V D TALWAR DEAD AND AFTER HIM HIS HEIRS AND LEGAL REPRESENTATIVES Vs. COMMISSIONER OF INCOME TAX BIHAR

JUDGEMENT

(1.) V. D. Talwar, who was assesses before the taxing authorities and whose legal representatives on his death are appellants before us, was employed as the General Manager of M/s. J. K. Iron and Steel Company Ltd., Kanpur. The terms of his employment as agreed upon by the assesses and the company were incorporated in an appointment letter dated February 7, 1946. A formal memorandum of agreement was also executed between the parties on February 9, 1946. The assesses actually joined the service of the company on May 1,1946. According to the service agreement the pay of the assesses was fixed at Rs. 2,000/- per month with an increment of Rs. 100/- p.a. subject to certain deductions for income-tax, absence of duty etc., which need not be set out in detail for the purpose of this case. According to the agreement the period of service was for five years. Clauses (5) and (6) of the appointment letter read-

(2.) We have stated earlier that the assessee joined his power as General Manager on May 1 1946. The services of the assessee were however terminated with effect from August 31, 1947. It is the admired case of the parties that the services of the assessee were not terminated for any default or misconduct on the part of the assessee, but the services were terminated because the company did not want to continue the assessee in their employment. It is also the admitted case that no notice of twelve months for the termination of the service was given by the company to the assessee as required by the contract. In lieu of the notice the company paid to the assessee on September 12, 1947 a sum of Rs. 18,096-1-0 which was the amount computed as salary for twelve months after deduction of income.-tax at the source. The company calculated the salary for the twelve months at Rs. 25,200/- and deducted therefrom the sum of Rs. 7,103-l5-0 as income-tax. The assessee gave a stamped receipt to the company for having received Rs. 18,096-1-0 "in full and final settlement of all his claims and dues against the employer company".

(3.) In making the assessment for the Year 1948-1949 the Income- tax officer held that the sum of Rs. 25,200/- was a revenue receipt of the assessee liable to be taxes under the Indian Income-tax Act, 1922 and rejected the claim of the assessee that the said sum was compensation for loss of employment and the tax amounting to Rs. 7,103,-15-0 should be refunded to him. The assessee took an appeal to the Appellate Assistant Commissioner who held that the sum of Rs. 25,200/- though calculated on the basis of twelve times his monthly salary was nothing but compensation for the loss of service and was therefore not taxable as income in the shape of salaries. Then, there was an appeal to the Income-tax Appellate Tribunal which reversed the finding of the Appellate Assistant Commissioner and held that the amount of Rs. 25,200/- paid to the assessee was really salary in lieu of twelve months' notice and therefore, the amount was liable to be taxed under the Indian Income-tax Act, 1922. Under S. 66(1) of the Income-tax Act, the income-tax Appellate Tribunal referred the following question of law for the opinion of the High Court: