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TMI Blog1990 (5) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid payment of Rs. 1,00,000. The assessee filed original return of income on30-6-1982in which the aforesaid amount of Rs. 1,00,000 was shown as income assessable to tax. Subsequently, the assessee filed a revised return on17-4-1984in which the aforesaid amount of Rs. 1,00,000 was claimed as exempt. The Income-tax Officer was not clear in his mind as to the assessability or otherwise of the aforesaid amount of Rs. 1,00,000, He, therefore, sought the instructions of his Inspecting Assistant Commissioner under section 144A of the Income-tax Act. The IAC after examining the matter directed the ITO to include the aforesaid sum of Rs. 1,00,000 in the total income of the assessee. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who vide his impugned order held that the payment in question was made to the assessee for efficient discharge of his duties as an employee and that the payment was for the exceptionally good services rendered by the assessee in his capacity as an employee. He further held that the payment in question was not on account of personal regard for the assessee and since it was directly linked to the activities of the assessee as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that over the years the turnover and the profits of the company had gone up and the payment of Rs. 1,00,000, therefore, represented payment by way of a special incentive to the assessee. It was highlighted that better performance of the company and the payment in question were inter-related. It was also submitted that the company is not a charitable or social organisation which would be paying amounts for philanthropic purposes. According to the learned Departmental Representative, the company was a commercial organisation carrying on business for profit and the payment in question made by the company, therefore, represented additional salary paid to the assessee for the excellent work done by him. It was also submitted that the payment in question was assessable as " profits in lieu of salary " as contemplated by clause (ii) of sub-section (3) of section 17 of the Income-tax Act. It was also submitted that most of the cases relied upon by the learned counsel for the assessee were distinguishable on facts and that the matter had to be decided on the facts and circumstances of the assessee's own case. 6. We have considered the rival submissions as also the facts on record. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to the firm with which Phillip Electric Company had an agreement, but to the three partners of the firm out of regard for their qualities for having built up a vast network of sales organisation. In that case the Supreme Court had come to the conclusion that the payment made to the three partners was in taken of appreciation and was not related to any business done or to loss of profits and it was not recompense for services past or future. In the instant case, the payment of Rs. 1,00,000 is to an existing employee. 8. In the case of Mahesh Anantrai Pattani the facts were also different. In that case the assessee was a Chief Diwan ofBhavnagarStatewhich had merged on1-3-1948. The Maharaja gave a sum of Rs. 5,00,000 from his personal account on12-6-1950to the assessee for the personal qualities of the assessee and as a token of personal esteem. This gift was given long after the retirement of the Diwan and it was not shown that the services rendered by the Diwan toBhavnagarStatewas the causa causans of making the gift. On these facts it was held that the amount was a personal gift for the personal qualities of the assessee and was, therefore, not taxable. In the instant case, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in the case of K.K. Roy were that the assessee was managing director of Airways (India) Ltd. He was paid a lump sum amount of Rs. 50,000 for termination of service in view of impending nationalisation. On these facts the Calcutta High Court held that the payment of Rs. 50,000 was made out of gratitude or in appreciation of the valuable and long service rendered by the assessee and was, therefore, a capital receipt. In the instant case the assessee continues to be the employee of the company and had to render the services in the future. It could, therefore, be said that in the instant case the payment to the assessee was made for services rendered in the past and likely to be rendered in the future. 12. In the case of M. Balamuralikrishna the facts were that the assessee who was a musician by profession received a sum of Rs. 30,000 from his fans in appreciation of his completing 30 years of service rendered to Carnatic music. It was held that the amount of Rs. 30,000 given to the assessee after going through a career as a musician for 30 years was not intended to promote his art further because if members of the public or his friends came out with a subscription for his bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable institution. The relationship of an employer-employee stares one in the face in this case. Whatever the qualities of the assessee, the company would never have made the payment of Rs. 1,00,000 as it did, if the assessee was not its employee. The company had increased its profitability to a considerable extent and it recognised the services rendered by the assessee for creating a climate of camaraderie and constructive effort and the excellent leadership and outstanding qualities of sincerity, sense of duty and humane approach towards labour. This was done in the background that the company had made tremendous strides in terms of turnover and profits. Section 17(3)(ii) defines " profits in lieu of salary " which include any payment except certain specified items due to or received by an assessee from the employer. The payment in question has been received from the employer and is, therefore, to be treated as profits in lieu of salary. Having regard the totality of circumstances of the case, we have no doubt in our mind that the payment of Rs. 1,00,000 to the assessee as a direct nexus with the assessee being an employee of the company and the payment in question was not o ..... 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