Termination settlement not taxable as salary where no contractual obligation existed; car-related receipt also failed on the facts.

A lump sum received on termination of service was treated as an ex gratia, voluntary settlement with no contractual or statutory obligation on the employer, so it was not taxable as profits in lieu of salary under section 17(3)(i). The related amount received towards purchase of a car was also found unsustainable on the facts accepted by the first appellate authority. Decisions concerning payments made under an existing agreement were distinguished because no such agreement existed here, and the addition was deleted.

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Issues: Whether the lump sum amount of Rs. 2 crore received by the assessee on termination of service and the amount of Rs. 13,08,444/- received towards purchase of a car were taxable as profits in lieu of salary under section 17(3)(i) of the Income-tax Act, 1961.

Analysis: The payment of Rs. 2 crore was treated as an ex gratia and voluntary settlement without any contractual or statutory obligation on the employer to make such payment. In the absence of an enforceable service-rule obligation, the amount could not be brought within the ambit of profits in lieu of salary. The addition relating to the car-related amount was also found unsustainable on the facts accepted by the first appellate authority. The rival reliance on decisions dealing with payments made under an existing agreement was distinguished on the footing that no such agreement existed here.

Conclusion: The receipt did not fall within section 17(3)(i), and the deletion of the addition was upheld. The appeal of the Revenue failed.

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