TMI Blog2015 (10) TMI 2434X X X X Extracts X X X X X X X X Extracts X X X X ..... f the settlement, without there being any obligation on the part of the employer to pay any further amount to the assessee in terms of the service rules. The employer, voluntarily at its discretion, agreed to pay the amount in question to the assessee with a view to bring an end to the litigation. There was no obligation cast upon the employer to make such payment and, therefore, the same would not take the colour of compensation as envisaged under section 17(3)(i) of the Act. The amount in question would, therefore, not fall within the ambit of the expression “profits in lieu of salary” as contemplated under section 17(3)(i) of the Act. - Decided in favour of assessee. - TAX APPEAL NO.23 of 2004 - - - Dated:- 12-10-2015 - MS. HARSHA DEVANI AND A.G.URAIZEE, JJ. FOR THE APPELLANT : MR JP SHAH, ADVOCATE with MR MANISH J SHAH, ADVOCATE FOR THE RESPONDENT : MR KM PARIKH, ADVOCATE 1. The appellant assessee in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) has challenged the order dated 7th July, 2003 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench B in ITA No.4510/Ahd/1996. By an order dated 1st Novembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed in terms of the agreement arrived at between the parties. The agreement are as under: The concerned officer will be paid compensation equivalent to 3.33 years salary (salary means salary contained in last pay slip details of which are given here below) on basis of last pay and allowances drawn by officers as full and final settlement in respect of all five officers. The so called Association office Civil Suit No.MCA 358/84 pending before Civil Judge, Baroda shall stand withdrawn in terms of settlement and shall give immediate possession of the said premises. The Spl C.A.6647/85 shall stand withdrawn. The assessee s employer vide letter dated 22.3.1996 has stated that necessary assessment may kindly be carried out treating as if they have retired from the service. It is further clarified that this is not to be termed as premature cessation as Court has considered it as deemed retirement which is recorded in the judgment . But Court s order clearly mention that assessee will be deemed to have retired from service, and they shall be eligible for retirement benefits like gratuity/pension/post retirement medical benefits scheme as per their eligibility in this be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence, the provisions of section 17(3)(i) would not be attracted. In support of his submissions, the learned counsel placed reliance upon the decisions of the Calcutta High Court in the case of Commissioner of Income-Tax v. Jamini Mohan Kar and Commissioner of Income-Tax v. Ajit Kumar Bose (supra) as well as the decision of the Delhi High Court in the case of Commissioner of Income-Tax v. Deepak Verma, (2011) 339 ITR 475 (Del. ). 5. On the other hand, Mr. K.M. Parikh, learned senior standing counsel for the respondent, submitted that after his termination under rule 44 of the Service Rules, the appellant challenged the premature termination of his services before this High Court and succeeded before the learned Single Judge. During the pendency of the letters patent appeal preferred by the employer against the judgment of the learned Single Judge, the parties arrived at a settlement under which the amount in question was paid to the appellant. The attention of the court was drawn to the terms of settlement, which read thus:- The Concerned officer will be paid compensation equivalent to 3.33 years salary (salary means salary contained in last pay slip details of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f your joining the service under the company, which may be extended at the discretion of the company to enable you to achieve the expected standard of work performance. During the period of probation your services can be terminated forthwith and without assigning any reasons. It is further provided that in the event of such termination you will not be entitled to compensation except as provided for in service rules. At the end of such period of probation or extended period of probation, as the case may be, you may be either a. confirmed in the services of the company; or b. if your work performance does not reach the expected standard, your services may be discontinued. The assessee s services were terminated by discharge letter dated 6.5.1984 which reads as under:- 1. You are hereby discharged from the services of the company with immediate effect under Rule 44 of the Company s Service Rules by payment of 3 months basic pay and DA in lieu of 3 months notice. 2. If there are any dues payable by you to the company, your 3 months basic pay and DA will be adjusted against such dues. You are hereby requested to clear the dues payable you to the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee from his employer or former employer at or in connection with the termination of his employment, as it could not be said that the payment received by the assessee was without any connection with the termination of his employment. 7. At this juncture, reference may be made to section 2(24) of the Act, which defines income as inclusive of the value of any perquisite or profit in lieu of salary taxable under clause (2) and (3) of section 17 of the Act. Section 15 of the Act lays down as to which income shall be chargeable to income-tax under the head Salaries . Section 16 provides for the deductions to be made while computing the income chargeable under the head Salaries . Section 17 of the Act defines Salary , perquisite and profits in lieu of salary for the purposes of section 15, 16 and 17 of the Act. Sub-section (3) of section 17 of the Act defines Profits in lieu of salary , and as it stood at the relevant time and to the extent the same is relevant for the present purpose, says that profits in lieu of salary includes (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the terminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive such payment. If the employee has no right, it cannot be treated as compensation . The court held that it is for this reason that if the payment is made ex-gratia or voluntary by an employer out of his own sweet will and not conditioned by any legal 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). 10. This court is in agreement with the view adopted by the Calcutta High Court and the Delhi High Court in the above decisions The question that arises in the aforesaid legal backdrop is whether the payment received by the appellant - assessee from his employer was a voluntary payment given by the employer or was it in the nature of compensation. As noticed earlier, the Managing Director of Gujarat State Fertilizers Company Limited, viz., the company where the assessee was employed, passed an order dated 6th May, 1984 discharging the assessee from service under rule 44 of the Service Rules which provides for discharge of an employee for sufficient reasons by the competent appointing authority after giving three months notice in writing in that behalf or by payment of thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion to the assessee with a view to bring an end to the litigation. There was no obligation cast upon the employer to make such payment and, therefore, the same would not take the colour of compensation as envisaged under section 17(3)(i) of the Act. The amount in question would, therefore, not fall within the ambit of the expression profits in lieu of salary as contemplated under section 17(3)(i) of the Act. 12. It has been contended on behalf of the revenue that the manner of computation of the amount to be paid to the appellant under the settlement, reveals that the same is in the nature of terminal benefits on account of bringing an end to the services of the appellant. In the opinion of this court, the manner of computation of the amount payable to the assessee in terms of the settlement, would not change the character of the payment, inasmuch as, the same being voluntary in nature and without any obligation on the part of the employer, would not amount to compensation in terms of section 17(3)(i) of the Act. The Tribunal was, therefore, not justified in holding that the amount of ₹ 3,51,308/- received by the appellant pursuant to the judgment of the High Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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