TMI Blog1997 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... al was justified in holding that the sum of Rs. 23,990 the amount received in lieu of vacation at the time of the assessee leaving his service with I.B.M. World Trade Corporation is a capital receipt and therefore not taxable in the hands of the assessee ?" The assessee was employed by I.B.M. World Trade Corporation, a multinational company. On November 1, 1976, I.B.M. World Trade Corporation, New Delhi, addressed letters to all its employees stating that it had to reduce its operation in India because of the requirement of the Government of India for diluting its ownership with Indian capital. Therefore, it was of the view that its workload declined significantly in several areas of the business of the company and the company expected that there would be further decline in the business until its business position under the Foreign Exchange Regulation Act was resolved. The company therefore, felt that it was unable to provide the challenging work environment and prospects for career growth which was normal for the said company to its employees in every area of the business. Therefore, the company offered an opportunity to all its employees who had served more than one year of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng availed of the right of vacation and, therefore, the amount received was not taxable. As a result, the assessee as well as the Revenue have come before us by way of reference on the questions of law set out above. We presently take up the assessee's reference. Mr. R. Balasubramanian, learned counsel for the assessee, submitted that the payment received by the assessee was in connection with the termination of the employment of the assessee for the reason that the employer had scaled down its business, and hence the amount received is a capital receipt and cannot be regarded as profit in lieu of salary. According to him, the termination of employment arose only because of the intended closure of the business, and since it is for the loss of the office, it should be regarded as a capital receipt. He strongly placed reliance on a decision of the Bombay High Court in the case of W.A. Guff v. CIT [1957] 31 ITR 826, a decision of this court in the case of CIT v. J. Visalakshi [1994] 206 ITR 531 and two decisions of the Calcutta High Court in the cases of CIT v. Ajit Kumar Bose [1987] 165 ITR 90 and CIT v. Jamini Mohan Kar [1989] 176 ITR 12 7. He therefore, submitted that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act reads as under : " '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 termination of his employment or the modification of the terms and conditions relating thereto ; (ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12) or clause (13A) of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contributions by the assessee or interest on such contributions." The provision of sub-clause (i) of clause (3) of section 17 of the Act, in our opinion, includes within its ambit, any compensation due to or received by the assessee from his employer at or in connection with the termination of his employment. In our view, the said provision makes it clear that any compensation received at or in connection with the termination of the employment will be treated as a profit in lieu of salary and therefore, taxable under the head "Salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, while considering the provisions of sub-clause (i) of clause (3) of section 17 of the Act held that the expression, "termination" found in clause (3) of section 17 of the Act should receive a wider meaning and this court also held that the word "termination" cannot be confined only to the cases of voluntary retirement or superannuation, but includes cases like resignation, dismissal or compulsory retirement as well. Admittedly, in the instant case, the assessee exercised the right of option to leave the service of the company and on the acceptance of the offer of the employer by the assessee, the services of the assessee to the company were terminated. Therefore, it is a case of termination of employment within the meaning of sub-clause (i) of clause (3) of section 17 of the Act. Mr. R. Balasubramanian learned counsel for the assessee contended that the decision of this court in Visalakshi's case [1994] 206 ITR 531 (Mad), has held that the compensation would be a capital receipt. A careful reading of the decision in Visalakshi's case [1994] 206 ITR 531 (Mad) shows that this court has not decided that the amount received would be a capital receipt, but observed that if the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the Act. The other decision relied upon by Mr. R. Balasubramanian, learned counsel for the assessee, in CIT v. Jamini Mohan Kar [1989] 176 ITR 127 (Cal), runs on the same lines as the case of CIT v. Ajit Kumar Bose [1987] 165 ITR 90 (Cal) and it is not necessary to deal with that case separately. In our opinion, the Tribunal has come to the correct conclusion that there was a termination of the assessee's employment and the termination of the employment may be either at the instance of the assessee or at the instance of the employer but the words, "in connection with" found in sub-clause (i) of clause (3) of section 17 of the Act are wide enough to include any compensation received in connection with the termination of the employment of the assessee. Therefore, the Tribunal has come to the correct conclusion in holding that the compensation received by the assessee in connection with the termination of his employment would be a profit in lieu of salary within the meaning of sub-clause (i) of clause (3) of section 17 of the Act. In this view of the matter, it is not necessary to consider other reasons given by the Tribunal with reference to the taxability of the amount under su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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