Madras High Court
Commissioner Of Income-Tax vs J. Visalakshi on 25 November, 1993
Equivalent citations: [1994]206ITR531(MAD)
JUDGMENT K.A. Swami, C.J.
1. This is an application made under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), seeking a direction to the Tribunal to state a case and refer the following question of law to this court for opinion :
"Whether the Appellate Tribunal was right and had valid materials to hold that the ex gratia compensation of Rs. 63,230 received by the assessee consequent on his resignation from the employment is entitled to the relief under section 89(1) of the Income-tax Act ?"
2. The Tribunal has declined to make a reference on the group that even resignation also results in termination of service. Therefore, it falls under section 89(1) read with section 17(3) of the Act. In view of this, the point for consideration is whether the ex gratia compensation of Rs. 63,230 received by the assessee, consequent on his resignation from employment, is entitled to the relief under section 89(1) of the Act. Section 89(1) and section 17(3) of the Act are as follows :
"89. (1) Where, by reason of any portion of an assessee's salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit, in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Office shall, on an application made to him in this behalf, grant such relief as may be prescribed."
"17. (3) 'Profits in lieu of salary', includes -
(i) the amount of any compensation die to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
(ii) any payment [other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12) or clause (13A) of section 10, due to or received by an assessee from an employer or a former employer of from a provident or other fund (not being an approved superannuation find), to the extent to which it does not consist of contributions by the assessee or interest on such contributions."
3. The other portions of section 89 are not relevant for our purpose. The question as to whether the assessee is entitled to the relief under section 89(1) would depend upon the interpretation to be placed on the words "termination of his employment" occurring in sub-section 3(i) of section 17 of the Act. It is necessary to bear in mind that termination of service can take place either by resignation or by dismissal or by compulsory retirement or on arraigning superannuation. That being so, we of the view that there is no justification to confine the meaning of the word "termination" only to a case of either voluntary retirement or on superannuation, as per the stand taken by the department. It must be borne in mind that section 89(1) read with section 17(3) of the Act are beneficial provisions intended to give certain benefits to employees or persons in service. Therefore, while placing interpretation on such clauses, the object with which such clauses are provided in the Act must be borne in mind, the object being to grant certain benefit to the person whose service in terminated. Therefore, if the meaning of the word "termination" is confined to case of voluntary retirement or superannuation only, the object of the clause will not be fully achieved and it will amount to restricting the scope of the beneficial clause. Hence, we are of the view that the Tribunal is justified in holding that the ex gratia compensation of Rs. 63,230, received by an assessee consequent on his resignation, is entitled to relief under section 89(1) of the Act.
4. It may also be pointed our that if the ex gratia amount received by the assessee by reason of his resignation from employment is not held as falling under clause (3) of section 17 of the Act, it cannot also be constructed as an income amenable to assessment to income-tax, because it is not the amount earned or paid for the service rendered, and as such it will be only a capital receipt. From this angle also, the stand of the Department cannot be considered to the consistent or in conformity with the provisions of section 17(3) of the Act. Therefore, it cannot be held that the stand taken by the Income-tax Department is in conformity with the provisions of the Act. According, the petition is rejected.