V.D. TALWAR V. THE COMMISSIONER OF INCOME-TAX, BIHAR INSC 72; AIR 1963 SC 1583; 1964 SCR 519

The assessee, Mr. V. D. Talwar, was employed as General Manager by a company, According to the service agreement, he was to get Rs. 2,000/- per month as his salary with an increment of Rs. 100/-- every year. Deductions for income- tax, absence of duty etc. could be made from his salary. The agreement of service was for five years, but the same could be terminated earlier by the employer after giving a notice of 12 months or payment of salary in lieu thereof. The assessee joined as General Manager on May 1, 1946 and his services were terminated with effect from August 31, 1947. The services were not terminated for any default or misconduct on the part of the assessee but were terminated because the company did not want to continue the assessee in their employment. No notice of 12 months was given by the company as required by the contract. The comppany actually paid Rs. 18, 096/1/- which was the amount due as salary for twelve months after deduction of Income-tax at the sours. The Income-tax Officer held that the sum of Rs. 25,200/was a revenue receipt of the assessee liable to be taxed under the Indian Income-tax Act and fie rejected the claim of the asscssec that the said sum was compensation for loss employ- ment and the tax amounting to Rs. 7,103/15/- should be re- funded to him. The appeal of the assessee' was accepted by the Appellate Assistant Commissioner but his decision was reversed by the Income-tax Appellate Tribunal. The question of law referred by the Tribunal to the High Court was whether the sum of Rs. 25,200/- was revenue income` of he assessee or not. The High Court gave the decision against the assessec who came to this Court by special leave.

Lawrence L. J. said at page 632 :

"'In my judgment, the determining factor in the present case is that the payment to the Respondent whatever the parties may have chosen to call it was a payment which the company had contracted to make to him as part of his remuneration for his services as a director. It is true that payment of this part of his remuneration was deferred until his death or retirement or cesser of office, and that in the articles it is called "compensation for loss of office." It is, however, a sum agreed to be paid in consideration of the Respondent accepting and serving in the office of Director, and consequentely is a sum paid byway of remuneration for his services as Director." It seems to us that the same principle should apply in the present case. What has been paid to the appellant is his salary in lieu of notice. If that is the true position then the amount paid is taxable under s. 7 of the Indian Income- tax Act, 1922. It is not compensation for loss of employment within the meaning of Explanation 2 thereto. For the reasons given above we think that the High Court correctly answered the question. The appeal fails and is dismissed with costs.

Appeal dismissed.