TMI Blog1963 (3) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... yment as agreed upon by the assessee and the company were incorporated in an appointment letter dated February 7, 1946. A formal memorandum of agreement was also executed between the parties on February 9, 1946. The assessee actually joined the service of the company on May 1, 1946. According to the service agreement the pay of the assessee was fixed at Rs. 2,000 per month with an increment of Rs. 100 p. a. subject to certain deductions for income-tax absence of duty, etc., which need not be set out in detail for the purpose of this case. According to the agreement the period of service was for five years. Clause (5) and (6) of the appointment letter read : " (5) Period of agreement of service to be five years. (6) Termination of service if within five years to be on notice of twelve months on either side or salary in lieu thereof. " Clause (1) of the memorandum of the agreement dated February 9, 1946, said that the employee shall serve the employer faithfully and diligently for a term of five years from the date he joins, and clause 21 read as follows : " If during the currency of this agreement, the employee desires to leave the services of the employers for any reasons w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Appellate Tribunal which reversed the finding of the Appellate Assistant Commissioner and held that the amount of Rs. 25,200 paid to the assessee was really salary in lieu of twelve months' notice and, therefore, the amount was liable to be taxed under the Indian Income-tax Act, 1922. Under section 66(1) of the Income-tax Act, the Income-tax Appellate Tribunal referred the following question of law for the opinion of the High Court : " Whether the sum of Rs. 25,200 received by the assessee during the previous year was the revenue income of the assessee liable to tax under the Income-tax Act ? " By its judgment and order dated November 22, 1960, the High Court answered the question against the assessee. The assessee then obtained special leave from this court in pursuance whereof the present appeal has been brought to this court. The short question before us is, whether the sum of Rs. 25,200 received by the assessee in the circumstances stated above was a revenue income liable to tax under the Indian Income-tax Act or a capital receipt not liable to tax under the said Act ? We think that the view taken by the High Court is correct. In Henry (H. M. Inspector of Taxes) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case of Dewhurst ; because Dewhurst was not paid in terms of article 109, but entered into a new bargain in pursuance of which he was paid 10,000 in consideration, not of ceasing to be a director, for he did not cease, but of giving up his potential claims under article 109. His Lordship said that this payment for giving up potential claims under article 109 was not income. This was a feature which distinguished Hunter (H. M. Inspector of Taxes) v. Dewhurst [1932] 16 Tax Cas. 605 from the two Foster cases (supra) and it brought into relief the distinction between the two classes of cases, one in which there is deprivation of rights under the agreement and this would fall under compensation and the other in which there is no such deprivation. Perhaps Sir Raymond Evershed M. R. (as he then was) had this distinction in mind when in Henley v. Murray (H. M. Inspector of Taxes) [1950] 31 Tax Cas. 351 , he said that there were two kinds of cases which fell for consideration under this head : one in which the right of one party to call upon the other for performance of the terms of agreement may be modified or indeed wholly given up, still the corresponding right to acquire pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e employer might terminate the service of V. D. Talwar by giving twelve calendar months' notice in writing or paying any salary in lieu thereof. The expression " any salary " must be construed in the context of the appointment letter which said that if Mr. V. D. Talwar's service was to be terminated within five years he would be entitled to a notice of twelve months or salary in lieu thereof. No notice for the termination of service was given to him in the present case, but he was given twelve months' salary. He, therefore, got exactly what he was entitled to under the terms of his employment and he was not deprived of any rights under the contract of service. There being no deprivation of his rights under the contract the payment cannot be said to be "compensation for loss of office " within the meaning of that expression. Jenkins L. J. observed in Henley v. Murray [1950] 31 Tax Cas. 351. : " As the many cases on the topic show, it is often very difficult to determine the character of a payment made to the holder of an office when his tenure of the office is determined or the terms on which he holds it are altered, and the question in each case is whether, on the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to remuneration. We are unable to see how that decision is of any help to the appellant in the present case. It seems clear to us that in the present case the appellant has surrendered no rights under the contract ; what has been paid to him has been paid under the terms of the contract and as salary which he would have earned if twelve months' notice had been given to him. As no notice was given he was treated as though he was in service and entitled to salary for twelve months and that was what was paid to him. It is difficult to see how such payment can be treated as compensation for loss of office. The present case is similar to the two cases of Henry v. Arthur Foster [1932] 16 Tax Cas. 605. and Henry v. Joseph Foster [1932] 16 Tax Cas. 605.and different from the case of Hunter v. Dewhurst [1932] 16 Tax Cas. 605.. In the first two cases the respondents were directors of a limited company. They had no written contracts of service with the company but article 109 of the company's articles provided that in the event of any director who held office for not less than five years, dying or resigning or ceasing to hold office for any cause other than misconduct, bankruptcy, lunacy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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