TMI Blog1985 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... We hereby accept your resignation with regret with effect from the closing hours of December 6, 1981. There will, however, be no need for you to work from the date of receipt of this letter to the date of your resignation. You will be paid your salary and allowances up to this period, if applicable. In token of your long service with the company, we shall pay you, as a special case, four months' extra salary as an ex gratia payment in addition to your normal dues." He also received gratuity as a terminal benefit and availed exemption to the extent authorised by law. Rs. 10,500 being four months' salary (extra salary as an ex gratia) was brought to tax purportedly under section 17(3)(ii) of the Income-tax Act, 1961 ('the Act'). The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to distinguish the cases cited in the order of the first appellate authority. The learned representative for the assessee as well as the assessee were present. It was pointed out that the payment was not contractual. It was not even given to other employees. It was given as a special case in special consideration in view of the individual qualities of the employee and not because of his character as an employee. The words 'special case' and 'ex gratia' should clearly justify the view of the first appellate authority. 'Long service with the company' is merely mentioned and has also been taken as a token. He further claimed that the letter dated 6-11-1981 from the employer accepted the resignation, but only thereafter mentioned the ex grati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions relating thereto ; (ii) any payment other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12) or clause (13A) of section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contributions by the assessee or interest on which contributions." The ITO tried to bring this amount under section 17(3)(ii), because it is in wider terms than section 17(3)(i). Actually, since it is a compensation voluntarily offered by his employer and received by the assessee 'in connection with termination of his employment' has to be treated under section 17(3)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning assigned to the phrase by the said section and specifically made taxable in the main part of the section. Again, it is in this context that we do not consider it necessary to discuss the case of Mahesh Anantrai Pattani, where an amount of Rs. 5 lakhs given by the Maharaja of Bhavnagar was found to have been given out of his personal funds while he had served the State as the Diwan. The finding of the fact, in that case was that it was not in appreciation of services rendered, but as a personal gift for the personal qualities of the assessee and as a token of personal esteem. Hence, even if this decision were considered relevant, it is clearly distinguishable because it has not been shown that the amount was given because of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in law though the payment is neither statutory nor contractual as it will be a payment prompted by commercial expediency. Nature of the payment need not be different in the hands of the employee. A similar argument was raised before the Delhi High Court in the case of Lachhman Dass relied on by the assessee. But the Delhi High Court did not consider it necessary to deal with the same in the view of its conclusion in the following words : "Mr. Bishamber Lal contended that the definition of profits in lieu of salary will take in only amounts which are due to an employee or which are received by him as a matter of right. It is not necessary for the purposes of this case to deal with this aspect of the matter in view of our conclusion alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1922, made it clear that only payments solely for compensation for loss of employment was not assessable, so as to bring to tax payment for past services. As pointed out by Kanga Palkhivala in their Law and Practice of Income-tax, Vol. 1, Seventh edn., p. 138, the general principles as to the tax law on compensation have been to a very large extent superseded by the special provisions of the Act in view of section 17(3) of the 1961 Act, whereby a compensation received even solely for loss of employment is now taxable. In the words of the learned authors again 'compensation for loss of employment is in no circumstances now a non-taxable capital receipt'. We have no doubt that there could be nothing further to be stated on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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