Law: Income Tax Act, 1922

Section: 7

Section 15 of the Income-tax Act, 1961 [Corresponding to section 7 of the Indian Income-tax Act, 1922] - Salaries - Chargeable as - Assessment year 1948-49 - Assessee was employed as General Manager in a company - As per terms of service agreement service was for period of five years and before said period, service of assessee could be terminated only by giving twelve months notice on either side or salary in lieu thereof - Service of assessee were terminated before said period of five years by paying twelve months salary in lieu of notice to assessee - Whether sum paid to assessee was not in consideration of surrender by recipient of his rights in respect of office and, therefore, said amount could not be treated as "compensation for loss of office" - Held, yes - Whether, therefore, amount received by assessee was taxable under section 7 of 1922 Act - Held, yes FACTS The assessee was employed as a General Manager in a company. As per the terms of the service agreement the service was for a period of five years and if the service is terminated before five years it can only be by notice of twelve months of either side or salary in lieu thereof. The services of the assessee were terminated before the term of five years. In lieu of notice the company paid to the assessee certain amount which was the amount computed as salary for twelve months after deduction of income-tax at the source. In making the assessment for the year 1948-49, the ITO held that the sum paid was a revenue receipt of the assessee liable to be taxed under the Act, and rejected the claim of the assessee that the said sum was compensation for loss of employment and the tax deducted should be refunded to him. The Tribunal held that the amount paid to the assessee was really salary in lieu of twelve months' notice and, therefore, the amount was liable to be taxed. On reference, the High Court held that the amount received by the assessee during the year was the revenue income of the assessee liable to tax under the Act. On appeal to the Supreme Court : HELD It was true that under one of the clauses of the agreement of service the assessee was to serve for five years; but under another term of the…

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