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TMI Blog2005 (2) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the compensation of Rs. 30,000 being compensation paid by a nonresident Mehta Group for loss of employment in India was 'profits in lieu of salar/within the meaning of the expression in section 17(3)(i) and, therefore, taxable as salary under section 15? (4) Whether the Tribunal was right in law in taxing in the hands of the assessee Rs. 7,500 paid to advocate, Shri Raval, for his services in respect of Girnar Scooter Project?" The learned advocate for the applicant, at the outset, states that he does not press questions Nos. 1 and 2 under instructions. The said questions are, therefore, left unanswered. The assessment year is 1982-83 and the relevant accounting period is the financial year ended on March 31, 1982. The assessee, an individual, claimed an amount of Rs. 30,000 received as compensation as being not taxable under the Act in the return of income filed on May 10, 1982. The assessee had received fees from Gujarat Small Industries Corporation, Girnar Scooter Project, a sum of Rs. 15,000 against which he had claimed deduction of an amount of Rs. 7,500 paid to one Shri N.U. Raval. The Assessing Officer brought the amount of Rs. 30,000 to tax and disallowed the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mr. Shah contended that the receipt of Rs. 15,000 was taxed as income from other sources in the hands of the assessee and, therefore, the only limited question that the Tribunal was called upon to decide was as to whether the sum of Rs. 7,500 paid to Mr. N.U. Raval was laid out or expended wholly and exclusively for the purposes of making or earning the income. It was submitted that the assessee was required to render consultation and opinion qua Girnar Scooter Project of GSIC which was having tax and other legal implications. That the assessee sought the services of Mr. Raval, who was an expert in the field of taxation, so as to render a complete report to GSIC and the payment had been made for such services which were availed of from Mr. Raval. According to him, therefore, the expenditure had direct nexus with the earning of income and hence, the disallowance was wrongly made and confirmed. Mr. M.R. Bhatt, learned senior standing counsel appearing on behalf of the respondent, submitted that the compensation which was received from the Mehta Group was towards termination of employment with the Indian Institute of Management, Ahmedabad, where the assessee was serving. He referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee or interest on such contributions." On a plain reading of the above provision, it is apparent that the amount of any compensation which is due to an assessee or received by an assessee from an employer or a former employer at the time of termination of his employment or in connection with the termination of his employment or the modification of the terms and conditions of his employment falls within the meaning of the phrase "profits in lieu of salary" and becomes liable to tax under section 15 of the Act. In other words, the provision implies some sort of obligation to pay, arising out of employment which is terminated or being terminated. Hence, the necessity of the payer being an employer or a former employer. The compensation paid/payable under this section is distinct from an ex gratia payment made de hors an obligation incurred by an employer or a former employer. Admittedly, as the facts of the case show, the assessee was employed with the Indian Institute of Management and resigned with effect from July 1,1981, as stated in letter of June 27, 1981. The assessee was negotiating an assignment/employment with the Mehta Group International Ltd., Projects Division, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24, 1981. The assessee paid Rs. 6,000 on August 5, 1981, and Rs. 1,500 on August 29, 1981, totalling Rs. 7,500 to Shri N.U. Raval for his advice on tax and legal implications of the said project. The assessee claimed deduction of the aforesaid amount of Rs. 7,500, which has been disallowed. The amount of Rs. 15,000 has been brought to tax under the head "Income from other sources" under section 56 of the Act. In the circumstances, whether the amount of Rs. 7,500 can be allowed as a deduction is required to be tested in the light of the provisions of section 57(iii) of the Act. Section 57 states that the income chargeable under the head "Income from other sources" shall be computed after making the specified deductions under various clauses and under clause (iii), a deduction is allowable of any other expenditure which is not in the nature of capital expenditure, is laid out or expended wholly and exclusively for the purpose of making or earning such income. In the case of Smt. Virmati Ramkrishna v. CIT [1981] 131 ITR 659 (Appex.), this court formulated as many as twelve tests after analysing the statutory language and principles laid down in decided cases. Test No. (xii) lays dow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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