Law: Income Tax Act, 1922

Section: 7,7(1)

(a) Income-tax Act (XI of 1922)---S. 7(1). Explanation (2)-Expression "compensation for loss of employment" Means any payment made whether under a legal liability or voluntarily, to compensate or act as a solatium for loss of employment suffered by employee-"Separation allowance paid to employee on eve of cessation of their business by employers-¬Employers terminated service of employee and paid loam off in full and final payment of his accounts-Company taking over such business offered fresh employment to employees of taken over business provided they applied for same and returned to work on specific date-Fresh appointments on receipt of individual applications made for probationary period of three months by company which took over business-Whether employer was compellable or liable to make compensation, or not, if in fact employer made payment as a solatium, payment would be a capital receipt--Employee, held, lost his employment and separation allowance" paid to him by his employers was received by employee as compensation for loss of employment and being a capital receipt, was not liable to income-tax in circumstances. W. A. Guff v. Commissioner of income-tax, Bombay City (1957) 31 I T R 826; Shaw wallace do Co. v. Commissioner of income-tax (1932, a 2 Comp. Cas. 276, 6 I T R 178, A I R 1932 Bom. 138, Chibbet v. Joseph Robinsons do Sons (1924) 9 Tax Cas. 48; Commissioner of Income-tax, Bombay City v. E. D. Sheppard (1963) 7 Taxation 383, (1963) 48 I T R 237; Makesh. Anantrai pattani v. Commissioner of Income-tax (1961) 41 I T R 481; Duff (H. H. Inspector of Taxes) v. Barlow (1942) 10 I T R 157 and P. D. Khosla (1945) 13 I T R 436 ref. (b) Income-tax Act (XI of 1922)- ----- S. 7(1), Explanation (2)-"Separation allowance" paid by employer to employee on cessation of business--'Perm "remuneration" for past service implies an appreciation of satisfactory service of employee by his employer in recognition of which remuneration paid-No evidence on record to show that payment of "separation allowance" paid to employee was made out of any appreciation of employee's good work with employer-"Separation allowance" paid to employee by way of bargain or settlement of…

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