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2005 Supreme(Kar) 578
Karnataka High Court
Judges : H.L.Dattu,H.N.Nagamohan Das
COMMISSIONER OF INCOME TAX - Appellant
Versus
P.SURENDRA PRABHU - Respondent
IT Appeal 189 Of 2005
Decided On : 09/21/2005
Headnote
Section 2(24) -Income -Meaning.
[H. L. Dattu and H. N. Nagamohan Das, JJ]: Income Tax is a tax on a person in relation to his income. No income can be taxed unless and until there is authority of law to tax that income. Section 2(24) of the Act defines the meaning of the expression income. It is an inclusive definition. Apart from others, the expression income includes the value of any perquisites or profit in lieu of salary taxable under clauses (2) and (3) of Section 17 of the Act.
Cases Referred: AIR 2003 SC 858; (2005) 274 ITR 1; (1994) 206 ITR 531; (1999) 240 ITR 263; ITA No. 1657/Bang/2002 dated 20-8-2004; 243 ITR 143; (2000) 204 ITR 616; 204 ITR 386; 48 ITR 122; AIR 1980 SC 1219; 241 ITR 827; 273 ITR 307.
WORDS AND PHRASES - Salary
Salary -Meaning of for purposes of Income Tax Act, 1961 -"Salary" as defined by Section 17(1) of the Act covers any kind of remuneration received by or due to the employee irrespective of the fact that the payment is received during the period of employment or at the termination of employment. Terminal payments are not actually remuneration for services rendered but are in the nature of compensation for the termination of employment. Such payments, in order to bring them within the tax net, have been given the character of "profits in lieu of salary" and are included in the salary income of the employee by virtue of Section 17(1) (iv) of the Act. The expression "profits in lieu of salary" has to be understood as comprehending not only such things as they signify to their nature and import but also those things which the interpretation clause declares that they shall include. This expression cannot be understood to mean only such things, which the definition or interpretation clause declares that they shall include.WORDS AND PHRASES - Salary
Salary -Meaning of for purposes of Income Tax Act, 1961 -"Salary" as defined by Section 17(1) of the Act covers any kind of remuneration received by or due to the employee irrespective of the fact that the payment is received during the period of employment or at the termination of employment. Terminal payments are not actually remuneration for services rendered but are in the nature of compensation for the termination of employment. Such payments, in order to bring them within the tax net, have been given the character of "profits in lieu of salary" and are included in the salary income of the employee by virtue of Section 17(1) (iv) of the Act. The expression "profits in lieu of salary" has to be understood as comprehending not only such things as they signify to their nature and import but also those things which the interpretation clause declares that they shall include. This expression cannot be understood to mean only such things, which the definition or interpretation clause declares that they shall include.
SERVICE JURISPRUDENCE - Termination of service
Termination of service -Meaning -Means cessation of jural relationship of employer and employee.
[H. L. Dattu and H. N. Nagamohan Das, JJ]: The word "termination from employment" has different shades of meaning. In Service Law Jurisprudence, the word "termination from service" is understood as cessation of jural relationship of employer and employee based on the provisions of terms of service or the Rules or Regulations. When a termination is made in accordance with the contractual terms or the rules, it is known as "termination simpliciter". Termination from service could be byway of compulsory retirement, voluntary retirement, resignation and superannuation.
WORDS AND PHRASES - In lieu of
In lieu of -The Blacks Law Dictionary has defined the meaning of the expression "in lieu of to mean "instead of or in place of; in exchange Of return for". Therefore, profits in lieu of salary would mean a gain or advantage that the assessee would receive instead of or in place of salary.
WORDS AND PHRASES - Includes
Includes -Meaning under Income Tax Act, 1961 -The word includes when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. The Legislature by using the expression includes immediately after the expression salary, certain payments made by an employer to the employee as salary though in the normal connotation those payments could not have been considered as salary. One such payment, which is brought within the meaning of the expression salary, is any fees, commissions, perquisites, or profits in lieu of or in addition to any salary or wages.
( 1 ) SINCE the issues involved in these two appeals are inter-related, they are heard together and disposed of by this common judgment.
( 2 ) THE facts in IT Appeal No. 189/2005 are as under: the assessee was an employee of Canara Bank, which is a nationalised bank. The bank had floated a scheme called Canara Bank Employees Special Voluntary Retirement Scheme ("voluntary Retirement Scheme" for short ). The objective of the scheme is to have an ideal manpower for the bank and to have optimum human resources in keeping with the business strategies, skill profile towards achieving a balanced age profile and meeting the latest requirements of the bank. The scheme, apart from others, provides eligibility criteria, benefits available under the scheme, and other general conditions. The scheme is available to all permanent workmen/officer employees of the bank, provided they have completed fifteen (15) years of actual service or forty (40) years of age and the eligibility to be reckoned as on 1st Jan. , 2001. The employees who seek voluntary retirement under the scheme require to make appropriate application and it is the prerogative of the bank's management either to accept the request for voluntary retirement under the scheme or to reject the same depending upon the requirement of the bank. Clause (6) of Annex. I to the circular issued by the bank, dt. 11th Dec. , 2000, provides for benefits available under the scheme for those employees seeking voluntary retirement under the scheme. Apart from payment of gratuity, provident fund/pension, encashment of privilege leave, the scheme also provides for payment of "ex gratia amount" as specified in Clause 6. 1 of the Annexure to the circular. A scheme similar to the one floated by the respondent-bank came up for consideration before the supreme Court in the case of Bank of India v. O. P. Swaranakar AIR2003 SC 858 , 2003 (1 )AWC798 (SC ), JT2002 (10 )SC 436 , (2003 )I LLJ819 SC , (2003 )2 SCC721 , [2002 ]supp5 SCR438 , 2003 (1 ) UJ225 (SC ), (2003 )1 UPLBEC594. The question before the Court was, whether an employee, who opts for voluntary retirement pursuant to or in furtherance of a scheme floated by the nationalised banks and the State Bank of India would be precluded from withdrawing the said offer? While answering the question in negative and in favour of the employees of the bank, the Supreme Court has elaborately dealt with the status of employees in nationalised banks, the true intendment of the schemes floated by the banks, and whether the principles of Contract Act would be applicable in a case where an offer is made under a scheme to a group of persons and accepted individually by the employees of the bank. While answering the last issue, the Court has specifically observed :
"it is difficult to accept the contention raised in the Bar that a contract of employment would not be governed by the Indian Contract Act. A contract of employment is also subject-matter of contract unless governed by a statute or statutory rules. The provisions of Indian Contract Act would be only applicable at the formulation of the contract as also the determination thereof. Subject to certain just exceptions, even specific performance of contract by way of a direction for reinstatement of a dismissed employee is also permissible in law. "
The Court has further stated :
"once it is held that the provisions of the Indian Contract Act, 1872, would be applicable, the scheme admittedly being contractual in nature, the provisions of the Act shall apply. The scheme having regard to its provisions as noticed hereinbefore would merely constitute invitation to treat and not an offer. "
Proceeding further, the Court has observed :
"we, therefore, have no hesitation in coming to the conclusion that the voluntary scheme was not a proposal or an offer but merely an invitation to treat and the applications filed by the employees constituted 'offer'. "
The Court has concluded :
"the scheme is contractua
