1980 (4) TMI 143 - AT - Income Tax

Summary

Issues:
1. Interpretation of taxability of compensation on retirement due to redundancy.
2. Tax treatment of compensation instalments received by an individual from an employer.
3. Application of Section 15 of the Income Tax Act, 1961 to determine taxability of salaries.
4. Assessment of income based on enforceable rights over unpaid instalments.
5. Distinction between income accrued due and income actually received.
6. Determination of taxable income based on factual findings by the Tribunal.

Analysis:
The judgment revolves around the taxability of compensation received by an individual on retirement due to redundancy. The Commissioner sought a reference under section 256(1) of the IT Act, 1961 regarding the tax treatment of the entire compensation amount. The employee, deriving income from salary, received a lump sum as per the employer's circular, payable in three instalments. The first instalment was received and taxed as salary, but the tax authorities included the second and third instalments as income for the year under consideration, arguing that the employee had an enforceable right over them. The Commissioner upheld this assessment, citing that the entire sum was computed during the year, making it taxable. However, the Tribunal disagreed, emphasizing that Section 15 of the Act taxes only "salary due from an employer, whether paid or not," and does not extend to sums not yet due or paid. The Tribunal ruled that since the second and third instalments were neither due nor paid during the relevant year, they should not be taxed as salary.

The Tribunal's decision was based on a factual analysis, concluding that the amount in question did not accrue or become receivable by the employee during the relevant year. This finding was deemed a question of fact, not giving rise to any legal issue for reference. The judgment highlighted a similar case involving another employee of the same employer, where the Tribunal rejected a reference application concerning the tax treatment of compensation instalments. Ultimately, the Tribunal rejected the Commissioner's application, affirming that the second and third instalments should be excluded from the employee's total income for the year under consideration. The judgment underscores the importance of distinguishing between income accrued due and income actually received in determining taxable income, emphasizing adherence to the terms of agreements between employers and employees for tax purposes.