COMMISSIONER OF INCOME TAX Vs. SAVITABEN N AMIN

JUDGEMENT

(1.) THE question referred to this Court reads :

(2.) FOR the asst. year 1971 72 for which the corresponding previous year is that ended 31st March, 1971, the assessee, who is an individual, functioned as the managing director of M/s Jyoti Ltd., a public limited company. This was under an agreement dt. 27th Feb., 1967, which was to be operative from 1st Jan., 1966, for a term of five years. Clause 5(viii) of that agreement provided for payment of gratuity to the managing director at one month's salary per year for each year of the tenure of appointment calculated on the basis of the last salary drawn by the managing director at the time of the termination of appointment. The validity of the agreement is not in dispute. In fact, it was approved by the Company Law Board. In the year of account relevant to the assessment year, the assessee was paid a gratuity of Rs. 21,000 in accordance with cl. 5(viii) of the agreement. The assessee claimed that under S. 10(10) of the IT Act, a sum of Rs. 9,625 out of the gratuity of Rs. 21,000 received was exempt from income tax. It appears that though the appointment under the agreement executed in 1967 came to a termination on 1st Jan., 1971, under a fresh agreement the assessee was appointed again as managing director, which fresh agreement also contained a clause as to gratuity. In this circumstance, the ITO took the view that the assessee's services had not been terminated and, if so, no gratuity will be due, gratuity being payable only on retirement and consequently S. 10(10) will not apply. The claim for exemption was not permitted. But, in appeal, the AAC took a different view and that was confirmed in appeal by the Tribunal. It is thereupon that the CIT has come up to this Court by way of reference of the question above mentioned.