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TMI Blog1959 (7) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... for a period of five years and he undertook to "diligently and faithfully serve the firm." By clause 10 it was provided that notwithstanding anything contained in the agreement the firm may terminate the agreement without assigning any reasons after giving the assessee one calendar month's previous notice of its intention so to do. This initial agreement was extended from time to time on the expiration of the original period of employment. Even the agreements by which the period of the assessee's employment was extended are not on the record, but it is admitted that the terms were the same as the terms of extension of the employment of one J.G. Milne-a copy of whose contract was produced on the record. By this agreement the assessee was to be paid the salary set out therein and a percentage of profits as commission. The assessee received between the years 1930 and 1935 salary rising from ₹ 500 to ₹ 700 per mensem; between the years 1935 and 1938 he received salary rising from ₹ 750 to ₹ 875 per mensem; between 1938 and 1941 he received a salary of ₹ 950 per mensem and 1 per cent. of the net profits as commission; between 1941 and 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee was informed that the firm had caused 1,700 shares in Killick Industries Ltd. to be allotted as "compensation for loss of employment." In appeal to the Appellate Assistant Commissioner, the order passed by the Income-tax Officer bringing to tax the amount of ₹ 2,21,000 was confirmed. Before the Income-tax Appellate Tribunal the assessee produced an affidavit, dated 22nd February, 1954, sworn by five out of the six partners who constituted the firm in the month of January, 1948, (the sixth partner having died in the meanwhile), which affirmed the terms of a memorandum submitted to the Income-tax Officer by Messrs. Crawford Bayley & Co. on behalf of the assessee. It was recited in paragraph 8 of the affidavit that the partners had decided to discontinue the firm and prior to such discontinuance and on 27th December, 1947, they wrote to each assistant who was then employed by the firm terminating his services from 31st January, 1948, and stating that a further communication will be addressed to him regarding "the question of compensation for loss of employment." It was further recited in paragraph 8 that the intention of the partners on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act" and not "for the loss of the contract". On all these grounds, Mr. Pophale held that the assets valued at ₹ 2,21,000 transferred to the assessee were not compensation for loss of employment and were liable to tax. With this view Mr. Aggarwal disagreed. He observed that the assessee's services were determined by the firm which was ultimately dissolved and that the allotment of the shares was made to the assessee "at or in connection with the termination of his employment and solely as compensation for loss of employment" and that there was no "material on the record in support of the argument of the Departmental Representative that the payment in the alternative is merely in lieu of past services". In view of the difference of opinion between the two Members constituting the Bench, the following question was referred to the President: "Whether the sum of ₹ 2,21,000 is a capital receipt in the hands of the appellant (assessee) or is a revenue receipt taxable under section 7 of the Indian Income-tax Act?" The President of the Tribunal agreed with the view of Mr. Aggarwal. He held that the payment made to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the payment made. That the assessee was able to secure employment on the next day after the termination of his services with the firm is wholly irrelevant in assessing the nature of that payment. The majority of the Members of the Tribunal have taken the view that there was no attempt to camouflage the nature of the payment made to the assessee by calling it "compensation for loss of employment" and that it was intended in fact to be compensation paid to the assessee for termination of his employment together with his future prospects. That conclusion must be regarded as binding upon us in this reference; and the sole question which falls to be determined is whether that compensation is to be regarded as a revenue receipt or a capital receipt in the hands of the assessee. Mr. Joshi for the Department has contended that even in the affidavit filed by the employers of the assessee the payment is not stated to have been made solely for loss of employment but as inclusive of compensation for loss of future prospects. But if, under the terms of the employment, an expectation could reasonably be entertained by the assessee that in the course of his employment he wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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