount of Rs. 63,000 from the employer, comprising Rs. 30,000 as gratuity and Rs. 33,000 as ex gratia payment. The dispute arose regarding the taxability of the ex gratia payment. The Income Tax Officer (ITO) contended that the ex gratia payment was not entirely ex gratia as it included a portion of taxable amount camouflaged as ex gratia to benefit the assessee. The ITO concluded that the ex gratia payment was for services rendered and hence taxable. The Appellate Assistant Commissioner (AAC) upheld the taxability of the ex gratia payment as profit in lieu of salary under section 17(3)(ii) of the Act.2. The appellate tribunal considered the contention raised by the assessee regarding the nature of the ex gratia payment. The tribunal analyzed the law and emphasized that for an ex gratia payment to be exempt from taxation, it must be proven that the payment was a gift or testimonial on personal grounds. The tribunal highlighted the distinction between salary and gifts, citing relevant legal precedents. It noted that the burden of proof lay with the assessee to demonstrate that the ex gratia payment was received as a gift. Since there was no evidence to support this claim, the tribunal held that the ex gratia payment was taxable under section 17(3)(ii) as profit in lieu of salary.3. The tribunal further examined the claim of the assessee that the ex gratia payment was casual and non-recurring, seeking exemption under section 10(3) of the Act. It clarified that a casual receipt must be fortuitous and not anticipated, while a non-recurring receipt should not repeat or be expected. The tribunal found that the ex gratia payment did not meet the criteria of being casual or non-recurring as it was not unexpected, calculated, or anticipated due to the employer's design to avoid tax liability. Additionally, the tribunal noted that the payment was made for past loyal services, making it taxable as profits in lieu of salary. The tribunal affirmed the AAC's decision to tax the ex gratia payment.4. The tribunal also considered the employer's deduction of tax on the entire amount of Rs. 63,000, indicating the mutual understanding between the parties regarding the tax treatment of the ex gratia payment. This circumstance supported the conclusion that the ex gratia payment was subject to taxation. Ultimately, the tribunal dismissed the appeal, upholding the taxability of the ex gratia payment as profit in lieu of salary.In conclusion, the appellate tribunal affirmed the taxability of the ex gratia payment received by the assessee, emphasizing the lack of evidence to support the claim that it was a gift or non-taxable. The tribunal held that the payment was for past services rendered and therefore fell under the purview of profit in lieu of salary, as per the provisions of the Income-tax Act, 1961.