TMI Blog2010 (9) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... sent of the learned counsel for the parties, arguments were also finally heard. The genesis, in formulation of the aforesaid question, lies in the following facts: 3. The respondent is an individual who filed his income tax return for the assessment year 2001-02 on 27th July, 2001 declaring his income at Rs.56,87,167/-. On perusal of the note appended to the computation of income, the Assessing Officer noticed that the assessee had received an amount of Rs. 35 lacs, in 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provided in the Income Tax Act in the year in question, the amount of Rs. 35 lacs received by the assessee could not be added to the income of the assessee. 7. It is the common case of the parties that Section 17 (3) (iii) of the Act is not applicable in the year in question and the entire issue hinges upon the interpretation which is to be given to provisions of Section 17 (3) (i) of the Act. However, other connected provisions are Section 15 and Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 10. As pointed out above, the Assessing Officer held the view that the aforesaid amount of "compensation" had been received by the assessee from his employer in connection with the termination of his employment and, therefore, it falls within the ambit of Clause (i) and is exigible to tax. The case of the assessee on the other hand is, which is accepted by the Tribunal, that the receipt of this amount is not compensation‟ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty or legal obligation, whether on sympathetic reasons or otherwise, such payment is not to be treated as "profits in lieu of salary" under clause (i). We have the judgment of this court in the case of Lachman Das. Vs. CIT (124) ITR 706 taking this view. In that case voluntary payments made by the employer out of personal sympathetic reasons were held to be not taxable in the hands of 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exception amount by way of ex-gratia and the assessee accepted the gratuitous offer from the employer, merely because the payment was decided to be made by the employer on 25.1.2001, immediately before the cession of services of the assessee w.e.f. 1.2.2001, also does not lead to the conclusion that payment was to compensate the assessee for services rendered. It is nobody's case 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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