1987 (9) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of voluntary separation payments received by the assessee from the former employer.
2. Nature of the payments (capital or revenue).
3. Applicability of sections 15, 17(1), and 17(3) of the Income-tax Act.
4. Definition and scope of "income" under section 2(24) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Voluntary Separation Payments:
The primary issue was whether the voluntary separation payments received by the assessee from the former employer were taxable. The Income Tax Officer (ITO) had taxed these amounts under the head "Salary" for the assessment years 1981-82 and 1982-83, as they were considered revenue receipts. The assessee contended that these payments were capital in nature and not taxable.

2. Nature of the Payments (Capital or Revenue):
The assessee argued that the payments were capital in nature because they were subject to certain conditions stipulated in paragraph 5 of the Company's letter. The Appellate Assistant Commissioner (AAC) agreed with the assessee, stating that the payments were capital in nature and referred to the Supreme Court decision in CIT v. Ciba of India Ltd. [1968] 69 ITR 692 to support this view. The AAC directed the exclusion of the amounts from the assessments.

3. Applicability of Sections 15, 17(1), and 17(3) of the Income-tax Act:
The Revenue argued that the payments were taxable under sections 15 and 17(3) of the Income-tax Act. Section 15(a) states that salary due from a former employer, whether paid or not, is taxable. Section 17(1) defines "salary" to include perquisites or "profits in lieu of" or in addition to any salary. Section 17(3) further includes any compensation received from a former employer in connection with the termination of employment or modification of terms and conditions.

4. Definition and Scope of "Income" under Section 2(24) of the Income-tax Act:
The Tribunal examined the definition of "income" under section 2(24) of the Income-tax Act, which includes profits and gains, dividends, and the value of any perquisite or profit in lieu of salary taxable under sections 17(2) and 17(3). The Tribunal noted that section 2(24)(iii) does not exclude cash payments from being considered as income. Therefore, the payments received by the assessee, even if in cash, would constitute income within the meaning of section 2(24).

Conclusion:
The Tribunal concluded that the payments received by the assessee were taxable as "profits in lieu of salary" under section 17(3)(ii) and were, therefore, income under section 2(24). The conditions attached to the payments did not change their nature from revenue to capital. Consequently, the Tribunal restored the amounts deleted by the AAC and allowed the appeals of the department.