1991 (1) TMI 192 - AT - Income Tax

Summary

Issues:
Challenge to taxability of compensation received from employer, Correctness of assessment under section 143(2)(b) of the Act.

Analysis:

1. The appeal involved a challenge to the taxability of Rs. 21,500 received by the assessee from the employer, M/s. Du Pont Far East Inc. The assessee, an individual, had worked with M/s. Voltas Ltd. for 14 years and resigned before completing 15 years, resulting in a financial loss of Rs. 21,500. The employer compensated this loss, which the assessee received during the relevant previous year but did not disclose in the return filed. The Income Tax Officer (ITO) issued a notice under section 143(2) to verify the exemption claimed by the assessee on this amount.

2. The first appellate authority upheld the taxability of the compensation under section 17(3)(i) of the Act as "Profits in lieu of salary." The authority also supported the ITO's action under section 143(2)(b) to verify the correctness of the exemption claimed. The assessee then appealed to the Tribunal, challenging both the taxability of the amount and the validity of the assessment under section 143(2)(b) of the Act.

3. The Tribunal analyzed the provisions of section 143(2) and the Explanation to determine the correctness and completeness of the return filed by the assessee. It differentiated between the conditions for "re-opening" the assessment under section 147/148 and the assessment under section 143(1)/143(2). The Tribunal upheld the first appellate authority's decision, stating that the ITO had rightly taken action under section 143(2)(b) of the Act.

4. Regarding the merits of the case, the Tribunal referred to section 17(3)(i) of the Act, which includes compensation received by an assessee from the employer in "profits in lieu of salary." The Tribunal noted a letter from the employer indicating that the compensation was for the loss of gratuity incurred on leaving the previous employment. Based on this, the Tribunal found no fault in the tax authorities' decision to tax the compensation amount of Rs. 21,500.

5. The Tribunal dismissed the appeal, upholding the taxability of the compensation received by the assessee and the correctness of the assessment under section 143(2)(b) of the Act. The Tribunal concluded that the compensation fell under "profits in lieu of salary" as per section 17(3)(i) and was rightly taxed by the authorities.