Income‑tax‑‑‑

‑‑‑‑Salary‑‑‑Compensation received in connection with termination of employment‑‑‑Is profit in lieu of salary and assessable under head "Salary" Indian Income Tax Act, 1961, S. 17(3)(i).

The services of the assessee were terminated with effect from December 11, 1981 under, a scheme styled as the "Voluntary Separation Scheme" and the assessee was paid a sum of Rs. 77,490. The Income‑tax Officer held that under section 17(3)(i) of the Income‑tax Act, 1961 it was profit in lieu of salary and hence assessable under the head "Salary" which was upheld by the Tribunal. On a reference:

Held, that the conditions prescribed under section 17(3)(i) of the Income Tax Act, 1961 were satisfied in this case and the amount of compensation received by the assessee was liable to be treated as salary.

G.N. Badami v. CIT (1999) 240 ITR 263 (Mad.) applied

P.P.S. Janarthana Raja for the Assessee C.V. Rajan for the Commissioner.

JUDGMENT

N.V. BALASUBRAMANIAN, J.‑‑‑At the instance of the assessee for the assessment year 1982‑83, the following question of law is referred to us for our consideration:

"Whether, on the facts and circumstances of the case and on a proper construction of the voluntary Separation Scheme, the sum of Rs. 77,490 can be subjected to tax?"

The assessee was an employee and the assessee received certain payments from his employer at the time of premature termination of his contract employment with his employer, namely, Rallis India Ltd., Bombay. The services of the assessee were terminated with effect from December 1, 1981, tinder a scheme styled the "Voluntary Separation Scheme" and the assessee was paid a sum of Rs. 77,490. The question that arose before the Income‑tax Officer was whether the amount received by the assessee was properly assessable as salary income. The Income‑tax Officer held that under the provisions of section 17(3)(i) of the Income‑tax Act it was profit in lieu of salary and hence it was assessable under the head "Salary". The Appellate Assistant Commissioner of Income‑tax, on appeal, held that it was only a capital receipt and not assessable to tax.

The Revenue carried the matter in appeal before the Income‑tax Appellate Tribunal and the Tribunal held that the amount was taxable as profit in lieu of salary within the meaning of section 17(3)(i) of the Act. Challenging the order of the `Tribunal, the assessee has sought for a reference and the question of law set out earlier has been referred to us.

Mr. P.P.S. Janardhana Raja, learned counsel for the assessee, submitted that a similar matter was considered by this Court in the case of G.N. Badame v. CIT (1999) 240 ITR 263, wherein this Court held that the compensation received by an employee from his employer in connection with the termination of his employment is liable to be treated as a profit in lieu of salary and liable to be taxed under section 17(3)(i) of the Act. It is not disputed by learned counsel for the assessee that the earlier decision of this Court in the case of G.N. Badami (1999) 240 ITR 263, would apply to the facts of this case. The provisions of section 17(3)(i) of the Act are clear that any compensation received at or in connection with the termination of the employment by its employer, is liable to be treated as profit in lieu of salary. It is not disputed that the amount received is compensation and it was received by the assessee from his employer in connection with the termination of his employment. The conditions prescribed under section 17(3)(i) of the Act are fully satisfied in this case and the amount of compensation received by the assessee is liable to be treated as salary and, therefore, we are of the view that there is no error in the order of the Tribunal in holding that the amount received by the assessee is taxable as salary and, accordingly, we answer the question of law referred to us in the affirmative, against the assessee and in favour of the Revenue. No costs.

M.B.A./657/FC Reference answered.