This is a reference under section 66(1) of the Indian Income-tax Act, 1922, and arises out of the Tribunal order in Income-tax Appeal No. 583 of 1951-52. The following question has been referred by the Income-tax Appeal Tribunal, Bombay, for judgment : "Whether on the facts and circumstance of the case the sum of Rs. 10,000 received by the assessee is liable to be assessed as the assesses income ?" 2. The assessee is K.B.M.E.R. Malak. He was governing director of the Mechanical Transport (1942) Ltd., which were originally the managing agents of the Nagpur Omnibus Co. Ltd., and later of the Provincial Transport Co. Ltd., which in the year 1945 took over the business of the Nagpur Omnibus Co. Ltd. The original remuneration of the managing agents was fixed at a monthly rate of Rs. 2,000 plus 12 1/2 per cent.
of profits. This was reduced in 1945 to Rs. 1,000 per month plus of per cent. of the profits. In consideration of this modification the Provincial Transport Co. Ltd., paid to the managing agents a sum of Rs. 40,000.
3. The managing agents used to employ three person to do their work.
They were : These three persons were collectively paid by the managing agents a monthly remuneration of Rs. 2,000 which was divided amongst the three persons in the ratio of 3 : 4 : 9. In the meeting of the board of director of the managing agents held on May 8, 1945, the following resolution was passed : "Resolved unanimously that the shares worth Rs. 40,000 (Rupees forty thousand) which are being allotted as fully paid up shares by the Provincial Transport Co. Ltd., for the loss of emoluments as office allowance to the company, be allotted to Shrimant K. S. Chitnavis, chairman of the company, Khan Bahadur M.E.R. Malak Saheb and Mr. P. B.Kale, governing director and managing director of the company respectively in the ratio of 3 : 4 : 9 which is the ratio of their remuneration in this allowance." 4. The Provincial Transport Co., paid to the managing agents the sum of Rs. 40,000 in cash, which was distributed amongst the three person mentioned above in the ratio of 3 : 4 : 9. The assessee received a sum of Rs. 10,000 out of the amount of Rs. 40,000. This amount has been held as his income by the taxing authorities. The question is whether this amount can be said to be compensation for loss of employment within the meaning of explanation 2 to section 7(1) of the Indian Income-tax Act.
5. It is to be noted that the assessee continues to be the governing director of the managing agents, although his remuneration has been reduced. As a matter of fact, it is on account of the commuted value of the amount of reduction that be has been paid a lump sum of Rs. 10,000.
In Godrej and Co. v. Commissioner of Income-tax, which is a case on similar facts, it was held that the sum paid to the assessee represented remuneration paid to him in advance and was therefore liable to be taxed as income. In Henley v. Murray, there was total cessation of service of the assessee, and it was on that account that the amount paid to him as representing the remuneration for the period subsequent to his discharge was held to be not assessable to tax. In Tilley v. Wales (Inspector of Taxes), the assessee was to receive a yearly pension of pound 4,000 for ten years in the event of his ceasing to be managing director, for which he was receiving a remuneration of pound 6,000 a year. By a subsequent agreement he released the company from its obligation to pay him the pension and agreed to accept a salary of pound 2,000 a year in consideration of the company agreeing to pay him pound 40,000. It was held that neither the pension nor the sum paid to commute it constituted profit of an office within the meaning of rule I of Schedule E of the Income Tax Act, 1918. It will be observed that the pension was payable after the service was terminated, and therefore, what was paid to him in lieu of pension was really compensation for loss of employment. So also in P. D. Khosla, In re, the assesses services were terminated, and therefore the amount paid to him was held to be compensation for loss of service within the meaning of explanation 2 of section 7(1) of the Indian Income-tax Act. These cases are, therefore, distinguishable : [See also Hunter (H. M.Inspector of Taxes) v. Dewhurst].
6. In the instant case, the assessee has not been paid any compensation for termination of his service, which still continues. What he had received was a commuted amount representing the reduction in his remuneration and is a revenue receipt. It was, therefore, rightly treated as income and was liable to be taxed.
7. The question is accordingly answered in the affirmative, and the reference is rejected with costs. Hearing fee Rs. 100.