Content Provider | Supreme Court of India |
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e-ISSN | 30484839 |
Language | English |
Access Restriction | NDLI |
Subject Keyword | Indian Income-tax Act 1922 |
Content Type | Text |
Resource Type | Law Judgement |
Jurisdiction | India |
Case Type | Appeal |
Court | Supreme Court of India |
Disposal Nature | Appeal Dismissed |
Headnote | Income Tax-Partnership terminating services of employee by notice-Transfer of assets of partnership to new companies- Firm giving shares of new company to employee-Such shares , if compensation for loss of employment-Employee, if liable to tax-Indian Income-tax Act, 1922 (11 of 1922), s.· 7 (1) Explanation 2. In 1930 the respondent assessee was employed as an officer·assistant in a partnership concern on the basis of a contract for three years. The agreement provided that the firm might terminate the contract after giving the assessee one calendar month's notice of its intention to do so. Subject to his work being satisfactory. the assessee, like other aasistants employed in the firm, expected to become a partner of the firm one day. The assessee continued in the employment of the firm and his contract of service was renewed from time to time. In I 94 7 the firm decided to re-organise its business and with that end in view two limited companies were floated, Killick Industries Ltd. which was a public limited company, and Killick Nixon and Company, a private limited company, which was to take over the business previously carried on by the partnership. On December 29,1947, the respondent received a note from the firm stating that in view of the changes proposed the assessee's employment with the firm would terminate as from January 31, 1948. The new company Killick Industries Ltd., agreed to take over the services of the assessee and on February 1,1948, he entered their employment. The partnership firm transferred their assets to the new companies and received shares of the new companies in lieu thereof. All the members of the covenanted staff in the partnership firm were given shares of Killick Industries Ltd., free of payment, and the assessee received an allotment of I, 700 shares of the face value of Rs. 2 ,21,000 /-. The assessee's case was that the shares were given by the partner .. ship to the members of the staff as compensation for loss of employment resulting from premature termination of their services. The Income-tax Officer, however, sought to bring the shares of the value of Rs. 2,21,000 - to tax on the footing that the shares were allotted to the assessec in consideration of past services. The Appellate Tribunal held on the evidence before it that the payment was made solely as compensation for loss of employment, and was not liable to tax in view of Explanation 2 to s. 7 (I) of the Indian Income-tax Act, 1922. It was contended for the Commissioner of Income-tax that under the Explanation, the word "compensation" meant what was payable or compellable at law as compensation, and any payment received by an assessee from his employer or former employer was profit received in lieu of salary, and that judged from that point of view, the payment of Rs. 2,21,000/- to the assessee was not compensation solely for loss of employment. |
Judge | Hon'ble Mr. Justice Raghubar Dayal Hon'ble Mr. Justice S.K Das |
Neutral Citation | 1962 INSC 379 |
Petitioner | The Commissioner Of Income Tax Bombay |
Respondent | E. D. Sheppard |
SCR | [1964] 1 S.C.R. 163 |
Judgement Date | 1962-12-12 |
Case Number | 527 |
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