COMMISSIONER OF INCOME TAX Vs. DHANDA CAPTAIN H C
LAWS(MPH)-1969-12-7
HIGH COURT OF MADHYA PRADESH
Decided on December 04,1969

COMMISSIONER OF INCOME-TAX, NAGPUR AND BHANDARA, NAGPUR Appellant
VERSUS
CAPTAIN, H.C. DHANDA Respondents

JUDGEMENT

A.P. Sen, J. - (1.) THE question of law stated by the Income-tax Appellate Tribunal, Bombay, Bench 'A', at the instance of the Commissioner for the opinion of the Court is as follows: "Whether on the facts and in the circumstances of this case the sum of Rs. 1,67,345 received by the assessee during the year under consideration is covered by the 2nd Explanation to Section 7(1) of the Act as it stood prior to its amendment by Section 5 of Finance Act, 1955."
(2.) THE sum of Rs. 1,67,345/- represents the payment to the assessee, Capt. H.C. Dhanda on 28th January 1955 by His Highness Maharaja Yeshwant Rao Holkar, the Senior Up-Rajpramukh of the erstwhile State of Madhya Bharat, in full and final settlement of his claim for damages for wrongful termination of his services as personal Adviser to his Highness. THE whole question here is, were the moneys which the assessee so received after cessation of his office as compensation, in respect of which he was assessed for the year 1955-56, part of his income for the year in question as contended for by the Revenue or were they of a capital nature as held by the Tribunal, The facts are not for us; the facts are for the Tribunal which had the case before it. We find that both the parties accepted before the Tribunal, that its order contains all the material facts and that they have been correctly set out therein. We, therefore, find it unnecessary to review the facts in detail. Omitting what is contentious, the following facts which are material have been taken by us, practically verbatim, from the statement of the case as furnished by the Tribunal. After his graduation from the Oxford University, the assessee was called to the Bar and on his return to India in the year 1932, he started practice at Indore. But immediately thereafter, His Highness Maharaja Yeshwantrao Holkar of Indore took him into the services of the then Holkar State. The assessee continued in that service till the year 1947, during which period he held several offices of high responsibility including that of the Deputy Prime Minister, in which capacity he drew salary and allowances of nearly Rs. 3,000 per month. He retired from the service of the Holkar State w.e.f 27th January 1948. The Rulers of the then princely States of Gwalior, Indore and other States in the Central India, entered into a covenant of merger with the Dominion of India which resulted in the formation of the United State of Gwalior, Indore and Malwa or commonly known as the State of Madhya Bharat which came into being on 20th May 1948, and His Highness Maharaja Yeshwantrao Holkar of Indore became the Senior Up-Rajpramukh of that State. On the formation of that State, the Holkar desired to have the services of the assessee as his Personal Adviser. In connection therewith, the Holkar wrote to the assessee stating, amongst other things: "I would very much like to have you for this position (Adviser) in view of the regard which, you know, I have for you. I would like you to hold this position in addition to any post such as an Adviser which may be offered to you in the Union and in any case even if no fitting and acceptable position is offered to you in the Union." JUDGEMENT_404_ITR76_1970Html1.htm "As regards emoluments, I would offer you the same terms as may be offered to the Advisers in the Union and in any case not less than the emoluments you were receiving at the time of your retirement as my Deputy Prime Minister." (vide, the Holkar's letter dated 25-5-1948) By his letter dated 11th June 1948, the Holkar as the Senior Up-Rajpramukh informed the Hon'ble Sardar Vallabhbhai Patel, the Deputy Prime Minister of India of his intention of taking the assessee into the services of the State as his Personal Adviser. Pursuant thereto Sardar Patel intimated the acceptance by the Government of India of the proposal of appointing the assessee to that post, On 1st August 1948, there was a Huzur Order No. 354, issued by the Senior Up-Rajpramukh, appointing the assessee as his Personal Adviser. It was stated in that Order: "Capt. Dhanda shall receive the same emoluments as other Advisers in the Union or such emoluments as he was receiving as Deputy Prime Minister in the Holkar State at the time of his retirement, whichever are higher." In the Huzur Order dated 1st March 1950, the terms and conditions for the appointment of the assessee as Personal Adviser to the Senior Up-Rajpramukh were set forth. Amongst other things, the assessee was to receive a salary of Rs. 2500 per mensem, apart from a motor allowance of Rs. 350 and Garden allowance of Rs, 88 per month. The income-tax and super-tax thereon were to be paid by His Highness. Clause 5 of the said Huzur Order provided for the payment of gratuity, while Clause 6 guaranteed the period of his employment. There was a Note appended to these clauses which is of importance. The relevant clauses, with the Note thereto, are set out below-- "(5) Gratuity-- Capt. Dhanda shall be entitled to receive one month's pay for each completed year of service subject to a minimum of fifteen months' pay as sanctioned under item (1) above. This amount shall become due to him whenever he ceases to be the Personal Adviser to His Highness Maharaja Yeshwant Rao Holkar, the Senior Up-rajpramukh of Madhya Bharat or his services as such are no longer required for any cause whatever. In the event of Capt. Dhanda's death also, the minimum amount equivalent to his 15 months' pay as sanctioned under item (1) above shall be payable and this shall be paid to his heir and successor. (6) Period of service, etc.-- Permanence of service on the above mentioned terms is guaranteed under this contract to Capt. Dhanda until the 18th of June, 1963 when he will be 55, the normal age for retirement. This guarantee will be subject to the following conditions:-- (a) Capt. Dhanda shall continue to make himself available for service on the above mentioned terms until he is of age of 55. (b) If at any time before he is 55 years of age, Capt. Dhanda ceases to be the Personal Adviser to His Highness Maharaja Yeshwant Rao Holkar the Seniod Up-Rajpramukh of Madhya Bharat, or his services as such are no longer required for any cause whatever, he shall become immediately entitled to receive in one lump sum his total emoluments at half the rates specified under terms (1), (2) and (4) and at the full rate specified under term (5) mentioned above, for the period between the date on which he may cease to be Personal Adviser or the date from which his services as such are no longer required until he is 55 years of age. (c) In the event of Capt. Dhanda's death at any time during the period of this contract, his heir and successor shall be entitled to receive the amounts mentioned under terms (5) and (7) only. Note: The order regarding terms (5) and (6) above is based on the following considerations :-- Capt. Dhanda prematurely retired from permanent pensionable service of the Holkar State without the usual monthly pension. Further, he has accepted the post of Personal Adviser in preference to other permanent pensionable posts offered to him. Capt. Dhanda has already rendered service of exceptional loyalty and value to His Highness and his House in connection, inter alia, with settlement of His Highuess's private properties and succession."
(3.) SOMETIME in April 1948, the Holkar left for the United States of America. He returned to this country in 1949 and again went back to America in April 1950 and remained there till about the end of December 1951. During this period, the assessee continued to render satisfactory service as Personal Adviser to the Senior Up-Rajpramukh. It appears that on or about 21st December 1951, His Highness retunied to India, and immediately thereafter, on 23rd December 1951, by an order of that date, terminated the services of the assessee with immediate effect, and directed him to hand over his office to one Masood Quli Khan. The order of termination of his services, reads as follows:-- "Windmere"New Cuff Parade, Bombay 23rd December 1951. Immediate Dear Capt. Dhanda, As I have terminated your services with immediate effect., I am to direct you to hand over charge of your office as my Adviser to Mr. Masood Quli Khan. You should hand over all the confidential files and papers of the Huzur Officer in your possession to Mr. Masood Quli Khan together with a complete list of all such files and papers signed by you. You should also hand over to him copies of correspondence you have been carrying with the States Ministry of the Government of India and State Govt. of Madhya Bharat on behalf of His Highness the Maharaja Holkar during your period of office along with the connected files. You are therefore to return to Indore and carry out these instructions at once. You are also to hand over Bank Pass Books and Cheque Books to Mr. Masood Quli Khan. Yours truly, Sd/- Yeshwant Rao Holkar (Maharaja of Indore) Capt. H. C. Dhanda, Taj Mahal Hotel, Bombay." On 24th December 1951, the assessee wrote to His Highness complaining of the unjust manner in which, his services were dispensed with, which was far from fair to him or consistent with the position of the high Trust, status and responsibility which he enjoyed with His Highness for many years. On 2nd February 1952, the assessee forwarded to the Holkar a statement of his claim as regards the amounts payable by His Highness on termination of his service, and the total amount payable was Rupees 2,97,620., as per a statement annexed. The statement also indicated the extent of income-tax and super-tax which would be payable on such sum. It would be convenient to set that out here. JUDGEMENT_404_ITR76_1970Html2.htm Paragraph 7 of the said letter reads as hereunder :-- "7. Your Highness may kindly note that payment of my dues is due to me immediately under Clause 6 (b) of my contract in view of the termination of my appointment. I am emphasising this for one very important reason which I may be permitted to repeat, namely, that my sudden retirement has placed me in serious financial difficulties in view of which I shall much appreciate the consideration at Your Highness Imnds of the immediate remittance to me of Rupees 2,97,620 as explained in paragraph 3 of this letter. Immediately thereafter and on receipt of the information solicited by me (vide para 1 supra) I shall refund to your Highness such amount as is due to be refunded. I shall also return to Your Highness the amount of income-tax or super-tax which may be paid by Your Highness in pursuance of Clause (1) of the contract in the event of it being finally held that these taxes are not payable in view of the possible ground referred to under paragraph (5) of this letter, On the other hand, I have to mention that if the Income-tax authorities assess the taxes payable at a higher figure or if there is any error in calculations I shall have 10 submit a duly corrected claim for Your Highness' sanction on that basis." ;


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