Law: Income Tax Act, 1961

Section: 17(3)

Section 17(3) of the Income-tax Act, 1961 [Corresponding to section 7 of the Indian Income-tax Act, 1922] - Salaries - Profit in lieu of salaries - Assessee was Registrar of Punjab University - As per Regulation 1 of University assessee was removable on being given six month's notice - Assessee was served a notice on 13-10-1950 purporting to terminate his service at end of period of six months - Assessee raised objection to said notice - Matter came up before syndicate of University which recommended that a mutual agreement be arrived at between assessee and University - Accordingly, by a mutual agreement assessee's service was terminated on conditions inter alia that assessee would be paid six month's salary in lieu of notice - This amount was sought to be taxed by revenue on ground that it was a revenue receipt - Whether since notice clearly made mention of fact that it was being issued in pursuance of mutual agreement arrived at between parties, payment was not made in accordance with terms of employment but in accordance with terms of agreement whereby assessee agreed to give up objections in relation to first notice - Held, yes - Whether, therefore, amount in question was not revenue receipt but capital receipt - Held, yes FACTS Some time in 1949, the assessee's services were lent by the Punjab University to the Government of India. Soon afterwards a notice terminating the assessee's services were sent to him. This notice was sent on 13-10-1950, and purported to terminate the assessee's services at the end of the period of six months. Objection was taken by the assessee to this notice. The matter came up before the Syndicate of the Punjab University and the Syndicate recommended that a mutual agreement be arrived at between the assessee and the Punjab University. The recommendation of the Syndicate was placed before the Senate on 29-7-1951, and the Senate passed a resolution to the effect that the by mutual agreement the service of the assessee was to be terminated with effect from 18-7-1951 on the conditions inter alia that he would be paid six months' salary in lieu of notice and two months' additional salary in lieu of privilege leave earned by him. A…

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