ARUNBHAI R. NAIK Vs. I.T. OFFICER

JUDGEMENT

(1.) The appellant assessee in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act") has challenged the order dated 7th July, 2003 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' in ITA No.4510/Ahd/1996. By an order dated 1st November, 2004, this appeal had been admitted on the following substantial question of law:-

(2.) The assessment year is 1994-95 and the relevant accounting period is the year that ended on 31st March, 1994. The assessee, who is assessed in the status of an individual, filed return of income on 30th June, 2004 showing total income of Rs.1,32,430/-. The return was processed under section 143(1)(a) of the Act granting refund of Rs.1,88,550/- on 28th March, 1995. Since the refund was more than Rs.1,00,000/-, the case was taken up for scrutiny. During the course of assessment, it was found that the assessee had received an amount of Rs.3,51,308/- being ex-gratia compensation on premature cessation of his services. In the footnote of the return of income, the assessee had stated that since neither the terms of employment nor the service rules of the company provide for making ex-gratia payment, this claim as capital receipt is not liable to tax as the same is not paid as retrenchment compensation either under labour laws or under the terms of employment. In support of his submissions, the assessee had placed reliance upon the decisions of the Calcutta High Court in the case of Commissioner of Income Tax v. Jamini Mohan Kar, 1989 176 ITR 127 (Cal.) and Commissioner of Income-Tax v. Ajit Kumar Bose, 1987 165 ITR 90. The Assessing Officer after considering the submissions advanced on behalf of the assessee, held thus:-

(3.) The assessee carried the matter in appeal before the Commissioner (Appeals) who held that the amount received by the appellant was not taxable and deleted the addition made by the Assessing Officer. According to the Commissioner (Appeals), the employer of the appellant offered to give a compensation of Rs.3,51,308/- in case where he voluntarily retired from service, which the appellant accepted. The said amount was paid de hors any contract of employment and was paid voluntarily and was paid as compensation for premature termination of employment. The Commissioner (Appeals) placed reliance upon the above referred two decisions of the Calcutta High Court wherein it was held that the amount being capital receipt is not taxable under section 17(3) of the Act. The Commissioner (Appeals) also placed reliance upon a decision of the Madras High Court in the case of R. Venketkrishna, 215 ITR 586 wherein a similar view was taken namely, that the amount of similar nature is not taxable as salary. Revenue went in appeal before the Tribunal and succeeded in relation to the addition in question.