TaxTMI 
TaxTMI 
2025 (1) TMI 160
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.... circumstances of the case and under the provisions of the law, the income tax authorities erred in taxing the severance fee received on termination of employment under the compulsory retirement service scheme which is the compensation for loss of the source of income, is in the nature of capital receipt. 3. On the fact and circumstances of the case and under the provisions of the law, the income tax authorities violated Article 14 of the Constitution of India by treating unequally against the other assessees, wherein, the fact and question of the law were the same and similar. 4. On the fact and circumstances of the case and under the provisions of the law, the income tax authorities erred in taxing the severance fee, which is compensation received for loss of the source of income though the Hon'ble Delhi High Court held that such severance fee is in the nature of capital receipt. 5. On the fact and circumstances of the case and under the provisions of the law, the CIT(APPEAL), ADDL/JCIT (A) 1, Chandigarh erred in sustaining the order passed u/s 154 of the Income Tax Act, 1961 passed by the C.P.C, which was against the provisions of law and judicial ....
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....ision of section 192 of the Act. Further, in the opinion of ld. ADDL/JCIT(A)-1, Chandigarh, these receipts comes under the definition of "Profit in lieu of salary" as per provision of section 17(3)(i) of the Act which provides that the amount of any compensation due to be received by an assessee from his employer or former employer at or in connection with the termination of his employment or modification of the terms and conditions relating thereto will be included in the profit in lieu of salary and the same is chargeable to tax as salary income. Further, the Ld.CIT(A) held that the principles governing capital and revenue receipts are not relevant in lieu of the express provision regarding chargeability of the same. 6. Aggrieved by the order of the Ld.CIT(A), the assessee has filed the present appeal before the Tribunal. Further the AR of the assessee has also filed a written submission on 06/12/2024 along with the copy of the Order of the ITAT, "SMC" Bench, Ahmedabad in the case of Sudhakar Ratan Shanker Gautam Vs. The ITO, Ward-1(1)(3), Ahmedabad in ITA No. 1033/Ahd/2024 dated 03/10/2024. 7. The solitary issue that is raised is whether the Ld.CIT(A) is justified in confi....
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....rmer employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. Explanation 1.-For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Explanation 2.-Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "salary" for the purposes of this section. ""Salary", "perquisite" and "profits in lieu of salary" defined. 17. For the purposes of sections 15 and 16 and of this section,- (1) "salary" includes- (i) wages ; (ii) any annuity or pension ; (iii) any gratuity ; (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages ; (v) any advance of salary; (vi) the annual accretion ....
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....rovision of section 192 of the Act treating the compensation as a part of Salary. 10.2 We are of the considered opinion that the compensation was made to the assessee at or in connection with the termination of his employment. As held by the Apex Court in the case of Commissioner of Income tax v. E.D. Sheppard reported in (SC) (1963) 48 ITR 237, the expression "Compensation for termination of employment used in section 17(3)(i) of the Act refers to any payment made, whether under a legal liability or voluntarily, to compensate or act as a solatium fot the loss of employment suffered by the employee. If the object of the payment is unrelated to the relation between the employer and the employee, it would not fall within the expression "Profit received in lieu of Salary" in Explanation 2 to section 7(1) of the 1922 Act.[ corresponding to section 17(3)(i) of the 1961 Act.] In the present case the object of payment of compensation is related to the relation between the employer and the employee then in our opinion it will certainly fall within the expression "Profit received in lieu of Salary". 10.3 Further the Jurisdictional Hon'ble High Court of Karnataka in the case of CIT v. ....
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....r under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956; or an Indian Institute of Technology within the meaning of clause (4) of section 3 of the Institute of Technology Act, 1961; or any State Government; or the Central Government; or an Institution having importance throughout India or in any State or States, as the Central Government may, by notification in the Official Gazette specify in this behalf; or such Institute of Management as the Central Government may by notification in the Official Gazette specify in this behalf; exempt from income-tax, at the time of his voluntary retirement or termination of his service, in accordance with any Scheme or Schemes of voluntary retirement or in the case of public sector company referred to sub-clause (1), a scheme of voluntary separation, to the extent that such amount does not exceed five lakh rupees. The second proviso to this sub-clause provides that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year. ....
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....use (1) indicates that the Legislature intended to include in salary the specified or named amount paid to the employee in respect of the services rendered by him. Sub-clause (iv) of clause (1) provides for inclusion of four types of payments in the word "salary" - (i) fees, (ii) commissions, (iii) perquisites, and (iv) profits in lieu of or in addition to salary. In common parlance, fees, commissions, perquisites or payments of profits in lieu of salary may not be considered to be salary, but by this inclusive definition of the word "salary", a further inclusive definition is given to the word "perquisite", with which we are not concerned in these appeals. Thereafter clause (3) provides for an inclusive definition of the phrase "profits in lieu of salary". Subclause (i) of clause (3), inter alia, includes the amount of any compensation received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto. The inclusion of this amount of compensation has a direct connection with the employment or the terms and conditions relating thereto... ." (p. 151) [Emphasis suppli....
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..... Under sub-clause (1) of section 17(3) of the Act, the amount of compensation due to or received by an assessee from his employer at or in connection with the termination of his employment is regarded as "profits in lieu of salary". The key words are, "any compensation due to or received by an assessee from his employer or former employer at or modification of the terms and conditions relating thereto." The expression "compensation" is explained by the Apex Court in the case of E.D. Sheppard ( supra). Though the decision was rendered prior to the amendment of section 7 of 1922 Act with effect from 1955, still the meaning assigned to the word can be usefully applied to understand the meaning of the expression 'compensation'. By a majority view, the Court has observed, "that 'compensation' in Explanation 2to section 7(1) of the Income-tax Act does not mean compensation which is payable or compellable at law. Compensation for loss of employment is a well known term. It means a payment to the holder of an office as compensation for being deprived of profits to which as between himself and his employer he would, but for an act of deprivation by his employer or some third party such as ....
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....as cessation of jural relationship of employer and employee based on the provisions of terms of service or the Rules or Regulations. When a termination is made in accordance with the contractual terms or the rules, it is known as "termination simpliciter". Termination from service could be by way of compulsory retirement, voluntary retirement, resignation and superannuation. 27. "Salary" as defined by section 17(1) of the Act covers any kind of remuneration received by or due to the employee irrespective of the fact that the payment is received during the period of employment or at the termination of employment. Terminal payments are not actually remu-neration for services rendered but are in the nature of compensation for the termination of employment. Such payments, in order to bring them within the tax net, have been given the character of "profits in lieu of salary" and are included in the salary income of the employee by virtue of section 17(1)(iv) of the Act. The expression "profits in lieu of salary" has to be understood as comprehending not only such things as they signify to their nature and import but also those things which the interpretation clause declares tha....
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....erved that the termination of service can take place either by resignation or by dismissal or by compulsory retirement or on attaining superannuation. There is no justification to confine the meaning of the word "termination" only to cases of either voluntary retirement or on superannuation. A Division Bench of the Karnataka High Court in the case of Management of M.S. Ramaiah Medical College and Hospital v. Dr. M. Somashekar, has noticed the meaning of the expression 'termination' and in that, has observed that "termination of service" is broadly classified into those imposed by way of punishment and those which are not dismissal and removal are terminations. 'Termination' simpliciter refers to a termination in terms of the contract, otherwise than by way of punishment/penalty/ retrenchment. Another situation which is envisaged in the sub-section is, that, though the employee may continue with his employer, the terms and conditions of service may be rearranged or modified and under the modified terms and conditions, the employee may be paid a lump sum in consideration of the remuneration payable to him during the subsequent years of service being reduced. The lump sum so ....
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....yer, is liable to be treated as profit in lieu of salary. It is not disputed that the amount received is compensation and it was received by the assessee from his employer in connection with the termination of his employment. The conditions prescribed under section 17(3)(i) of the Act are fully satisfied in this case and the amount of compensation received by the assessee is liable to be treated as salary and, therefore, we are of the view that there is no error in the order of the Tribunal in holding that the amount received by the assessee is taxable as salary. . . ." (p. 828) In Re. CIT v. G.V. Venugopal [2005] 273 ITR 3071, the Madras High Court has stated : "The word "salary" as defined in section 17 of the Act includes any profit in lieu of salary, which has been defined in section 17(3) of the Act to include any amount of compensation due or received by the assessee from his employer or former employer in connection with the termination of his employment. Hence, payment under the Voluntary Retirement Scheme is covered by the word "salary", which has been given a very wide definition in section 17. Since the assessee is covered by section 89, he will get bot....