COMMISSIONER OF INCOME-TAX Vs. D V JOSHI

JUDGEMENT

(1.) This reference relates to the determination of the particular section under which an amount received by the assessee on termination of his services is assessable. By an indenture of agreement dated October 29, 1949 the assessee was appointed as manager of M/s. Noble Steel Products Ltd. (hereinafter referred to as "the company"). As such manager he was to manage the whole affairs of the company for a period of 15 years with effect from November 1, 1949. Under clause 4 of the agreement he was entitled to monthly salary of Rs. 500/- and in addition thereto the company was to provide him with a motor car and bear all the maintenance and running expenses of the said car. Under clause 6 of the said agreement during the continuance of the agreement the company shall not terminate the services of said Joshi (assessee) as manager except for his inefficiency or incapacity or unfaithfulness or said Joshi accepts any other service. However, if this agreement is terminated by the company for the reasons other than stated above, the company shall pay to said Joshi the remuneration for the unexpired period of his contract as compensation.

(2.) The services of the assessee with the Company were duly terminated but such termination was not on the ground of inefficiency or incapacity or unfaithfulness or on the assessee accepting any other service. The company paid a sum of Rs. 26,500/- to the assessee by crediting the said amount in his account with the Bank of Maharashtra on July 27, 1959.

(3.) The question arose before the taxing authorities under what provisions this amount or any part therefor is taxable. Before the Income-tax Officer it was explained that the sum of Rs. 26,500/- which was received by the assessee comprised of two items, namely, Rs. 6,500/- being the salary due to him on account of leave and Rs. 20,000/- being the amount of compensation for loss of services paid to him on the termination of his services. Before the Income-tax Officer it was contended on behalf of the assessee that the sum of Rs. 20,000/- which was received by him as compensation on termination of his services was assessable under section 10(5A) of the Income-tax Act, 1922. That contention of the assessee was rejected by the Income-tax Officer and he held that the amount of Rs. 20,000/- was assessable under Explanation 2(i) to section 7 of the Act.