AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2434
X X X X Extracts X X X X
X X X X Extracts X X X X
....ho is assessed in the status of an individual, filed return of income on 30th June, 2004 showing total income of Rs. 1,32,430/-. The return was processed under section 143(1)(a) of the Act granting refund of Rs. 1,88,550/- on 28th March, 1995. Since the refund was more than Rs. 1,00,000/-, the case was taken up for scrutiny. During the course of assessment, it was found that the assessee had received an amount of Rs. 3,51,308/- being ex-gratia compensation on premature cessation of his services. In the footnote of the return of income, the assessee had stated that since neither the terms of employment nor the service rules of the company provide for making ex-gratia payment, this claim as capital receipt is not liable to tax as the same is not paid as retrenchment compensation either under labour laws or under the terms of employment. In support of his submissions, the assessee had placed reliance upon the decisions of the Calcutta High Court in the case of Commissioner of Income- Tax v. Jamini Mohan Kar, (1989) 176 ITR 127 (Cal.) and Commissioner of Income-Tax v. Ajit Kumar Bose, (1987) 165 ITR 90 (Cal.). The Assessing Officer after considering the submissions advanced on behalf o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he total income." 3. The assessee carried the matter in appeal before the Commissioner (Appeals) who held that the amount received by the appellant was not taxable and deleted the addition made by the Assessing Officer. According to the Commissioner (Appeals), the employer of the appellant offered to give a compensation of Rs. 3,51,308/- in case where he voluntarily retired from service, which the appellant accepted. The said amount was paid de hors any contract of employment and was paid voluntarily and was paid as compensation for premature termination of employment. The Commissioner (Appeals) placed reliance upon the above referred two decisions of the Calcutta High Court wherein it was held that the amount being capital receipt is not taxable under section 17(3) of the Act. The Commissioner (Appeals) also placed reliance upon a decision of the Madras High Court in the case of R. Venketkrishna, 215 ITR 586 wherein a similar view was taken namely, that the amount of similar nature is not taxable as salary. Revenue went in appeal before the Tribunal and succeeded in relation to the addition in question. 4. Mr. J.P. Shah, learned counsel for the appellant invited attention to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....50 " 4. A.M. Mehta Rs. 9053.50 " 5. M.D. Desai Rs. 8015.50 " Plus professional allowances, fixed Medical reimbursement allowance, Reimbursement Salary and Suit length as per eligibility and Silver Memento if eligible. They shall be eligible for retirement benefits like Gratuity/Pension/Post retirement Medical benefits scheme as per their eligibility in this behalf. The Association of Officers shall not litigate any further in this matter." It was submitted that the mode and manner of computation of compensation under the terms of settlement is clearly indicative of the fact that compensation was to be paid in connection with the termination of employment of the appellant and squarely falls within the ambit of section 17(3) of the Act. Reference was made to the letter dated 1st March, 1994 of the employer, wherein it is stated that the payment of compensation including the terminal benefits as may be payable according to his eligibility are enclosed therewith. It was submitted that the above letter clearly shows that the appellant was discharged from his services in terms of rule 44 and compensation was paid to him in connection with the termination of employment which i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me in lieu of such notice an employee in any other Grade may be discharged from the service of the company for sufficient reasons by the Competent appointing authority or he may leave or discontinue from the service of the company, after giving the month's notice in writing that behalf by payment of one month's basic pay and dearness allowance as in force from time to time in lieu of such notice, provided that the Board or the Personnel Committee may waive such notice or payment in lieu thereof in case of any employee in Grade-I and the Managing Director may waive such notice or payment in lieu thereof in case of an employee in Grade II, III or IV." A letter was written to the assessee by the employer Gujarat State Fertilizer Company Ltd. on 1st March, 1994 which reads as under:- "This has reference to the settlement dated 2nd February, 1994 which is a part of the Hon'ble High Court's judgment. In this connection, we are enclosing herewith the payment of compensation including the terminal benefits as may be payable according to your eligibility. The detailed calculations are enclosed in the meets and for income tax deduction, a separate certificate may be obtained from the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sum of Rs. 24,933/-, held that there was nothing to indicate that the assessee was entitled to continue in the employment of the company up to any particular age. Under the conditions of service, his services were liable to be terminated on giving three months' notice without assigning any reason. Under the circumstances, it could not be said that the assessee was entitled to remain in service for any period after the requisite notice had been given or that the employer was under any obligation to pay anything to the assessee in connection with the termination of his employment other than the salary for the period of notice. The court was of the view that in its true nature and character, the payment was exgratia, that is to say, totally voluntary; it was not compensation which implies some sort of an obligation to pay. The court, accordingly, held that it cannot be said that the amount in question was "profits in lieu of salary" within the meaning of clause (3) of section 17 of the Act and was not taxable as such. In Commissioner of Income-Tax v. Jamini Mohan Kar (supra), the Calcutta High Court followed its earlier decision in the case of Commissioner of Income-Tax v. Ajit Kumar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n letters patent appeal before a Division Bench of this court, which held that the employer - Gujarat State Fertilizer Company Limited was not a State or authority under Article 12 of the Constitution and allowed the appeal. However, the court recorded the agreement arrived at between the parties as reproduced hereinabove and disposed the appeal in terms of the agreement. It is pursuant to the above agreement that the amount in question came to be paid to the appellant. 11. Thus, the assessee's services came to be terminated by the order dated 6th May, 1984 under rule 44 of the relevant Service Rules after giving three months' pay. Therefore, insofar as the obligation of the employer to pay any amount to the assessee in relation to the termination of his services, the same came to an end in view of the discharge of his services under rule 44. While the assessee succeeded in the writ petition filed by him, the letters patent appeal preferred by the employer came to be allowed. Therefore, the discharge of the assessee's services by the employer attained finality. However, during the pendency of the letters patent appeal, the assessee and the employer arrived at a settlement, in term....