CAPTAIN H S Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) A very short question arises for determination on this reference under section 66(1). The assessee worked as a managing director of the Cement Agencies Ltd., for many years in these circumstances. The Associated Cement Companies Ltd., was incorporated in 1936. Four groups of businessmen were interested in forming that company as also the Cement Agencies Ltd. which was appointed as the managing agents f the Associated Cement Companies Ltd. The four parties have been briefly described in the record as Killicks, Tatas, Khataus and F. E. Dinshaw Ltd. Clauses 4 and 5 of the agreement between the four groups and the Cement Agencies Ltd. are as under :

(2.) IN pursuance of clause 4 of that agreement, the assessee represented F. E. Dinshaw Ltd. on the board of directors of Cement Agencies Ltd. and his status was that of one of the four managing directors and as mentioned in that agreement his remuneration was paid not by the Cement Agencies Ltd. but by F. E. Dinshaw Ltd. The basis of that may be received by F. E. Dinshaw Ltd. and was recorded in a letter addressed by Mr. F. E. Dinshaw to the assessee on 29th October, 1935. It is not necessary to set out the terms of the employment recorded in that letter and it will suffice to observe that the minimum salary payable to the assessee was Rs. 60,000 per annum. In fact his annual emolument for many years was much large than that and exceeded Rs. 1 lac. The assessee continued to be in the employment of F. E. Dinshaw Ltd. and as such continued as one of the managing directors of Cement Agencies Ltd. up to 1st October, 1951, when came into existence certain changes which inter alia affected the assessee. As from 1st October, 1951, the services of the assessee were terminated by F. E. Dinshaw Ltd. and he was thereafter employed by Cement Agencies Ltd. On 27th November, 1951, a resolution was passed by the board of directors of Cement Agencies Ltd. which was as under :

(3.) IT is to be noticed that in this letter the assessee placed on record the fact that Messrs. F. E. Dinshaw Ltd. has agreed to pay him a sum of Rs. 1 lakh as 'compensation for the termination of my employment'. On 28th December, 1951, the managing director of Messrs. F. E. Dinshaw Ltd. wrote to the assessee acknowledging receipt of the letter of 27th December, 1951, and by that letter the agreement to pay the assessee Rs. 1 lakh 'as compensation for termination of your employment with us' was confirmed. Along with the letter a cheque for Rs. 1 lakh was sent to the assessee. Now, by 1st October, 1951, the Cement Agencies Ltd. had not declared any dividend for that year but that dividend was declared about six months later. The assessee was paid full year's remuneration as he had been paid in the past and he received as remuneration up to the date of termination of his services a sum of Rs. 1,34,300. Over and above that, he received the sum of Rs. 1 lakh of which we have already made mention. This sum of Rs. 1 lakh was claimed by Messrs. F. E. Dinshaw Ltd. as a revenue deduction but we are not concerned in this reference with what question. That question, we are informed, arises in the next reference before us. The assessee claimed before the Income -tax Officer that the sum of Rs. 1 lakh received by him from Messrs. F. E. Dinshaw Ltd. was a capital receipt. The Income -tax Officer took the view that it was not compensation for the loss of employment but a payment made to an employee for past services.