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Issues:
- Interpretation of Explanation 2 to Section 7 (1) of the Income-tax Act regarding exemption of received sums. - Determination of whether payments were solely compensation for loss of employment or included remuneration for past services. Analysis: - The judgment addresses two references by the Income-tax Tribunal concerning assessments on Mr. P.D. Khosla for two successive years, with the same principles governing both cases. - The key question in Reference No. 32 of 1943 pertains to the exemption of a sum of Rs. 60,000, while Reference No. 31 of 1943 involves the exemption of Rs. 25,000 under Explanation 2 to Section 7 (1) of the Income-tax Act. - The termination of Mr. Khosla's services as manager of a company led to compensation payments, raising the issue of whether these payments were solely for loss of employment or included remuneration for past services. - Disputes between Mr. Khosla and the company's board resulted in the termination of his services, with a lump sum compensation of Rs. 1,10,000 paid in installments. - The Income-tax department rejected the exemption claim, arguing that the payments included remuneration for past services and that Mr. Khosla voluntarily resigned, forfeiting his rights to compensation. - The court disagreed, finding that the use of "resigned" in the agreement was a euphemism for termination under pressure, and the lump sum payment was intended as compensation for loss of employment. - Mr. Khosla's entitlement to future earnings under the original agreement was valued at a higher amount than the compensation received, supporting the conclusion that the payments were solely for loss of future prospects. - The court held that the payments were exempt from income tax under Explanation 2 to Section 7 (1) of the Income-tax Act, ruling in favor of the assessee and directing the Income-tax department to pay costs and return deposits made by Mr. Khosla.
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