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1997 (10) TMI 17 - HC - Income Tax

Issues Involved:
1. Taxability of the amount received under the "voluntary separation programme" by the assessee.
2. Taxability of the amount received in lieu of vacation by the assessee.

Summary:

Issue 1: Taxability of the amount received under the "voluntary separation programme" by the assessee
The assessee received Rs. 52,200 as part of a "voluntary separation programme" from I.B.M. World Trade Corporation. The Income-tax Appellate Tribunal held that this amount was taxable as it was received in connection with the termination of employment, thus falling under "profits in lieu of salary" as per sub-clause (i) of clause (3) of section 17 of the Income-tax Act, 1961. The Tribunal's decision was based on the interpretation that any compensation received at or in connection with the termination of employment is taxable under the head "Salary". The assessee argued that the amount should be considered a capital receipt, citing various case laws. However, the court found that the legislative history and the specific wording of section 17(3)(i) supported the Tribunal's view. Consequently, the court affirmed the Tribunal's decision, holding that the amount was taxable as profit in lieu of salary.

Issue 2: Taxability of the amount received in lieu of vacation by the assessee
The assessee also received Rs. 23,990 as salary in lieu of vacation for 91 days. The Income-tax Officer and the Appellate Assistant Commissioner taxed this amount, considering it as salary for services rendered. The Tribunal, however, viewed it as a capital receipt. The court referred to its earlier decision in CIT v. N. B. Tendolkar [1996] 221 ITR 268, which held that encashment of leave salary is a profit in lieu of salary and thus taxable under section 17(3) of the Act. The court concluded that the Tribunal erred in treating the amount as a capital receipt and held that the amount received for encashment of leave salary is taxable as salary. Therefore, the court answered the question of law in favor of the Revenue, holding that the amount is taxable under the provisions of the Act.

 

 

 

 

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