TaxTMI 
TaxTMI 
2010 (9) TMI 170
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....n addition to normal retiral benefits at the time of his retirement, from H.T. CGU Project Services Pvt. Ltd (employer). This amount of Rs. 35 lacs was claimed as exempted from income-tax by the assessee though the employer had deducted the tax at source and Form No. 16 had been issued to this effect. This return was processed and accepted on 17th July, 2002. 4. The Assessing Officer, however, issued notice dated 30th September, 2002 under Section 148 of the Act proposing the reassessment of income, as according to him there were reasons to believe that income to the extent of Rs. 35 lacs had escaped assessment. The assessee vide letter dated 1st October, 2002 stated that return already filed by him be treated as return under Section 148 of the Income Tax Act (hereinafter referred to as "the Act") as well. Thereafter, notice under Section 143 (2) was issued to the assessee on 28.10.2002. 5. The reassessment proceedings accordingly were carried out. The plea made by the assessee was that this amount was not exigible to tax as it was outside the scope and ambit of Section 17 (3) of the Act. The explanation of the assessee was that when he was allowed by his employer "exceptiona....
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.... 17 (1) of the Act. It was in this backdrop that question was framed as to whether the amount was chargeable to tax under Section 17 (3) of the Act as "profits in lieu of salary" or not. 8. Chapter-IV deals with computation of total income from salaries. It starts with Section 14 which enumerates various heads of income. The first among them is "salaries". Section A of Chapter-IV, which consists of Section 15 to 17, deals with computation of income under the head "salaries". Section 15 of the Act enumerates various kinds of receipts by employees which are treated as income chargeable to income tax under this head. It includes not only the "salary‟ simplicitor but also the perquisites etc. as well. Section 16 of the Act permits certain deductions from the income chargeable under this head. Section 17 of the Act defines three important terms namely "salary‟, „perquisites‟ and "profits in lieu of salary". Sub Section (1) of Section 17 of the Act defines certain payments which are included in the term "salary‟. These are wages, pension, gratuity, any fees, commission as well as perquisites or profits in lieu of or in addition to any salary or wages. Sub....
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....ion‟ in connection with the termination of his employment but was voluntarily given by the erstwhile employer to him. 11. Before discussing the nature of the payment received by the assessee, we deem it proper to point out the distinction between Clause (i) and Clause (iii) of sub Section (3) of Section 17 of the Act. Sub Clause (B) of clause (iii) enumerates that when any „amount‟ is due or received after cession of the employment it is treated as "profits in lieu of salary". The expression used here is "amount‟. Therefore, when an amount is received by an employer whether due or not, on the cession of the employment from the employer, this partakes the character of "salary‟ and is chargeable to tax. In contra distinction sub clause (i) uses the expression "compensation" (rather than "amount"). Therefore, under clause (i), in order to characterize a particular payment received from the employer, on termination of the employment, as "profits in lieu of salary", it has necessarily to be shown that this amount is due or received as „compensation‟. 12. The word „compensation‟ is not defined under the Income Tax Act. Therefore....
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.... the employees as profits in lieu of salary. In that case, the assessee employees received compensation from their employer for loss of movable assets in Pakistan at the time of partition. Likewise, the Calcutta High Court in the case of Commissioner of Income Tax Vs. Jamini Mohan Kar, 176 ITR 127 and also Commission of Income Tax Vs. Ajit Kumar Bose, 1265 ITR 90 held that the ex-gratia payment made at the time of retirement of the employee was not taxable as "profits in lieu of salary" as the payment was totally voluntary and not sanctioned by the terms of employment. The employee could claim no vested right in the same, since the amount was paid at the discretion of the employer. 15. Having regard to this legal position, we have to decide as to whether payment of Rs.35 lacs received by the assessee on cessation of his employment was a voluntary payment given by the employer or it was in the nature of "compensation". 16. The controversy revolves round the meaning which is to be given to the words contained in the letter dated 25th January, 2001 issued by the employer of the assessee. Based on the language of that letter, the Assessing Officer has framed the opinion that t....
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....ase that the salary received by the assessee was not fair recompense for the services rendered. HTCGU decided to pay the impugned amounts to the assessee, vide letter dated 25.1.2001, only after the tendering of resignation by the assessee, though such resignation was effective from a later date, which is even evident from the extracts of letter which grants the payment - "further to your resignation..." The aforesaid would show that the ex-gratia payment was not a condition precedent to the employee resigning from services or agreed prior thereto Merely because payment was to be received on resignation would not change the character of the payment being voluntary in nature granted by HTCGU suo-moto in its own discretion without any vested right of the assessee to claim the same under the employment contract The courts in the following cases have held that voluntary payments made by the employer to the employee without any right vested in the employee enforceable at law, is in the nature of Capital receipt not exigible to tax as "salary‟". 18. We are inclined to agree with the aforesaid approach of the Tribunal. The connotation to the word "compensation" which needs to be ....