BANERJEE, J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act.
(2.) THE assessment year involved is the year 1954-55, corresponding to the financial year 1953-54, which is the accounting year. The assessee, K. K. Roy, is an individual. He is an aeronautical engineer. In December, 1945, he was appointed as the manager of Airways (India) Ltd., to look after the business of the company relating to all matters other than finance and general policy. In 1947, he was appointed as the managing director of the company. While he was acting as the managing director, there was passed the Air Corporations Act (XXVII of 1953) on 28th May, 1953. The object of the Act was to nationalise transportation by air and for that purpose " to provide for the establishment of air corporations, to facilitate the acquisition by the air corporations of undertakings belonging to certain existing air companies and generally to make further and better provisions for the operation of air transport services ". Under the definition of the expression " existing air companies ", in s. 2 (v) of the Act, was included, amongst others, the Airways (India) Ltd. Further, under s. 16 of the Act, it was provided : "On such date as the Central Government may, by notification in the Official Gazette, appoint (hereinafter referred to as ' the appointed date '), there shall be transferred to and vest in-- (a) Indian Airlines, the undertakings of all the existing air companies (other than Air India International Ltd.), and (b) Air India International, the undertaking of the Air India International Ltd." The appointed date was notified to be 1st Aug., 1953. Since the acquisition was to affect officers and employees of existing air companies, the following provisions, inter alia, were made for them, by s. 20 of the Act : "20. (1) Every officer or other employee of an existing air company (except a director, managing agent, manager or any other person entitled to manage the whole or a substantial part of the business and affairs of the company under a special agreement) employed by that company prior to the 1st day of July, 1952, and still in its employment immediately before the appointed date shall, in so far as such officer or other employee is employed in connection with the undertaking which has vested in either of the corporations by virtue of this Act, become as from the appointed date an officer or other employee, as the case may be, of the corporation in which the undertaking has vested and shall hold his office or service therein by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters as he would have held the same under the existing air company if its undertaking had not vested in the corporation and shall continue to do so unless and until his employment in the corporation is terminated or until his remuneration, terms or conditions are duly altered by the corporation . . . . (4) Notwithstanding anything contained in this Act or in the Indian Companies Act, 1913, or in any other law for the time being in force or in any agreement entered into by an existing air company or in the articles of association of any such company, no director, managing agent, manager or any other person entitled to manage the whole or a substantial part of the business and affairs of the company shall be entitled to any compensation against any existing air company or against either of the corporations for the loss of office or for the premature termination of any contract of management entered into by him with any existing air company and where any existing air company has, after the 1st July, 1952, and before the commencement of this Act, paid to any such person as is referred to in this sub-section any sum by way of compensation to which the person receiving such compensation would not have been entitled if this sub-section were in force at the time of such payment, the existing air company shall be entitled to claim refund of any sum so paid."
(3.) ANTICIPATING the impact of the Act on the service of the assessee, the board of directors of Airways (India) Ltd. made a recommendation, on 30th Jan., 1953, for payment of Rs. 50,000 to the assessee, in view of the termination of his association with the company, under the impending scheme of nationalisation. The recommendation was adopted by the company, which passed a resolution, on 28th Feb., 1953, couched in the following language : "Resolved that the recommendation of the board of directors that a payment of Rs. 50,000 (rupees fifty thousand), free of income-tax, as a lump sum payment be made to Mr. K. K. Roy, the managing director of the company in view of the impending termination of his association with the company due to nationalisation of the company as aforesaid, such payment being made only in the event of such nationalisation taking effect, be approved." The payment, in terms of the resolution, was made to the assessee on 7th May, 1953, prior to the appointed date, namely, 1st Aug., 1953.;