Law:

Section:

Section 17 (3) of the Income-tax Act, 1961 - Salaries - Profit in lieu of salary - Assessment year 2001-02 - Whether under sub-clause (i) of section 17(3), in order to characterize a particular payment received from an employer on termination of employment as 'profit in lieu of salary', it has necessarily to be shown that said amount is due or received as 'compensation' - Held, yes - Whether if payment is made as ex gratia or voluntary by an employer out of his own sweet will and is not conditioned by any legal duty or legal obligation, either on sympathetic grounds or otherwise, such payment is not to be treated as 'profit in lieu of salary' under sub-clause (i) - Held, yes FACTS The assessee had received from his employer certain amount in addition to normal benefits at the time of his retirement. Though the employer had deducted the tax at source on that amount, yet the assessee claimed that the said amount was not exigible to tax being an ex gratia payment which was outside the scope and ambit of section 17(3). The Assessing Officer, however, noted that the said amount was given to the assessee after discussion between him and his employer as revealed from the letter dated 25-1-2001 of the employer in that behalf and, therefore, the payment was made as 'compensation' for his services and, thus, was liable to tax under section 17(3)(i). The opinion of the Assessing Officer was confirmed by the Commissioner (Appeals). The Tribunal, however, set aside that view and deleted the addition holding that it was not chargeable to tax under section 17(3)(i) as 'profit in lieu of salary'. On the revenue's appeal : HELD Though sub-clause (iii ) squarely covered the nature of payment received by the assessee, that did not exist in the relevant assessment year and was incorporated only with effect from 1-4-2002. Therefore, that provision was not applicable to the instant case. For that reason, attempt of the revenue was to bring the payment within the fold of sub-clause (i ). [Para 9] There is a distinction between sub-clause (i) and sub-clause (iii ) of clause (3) of section 17. Item (B) of sub-clause (iii) enumerates that when any 'amount' is due or is received after…

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