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TMI Blog1951 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Nagpur (hereinafter referred to as the employee ) of the other part. Whereas Mr. D.D. Datar has put in very valuable services in the company since its inception in promoting, building up its business and bringing it in repute which it enjoys, and is still continuing to serve the company. It is in appreciation therefore hereby agreed that: (1) The employee be paid a salary per year equal to (six) 6% of the gross sales received by the company in the year or a sum of ₹ 24,000 whichever is greater, from 1st April, 1943. (2) The period of appointment covered by this agreement is ten years from 1st April 1943 in the first instance to be renewed automatically for such like period at the option of the employee. (3) It is further agreed, that the employee shall, at the time of termination of the service before or after the period of appointment, for any cause whatsoever, be paid a sum equal to three years' salary calculated at the rate at which he was drawing the salary at the date of the termination of the service, as compensation for cessation of his services. In case of termination of the service by death of the employee such sum as aforesaid shall be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,24,361 was liable to be included in the assessable income of the assessee? 5. The answer to the question depends upon the construction of sub-section (1) of Section 7, and the nature of the payment made by the All India Reporter to the assessee. 6. Section 7(1), in so far as it is material for the purpose of this case, runs:- The tax shall be payable by an assessee under the head 'Salaries' in respect of any salary.........or profits in lieu of, or in addition to, any salary.......which are due to him from, whether paid or not, or are paid by or on behalf of......a company.....or any private employer. Explanation 2.-A payment due to or received by an assessee from an employer or former employer or from a provident or other fund is to the extent to which it does not consist of contributions by the assessee or interest on such contributions a profit received in lieu of salary for the purposes of this sub-section, unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services. 7. It is necessary to examine the nature of the payment under the third clause of the agreement. The way the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made solely as compensation for loss of employment and not remuneration by way of his past services. The case is covered by sub-section (1) and is outside the concluding portion of the second explanation. 10. It is necessary to consider the decisions cited at the bar: Hunter (H.M. Inspector of Taxes) v. Dewhurst [1932] 16 Tax Cas 637 H.L.; Du Cros v. Ryall [1935] 19 Tax Cas. 444; Henley v. Murray (H.M. Inspector of Taxes [1950] 31 Tax Cas. 351); P.D. Khosla, In re [1945] 13 I.T.R. 436 and Income-tax Commissioner v. Shaw Wallace Co. [1932] 59 I.A. 206. But none of these cases can help the assessee. Each one of them is distinguishable on its own facts. 11. In Dewhurst's case [1932] 16 Tax Cas 637 H.L. the payment was not made by way of remuneration for past services or future services. It was paid to the assessee to obtain a release from a contingent liability under a contract of employment, under which in case of termination of service, he would have been entitled to a payment of compensation for loss of service. The payment in the present case was expressly received under the agreement, not apart from it. 12. In Du Cros v. Ryall (H.M.Inspector oy Taxes) [1935] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Reporter having already paid the tax on ₹ 85,000 the same sum could not be subject to taxation twice by being taken into account in the income of the assessee. The substance of the matter is what the assessee received is not merely the sum of ₹ 85,000 but also the immunity to tax on that sum. That being so, the actual sum received was rightly treated as ₹ 1,24,361, see North British Railway Company v. Scott [1922] 8 Tax Cas. 332 at p. 341.] and Hartland v. Diggnes [1926] 10 Tax Cas. 247 at p. 256, allowing credit for the sum already paid towards the tax under sub-section (5) of Section 18. 18. The assessee will pay the cost of the Department. Counsel's fee ₹ 100. DEO, J. 1. I agree with my learned brother in the answer proposed by him though for different reasons. 2. The Tribunal has found as a fact that the services of the assessee were terminated on 2nd November, 1945. What led to the termination of services by the employer is not clear from the record. The assessee no doubt agreed to such termination but apparently had no alternative. Under Clause 7 of the agreement he was entitled to a notice for six months and under Clause 3 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 and the sum payable in lieu of notice under Clause 7. The argument of the assessee that no salary remained unpaid on 2nd November, 1945, is unsupportable on the facts found. If ₹ 2,000 per month was the salary to which the assessee was entitled on 2nd November, 1945, he would have obtained a gross sum of ₹ 85,000 under Clauses 3 and 7 of the agreement even if he had insisted on six months' salary in lieu of notice. The payment of ₹ 1,24,361 cannot be explained unless the assessee's salary is taken at a figure higher than ₹ 2,000 per month. That was a salary he was drawing in the previous year and there is no material on record to show that he would have drawn a lesser salary in the year in question. The payment of ₹ 1,24,361 was evidently made in settlement of the three claims referred to above and cannot therefore be solely as compensation for loss of employment even if we assume that the assessee was entitled to such compensation on 2nd November, 1945. 5. Under Section 7(1) of the Income-tax Act tax is payable in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites or profits in lieu o ..... 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