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TMI Blog1963 (3) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 whatsoever, he shall be at liberty to terminate the agreement by giving twelve calendar months' notice in writing only after repaying to the employer joining money and all expenses if they have been allowed to the employee, and the employers shall have full power to take all necessary steps in order to enforce such payment. The employers may terminate the service of the employee by giving twelve calendar months' notice in writing or (in the case of breach of any of the terms or conditions contained her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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) v. Arthur Foster and Henry (H. M. Inspector of Taxes) v. Joseph Foster [1932] 16 Tax Cas. 605 , Romer L. J. said : " Compensation for loss of office' is a well-known term, and. 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 the legislature, have been entitled. "This court accepted the same meaning in Commissioner of Income-tax v. E. D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 payment either of the whole sum or some less figure is preserved and is still payable under the contract and the other is where the contract itself goes altogether and some sum becomes payable for the consideration of the total abandonment of all the contractual rights which the other party had under the contract. In one class of cases the contract persists and the amount is payable under the contract and in the other class of cases there is total abandonment of all contractual rights and what is paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 case, the lump sum paid is in the nature of remuneration or profits in respect of the office or is in the nature of a sum paid in consideration of the surrender by the recipient of his rights in respect of the office. " In the present case, if V. D. Talwar had been served with a notice for the termination of his service, he would have worked for twelve months and got his salary and thereafter his service would have come to an end. Instead of giving him a notice the company paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or incompetence, the company should pay to him or his representatives by way of compensation for loss of office a sum equal to the total remuneration received by him in the preceding five years. The respondents resigned office as director in these two cases and received from the company as " compensation " a payment calculated in accordance with article 109. It was held by the Court of Appeal that the payment constituted a profit of the office of director and was p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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