1990 (5) TMI 69 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of a testimonial payment of Rs. 1,00,000 received by the assessee from the employer.
2. Nature of the payment: Whether it is a gift or remuneration for services rendered.
3. Applicability of Section 17(3)(ii) of the Income-tax Act regarding "profits in lieu of salary."

Detailed Analysis:

1. Taxability of Testimonial Payment:
The primary issue in this case is whether the sum of Rs. 1,00,000 received by the assessee from M/s. Eicher Goodearth Ltd. is taxable. The Commissioner of Income-tax (Appeals) held that the payment was made for efficient discharge of duties and exceptional services rendered by the assessee as an employee, thus it was in the nature of salary and assessable as such. The assessee contended that it was a testimonial payment and not taxable, supported by a certificate from the employer stating that the payment was not in the nature of remuneration or compensation for services rendered.

2. Nature of the Payment:
The assessee argued that the payment was a one-time testimonial payment, not customary, without any contractual obligation, and not related to the management of the company. The Departmental Representative countered that the payment was linked to the company's improved performance and was a special incentive for the assessee's contribution. The Tribunal examined various precedents cited by the assessee, distinguishing them based on facts. For instance, in P.H. Divecha v. CIT, the payment was made out of personal regard, whereas in this case, the payment was made by a commercial organization to an existing employee, indicating a direct nexus with employment.

3. Applicability of Section 17(3)(ii):
Section 17(3)(ii) of the Income-tax Act defines "profits in lieu of salary" to include any payment received from an employer. The Tribunal noted that the payment was received by the assessee in his capacity as an employee, and the company had deducted tax at source, indicating its understanding of the payment as taxable income. The Tribunal concluded that the payment had a direct nexus with the assessee's employment and was not a personal gift, thus falling within the ambit of "profits in lieu of salary" under Section 17(3)(ii).

Conclusion:
The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), concluding that the payment of Rs. 1,00,000 to the assessee was taxable as income. The appeal was dismissed, affirming that the payment was assessable as salary due to its direct connection with the assessee's employment and the services rendered to the employer.