Law: Income Tax Act, 1922

Section: 7,Expl.2

Income tax Act (XI of 1922), S. 7, Expl. 2 Salary -Com¬pensation for termination of employment Provision in agreement of employment for payment of compensation Assessee agreeing to give up all claims Not to accept employment for specified period against interests of employer Nature of compensation. The assessee was appointed general manager of a textile mill company by an agreement dated October 15, 1949, initially for a period of five years, at a specified monthly salary, with certain perquisites, and a commission on the net profits. Under the agreement, if the assessee failed to establish the mills on a sound basis within 12 months from the date of his joining, i.e., from April 1, 1950, the company reserved its right to terminate his services by giving him six months notice on April 1, 1951. It was further provided that neither party could terminate the contract except on account of continued illness or permanent incapacity and in the event of any one of the parties terminating the contract except, for those reasons the party terminating the contract was liable to pay to the other the balance of the monthly remuneration for, the un-expired period of the contract. On July 2, 1951, the company, served a notice upon the assessee termi¬nating his appointment on the grounds : (i) that he had for some time past been exciting the labour of the mills against the com¬pany ; (ii) that he had been acting in a manner prejudicial to the company; and (iii) chat he had failed to manage the affairs of the mills either efficiently or on a profit earning basis and had also failed to establish the mills on a sound basis within 12 months from April, 1, 1950. The assessee thereupon served a notice on the company demanding payment of Rs. 2,70,750 for termination of his employment. As a result of negotiations it was agreed that the services of the assessee shall be deemed to be terminated with effect from July 2, 1951, and that the com¬pany shall pay the assessee a sum of Rs. one lakh in full settlement of all his claims for compensation for termination of the agree¬ment. The assessee gave up all claims against the company what¬soever and undertook for a period of one year not to…

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