1. Though these two references are made at the instance of two different assesseds, they raise a question which comes up for consideration in almost similar circumstances and it is, thereforee, convenient to dispose of both these references by a single judgment.
2. Lachhman Dass, the assessed in ITR No. 6 of 1971, was an employee of Ganga Sugar Corporation Ltd. During the previous year relevant to the assessment year 1962-63, he received a sum of Rs. 9,500 from his employer company. The assessed's case was that he had suffered certain loss of movable assets in Pakistan at the time of partition to the extent of Rs. 15,430 and that he made a request to his employer to compensate him thereforee and that it was in partial grant of this request that the employer gave him a sum of Rs. 9,500. The question is whether this amount is liable to tax in the hands of the assessed as ' profits in lieu of salary '.
3. In I.T.R. No. 18 of 1971, the assessed, Jai Karan Kohli, was an employee of two sugar mills, the Ramkola Sugar Mills Co. Ltd., and the Mahalakshmi Sugar Mills Co. Ltd. He was there employed in Nawanshahr in Pakistan. It appears that due to the disturbances consequent on and preliminary to the partition of the country he had to shift from Nawanshahr to Lahore, from Lahore to Srinagar and then from Srinagar to Delhi. On July 25, 1961, he made a representation to the management of the companies stating that as a result of all the above disturbances he had suffered considerable losses. He stated that he had requested the earlier proprietor to compensate him for his losses but that no decision had been arrived at during his lifetime. So he gave another representation for granting some compensation for the loss of his movable property. On August 31, 1961, the two companies passed resolutions granting the payment of Rs. 2,500 each to the assessed as compensation for losses sustained by him as a result of partition. Here again the ITO brought the sum of Rs. 5,000 to tax in the hands of the assessed as salary.
4. Both the assesseds appealed to the AAC who deleted the additions made in the assessment. There were further appeals by the ITO to the Tribunal. The Tribunal was of the view that though the payment in question could not be treated as ' perquisite ' within the meaning of Section 17(2)(ii), it would nevertheless be a ' profit in lieu of salary ', within the meaning of the definition contained in Section 17(3)(ii). The Tribunal also rejected the assessed'splea that the amount would be exempt under Section 10(14) of the I.T. Act, 1961.
5. At the request of the assessed, the following questions of law have been referred to this court for decision. The questions are identical in frame except for the reference to the amount which in the case of Jai Karan Kohli is Rs. 5,000 and in the case of Lachhman Dass is Rs. 9,500. We shall, thereforee, set out only the questions in the case of Lachhman Dass, which are as under :
'1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 9,500 paid by the assessed's employer has been rightly held by the Tribunal to be assessable in his hands ?
2. ' Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the amount of Rs. 9,500 was not exempt under Section 10(14) of the Income-tax Act, 1961 ?'
6. It is easy to answer the second question. It is clear that the payment in question does not fall within the terms of this clause and, in fact, Mr. Bishamber Lal, counsel for the assessed, did not seriously press for consideration of the exemption under this clause.
7. So far as the first question is concerned, the conclusion of the Tribunal is prima facie very plausible. Section 17(3)(ii) includes in the definition of ' profits in lieu of salary ', to refer only to the relevant portion of the section, ' any payment......due to or received by an assessed from an employer or a former employer......' The simple and attractive argumentwhich Mr. M. L. Verma has put forward, supporting the line of reasoning of the Tribunal, is that under this clause any payment received by an employee from an employer or former employer is taxable as profits in lieu of salary. We are, however, of opinion that this is an over-simplification of the matter. It cannot be seriously contended that any payment would be brought within the ambit of this clause merely because the payment is made by an employer and the amount is received by an employee. In the course of the arguments a question was put to the learned counsel, as to what would be the position where an employer pays damages to his employee for having, for example, run over the employee or his son, while driving his car. Such a payment cannot be treated as ' profit in lieu of salary' merely because it is a payment made by an employer and the recipient is an employee. In fact we think Mr. M. L. Verma did not contest this proposition but he purported to argue that in such a case the payment would be received by the employee in a capacity other than as an employee. In such a case the payment would be by way of general liability for tort or under some special enactment which he would be entitled to receive irrespective of whether he is an employee or not. This illustration clearly shows that the section should not be interpreted in sucha wide manner as is suggested by the department to bring within its purview all the payments which may be received by an employee from an employer. It is clear that the section cannot include payments though they may be received by an employee from an employer where the payment is made not on account of a master and servant relationship but on account of personal considerations or for reasons unconnected with the employment. In fact this position is clear beyond doubt from two decisions of the Supreme Court. In Mahesh Anantrai Pattani v. CIT : 41ITR481(SC) the Maharaja of Bhavnagar gave a sum of Rs. 5 lakhs to a former employee of his. We need not discuss the facts of this case here because it was ultimately held by a majority decision of the Supreme Court that the payment had been made to the assessed not in token of appreciation of his services as an employee but as a personal gift and as a token of personal esteem. But the point to be noted is that this was a decision where the. employee was sought to be assessed under Expln. 2 to Section 7(1) of the 1922 Act, which corresponds to Section 17(3)(ii) of the 1961 Act. The very fact that the Supreme Court discussed at great length and also exempted the payment as a personal gift shows that it is not sufficient for purposes of affixing liability to show that a payment has been made by an employer to an employee. The position was also made clear by the Supreme Court in CIT v. E.D. Sheppard : 48ITR237(SC) . It is sufficient to extract here a portion of the headnote. The court held :
That Explanationn 2 to Section 17(1) did not treat every payment received by an assessed from his employer or former employer as income and did not exclude the consideration as to whether the payment related to employment or not and whether it was capital or income.'
8. In the above circumstances we are of opinion that the Tribunal was not correct in holding that merely because the assessed had received payment from his employer the amount was liable to be taxed under Section 17(3)(ii). The circumstances of the payment clearly show that the payment had no relation to the services rendered by the assesseds as employees. This was merely a payment sanctioned by the employers to the respective employees to compensate them for the personal loss they had suffered during the time of the partition of the country. We are unable to find any element of remuneration for services in these payments and though the payments were made by the employer to the employee they were, in our opinion, payments made on personal grounds and on sympathetic considerations. Mr. M. L. Verma, learned counsel for the department, sought to contest the genuineness of the claim made by the assesseds. He pointed out that the assesseds were supposed to have incurred losses during the pre-partition period whereas we are concerned with the assessment year 1962-63. According to him the so-called claim put forward by the assessedsand accepted by the employers was really a ruse to make a payment which was perhaps intended by way of remuneration. We may also say that the long lapse of time in the present cases between the period when the loss was stated to have been incurred and the date of payment also made an impression on us. But we find that the genuineness of the assessed's claim or the ground on which the payment was made by the employer has not been disputed at any of the lower stages. It appears to have been accepted that a claim was made and granted for the losses incurred during the pre-partition disturbances. We, thereforee, did not permit Mr. M. L. Verma to urge this factual ground at this belated stage when the department itself had not raised any such point.
9. Mr. Verma also sought to suggest that the language of Section 7(1), Expln. 2, of the 1922 Act and the language of Section 17(3)(ii) are not the same. His first point was that, under the 1922 Act, the word used was 'a payment', whereas under the 1961 Act the word used is ' any payment '. We do not think that anything turns on this insignificant difference. Even under the second Explanationn to Section 7(1) of the 1922 Act, any payment received by an employee from an employer or former employer fell within the definition of ' profits '. In Section 17(3) of the 1961 Act the section started differently by saying that ' profits in lieu of salary ' includes certain things and, in this context, it had to use the word ' any '. Mr. Verma also made a point about the fact that Section 17(3)(ii) specifically exempts certain types of payments from the purview of profits in lieu of salary and argued that, thereforee, any other payment not falling within these provisions would be liable to tax. Here again the reference to the various clauses of Section 10 is only clarificatory. Even without the reference in parenthesis contained in Section 17(3)(ii), the payments made under the several clauses of Section 10 referred to therein would be exempt from tax and the language of Section 17(3)(ii) merely clarifies the position. This reference does not mean that any other payment which is made by an employer to an employee on personal consideration and without any reference to the terms of employment or to the services rendered by the employee would become ' profits in lieu of salary ' within the meaning in this clause.
10. Mr. Bishamber Lal contended that the definition of profits in lieu of salary will take in only amounts which are due to an employee or which are received by him as a matter;of right. It is not necessary for the purposes of this case to deal with this aspect of the matter in view of our conclusion already set out that this is not a payment which would fall within the definition of Section 17(3).
11. For the reasons set out above, we hold that the sums of Rs. 9,500 and Rs. 5,000 are not assessable to tax in the hands of the two assesseds. Thefirst question is answered accordingly. The second question is answered in the affirmative and against the assessed.
12. There will be no order as to costs in these references.