Skip to content


K.S. Gopalan Vs. Commissioner of Income Tax, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberT.C. No. 213 of 1962 (Ref. No. 118 of 1962)
Judge
Reported inAIR1967Mad289
AppellantK.S. Gopalan
RespondentCommissioner of Income Tax, Madras
Excerpt:
.....from 1st april 1957'.(3) in accordance with the instructions received from the head office, the assessee issued notices to the employees of the company as well as to himself, intimating the fact of the closure of the business in india from 1-4-1957 and stating. the department as well as, the tribunal on appeal rejected the assessee's contention. as either date will fall within the year of account relating to the assessment year 1958-59. we therefore answer the first question that the gratuity accrued to the appellant in the accounting year ending 31-3-1958. (6) the second question related to the claim of the assessee for deduction of certain entertainment allowance received by him while employed in two other insurance companies is well founded. the department as well as the tribunal..........members of its staff would be entitled to be paid gratuity 'on retrenchment'. the letter of the company dated 20-3-1957 merely intimated its decision to close down the business. further correspondence showed that the actual termination was to take place only on 30-4-1957, i.e., after the expiry of the period of notice. therefore, if the matter is to be viewed on the basis of accrual of the right, only that date will be the relevant date. even before the time had arrived, the company had paid the assessee the sum of rs. 15000 as gratuity. so, under the circumstances of the case, the date of receipt will be more relevant than the date of accrual. it however makes no difference for the purpose of taxation in this case, whether one takes the date of receipt or the date of accrual. as.....
Judgment:

Ramachandra Iyer, C.J.

1. Learned counsel for the assessee has invited our decision only on the first of the two question that have been referred to us. That question runs.

'Whether, on the facts in the circumstances of the case, the sum of Rs. 15000 accrued to the assessee as gratuity in the accounting year ending on 31-3-1957 or in the accounting year ending 31-3-1958?'.

(2) The assessee was the Branch Manager and Principal officer of an insurance company called Eastern Federal Union Insurance Co., Ltd. The company which was incorporated in Pakistan decided to close down its business in India early in the year 1957. On 20-3-1957, it wrote to the assessee, expressing its difficulties with regard to its business in India and intimating that it had no choice but to close down such business. The letter then stated:

'Please, therefore, stop acceptance of business as and from 1-4-1957........ please give one month's notice to all our staff in India, of termination of their service............notice period commencing from 1st April 1957'.

(3) In accordance with the instructions received from the Head Office, the assessee issued notices to the employees of the company as well as to himself, intimating the fact of the closure of the business in India from 1-4-1957 and stating.

'In the circumstances, we give you one month's notice of termination of your service from 30-4-1957. The usual benefit will be paid to you.'

(4) It is apparent from the letter above cited that the employees were expected to be in service during the period of notice, albeit the business was to close down from 1-4-1957. Therefore, the effective date of retrenchment of all the employees would be only 30-4-1957. But, even earlier i.e., on 11-4-1957, the company had paid to the assessee a sum of Rs. 15000 as gratuity. This amount was brought to tax in the assessment year 1958--59. The case for the assessee was that, inasmuch as the company had decided to close its business on and from 20-3-1957 the gratuity amount should be held to have accrued to him even on that date and that therefore there was no jurisdiction in the officer to tax that income as the income of the year 1957-58, although it might be assessed as an income for the preceding assessment year. The department as well as, the Tribunal on appeal rejected the assessee's contention. We are of opinion of the view taken by the department and the tribunal is correct.

(5) Under the rules of the company, the members of its staff would be entitled to be paid gratuity 'on retrenchment'. The letter of the company dated 20-3-1957 merely intimated its decision to close down the business. Further correspondence showed that the actual termination was to take place only on 30-4-1957, i.e., after the expiry of the period of notice. Therefore, if the matter is to be viewed on the basis of accrual of the right, only that date will be the relevant date. Even before the time had arrived, the company had paid the assessee the sum of Rs. 15000 as gratuity. So, under the circumstances of the case, the date of receipt will be more relevant than the date of accrual. It however makes no difference for the purpose of taxation in this case, whether one takes the date of receipt or the date of accrual. as either date will fall within the year of account relating to the assessment year 1958-59. We therefore answer the first question that the gratuity accrued to the appellant in the accounting year ending 31-3-1958.

(6) The second question related to the claim of the assessee for deduction of certain entertainment allowance received by him while employed in two other insurance companies is well founded. The Department as well as the Tribunal has negatived the claim of the assessee. In view of the fact that learned counsel for the assessee has not pressed for our decision of the question. We negative it against the assessee. The assessee will pay the cost of the department. Counsel's fee Rs. 250.

(7) Answer accordingly.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //