Law:

Section:

Section 17(3)(ii) of the Income-tax Act, 1961 - Salaries Profits in lieu thereof Employer paid certain amounts to assessees to compensate for their loss of movable property during partition of country Whether these amounts taxable under the head "salaries" Held, on facts, no Whether impugned payment exempt from tax under section 10(14) Held, no Facts L, an employee of a sugar company, received from his employer, a sum of Rs. 9,500 during the previous year relevant to the assessment year 1962-63. This payment was made to compensate him for the loss of movable property to the extent of Rs. 15,430 sustained by him at the time of partition of the country. J was an employee of two sugar mills. He also sustained loss of movable property at the time of partition and each employer paid him in August 1961 compensation of Rs. 2,500 each. The ITO assessed the above amounts of Rs. 9,500 and Rs. 5,000 in the hands of L and J, respectively, as income under the head "Salaries" while the AAC deleted the additions. The Tribunal sustained the same holding that, though the impugned payments could not be treated as "perquisite" within the meaning of section 17( 2)(ii) , the same would nevertheless be a "profits in lieu of salary" within the meaning of definition contained in section 17(3)(ii). The Tribunal rejected the assessee's claim for exemption under section 10(14). On reference, the revenue contended that under section 17(3)(ii ), any payment received by an employee from his employer, other than certain categories mentioned in the section, was liable to tax. The exemption of certain categories emphasised that all other payments would come under the purview of clause (14) . It also contend that the payments were not genuine but merely a ruse to cover up payments of taxable remunerations particularly when the alleged losses were incurred at the time of partition and payments were made after the lapse of a long time. Held 1. Section 17( 3)(ii) did not include a payment, though received by an employee from his employer, where the same made not on account of their master-servant relationship but on account of personal considerations as for reasons unconnected with the employment.…

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