P.C. Jain, J. - (1.) THE question referred to us by the Income-tax Appellate Tribunal ("the Tribunal" for short), under Section 256(1) of the Income-tax Act, 1961 ("the Act" for short), as fashioned by the Tribunal, reads as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the use of the words "service has been terminated" in Clause (ii) of Rule 8 of Part A of Fourth Schedule of the Income-tax Act, 1961, does not cover the case of termination of service by resignation by an employee ?"
(2.) SHORTLY put, the necessary facts leading up to the present reference by the Tribunal are that the assessee was employed with Oriental Power Cables Ltd., Kota, from the month of July, 1962, as Chief Engineer of the said company. In the year 1965, the management of the said company was changed and the new management appointed three more persons in a position superior to that of the assessee. Therefore, he was relegated to the fourth position in the company, thereby causing considerable reduction in status and power. It is the case of the assessee that as a result, he felt humiliated and insulted and underwent considerable mental agony. Therefore, he preferred to resign from the company and he did so with effect from July 27, 1967. The assessee joined M/s. Sriram Fertilisers Corporation of India on the next day, i. e., July 28, 1967, on emoluments which were better than what he was drawing earlier. The period of his service with M/s. Oriental Power Cables Ltd., Kota, was less than five years. During the aforesaid period, the assessee accumulated a balance in his provident fund to the extent of Rs. 28,217, which he received after his resignation from the said company. The question arose whether the aforesaid accumulated balance received by the assessee was assessable in his hands in terms of Rule 8 of Part A of the Fourth Schedule to the Income-tax Act, 1961, as his income from salary. According to the Revenue, the amount was assessable in the hands of the assessee. On the other hand, the assessee claimed the same to be exempt from income-tax. Since the assessee had rendered continuous service with the employer for a period less than five years, the Income-tax Officer, considering the provisions of Rule 8 of Part A of the Fourth Schedule to the Income-tax Act, 1961, included the same in the total income of the assessee. This rule reads as under : "8. The accumulated balance due and becoming payable to an employee participating in a recognised provident fund shall be excluded from the computation of his total income.- (i) if he has rendered continuous service with his employer for a period of five years or more, or (ii) if, though he has not rendered such continuous service, the service has been terminated by reason of the employee's ill-health, or by the contraction or discontinuance of the employer's business or other causes beyond the control of the employee, or; (iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer." According to the Income-tax Officer, none of the conditions laid down in the rule was fulfilled. The assessee had neither rendered service for a period of five years nor were his services terminated by reason of his illness nor has the employer's business been discontinued. No other cause of termination of service was put forth which could be termed as "beyond the control of the employee". Against the order of assessment passed by the Income-tax Officer, E-Ward, Kota, dated March 6, 1973, an appeal was preferred before the Appellate Assistant Commissioner of Income-tax, Kota Range, Kota. The Appellate Assistant Commissioner, on the ground that the facts of the case, as stated by the assessee-appellant, were not disputable, namely, that there was a change in the management of the company and the assessee was pushed from No. 1 to No. 3 position and subsequently to the fourth position and his stay in the company was made uncomfortable in various ways (sic). The Appellate Assistant Commissioner also held that ultimately the assessee was left with no choice but to resign and to join a new concern. The Appellate Assistant Commissioner also observed that it was wrong to expect of him not to negotiate with a new employer beforehand as without offer of employment, it would have been foolish to leave the job and be on the street. To arrive at the above finding, the Appellate Assistant Commissioner held that since Rule 8 was applicable in the assessee's case, inclusion of accumulated balance due and becoming payable to the assessee participating in a recognised provident fund in the total income and demanding tax from the assessee in terms of Rule 8 was not justified. Accordingly, the assessee's appeal was allowed. The Department went in appeal against the order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, on the following ground : "On the facts and in the circumstances of the case, the Appellate Assistant Commissioner of Income-tax erred in holding that the accumulated balance in a recognised provident fund paid to the assessee on resigning his appointment was exempt in terms of Rule 8 of Part A of the Fourth Schedule to the Income-tax Act, 1961." The Tribunal was of the opinion that the interpretation of the words "service has been terminated" as used in Clause (ii) of Rule 8 as done by the Appellate Assistant Commissioner was not correct. The Tribunal held that the use of the words "service has been terminated" in Clause (ii) of Rule 8, would not take in its ambit the notion of resignation and, accordingly, the appeal was allowed setting aside the order passed by the Appellate Assistant Commissioner and restoring the order of the Income-tax Officer. The assessee-appellant, Shri G. S. Ratra, moved an application before the Tribunal requiring the Tribunal to refer to this court the following questions of law which, according to him, arose out of the order of the Tribunal : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the notion of services coming to an end with resignation by an employee is quite distinct and separate from the notion of termination of service ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the use of the words "the service has been terminated" in Clause (ii) of Rule 8 of Part A of. Schedule VI to the I.T. Act., 1961, does not cover the case of termination of service by resignation by an employee ?" The Tribunal after hearing the parties referred the above-mentioned question No. 2 to this court for opinion. Shri Kasliwal, learned counsel for the assessee, submitted that the interpretation put by the Appellate Assistant Commissioner to Rule 8 was absolutely correct as the words, "other causes beyond the control of the employee" can be interpreted in several ways and termination of service by resignation due to mental agony and prestige can also be considered to be a cause beyond the control of the employee. He further submitted that the interpretation put by the Tribunal on the expression "service has been terminated", as used in Clause (ii) of Rule 8, is not correct.
(3.) SHRI Surolia, learned counsel for the Department, submitted that the notion of resignation is distinct and separate from the notion of termination of service. Therefore, the expression "service has been terminated" in Clause (ii) of Rule 8 would not take in its ambit the notion of resignation. Learned counsel for the assessee referred to CIT v. K. L. Knight [1980] 123 ITR 734 (Cal), and on the basis of this authority, submitted that even in a case where an assessee does not complete five years' continuous service and tenders resignation, the circumstances may indicate that there were reasons beyond the control of the assessee. In that case, the Tribunal had found on the facts that the assessee tendered his resignation for reasons recorded in the employer's letter dated August 23, 1967, and the reasons so mentioned were held beyond the control of the assessee. The Tribunal found that the employer wrote the letter bona fide and not for any ulterior motive. On the basis of this factual finding by the Tribunal, the Calcutta High Court held that the Tribunal has correctly applied the provisions of Rule 8, Sub-clause (ii) of Part A of Schedule IV to the Income-tax Act, 1961. The learned counsel for the assessee submitted that the circumstances leading to the assessee's resignation from his service with M/s, Oriental Power Cables Ltd., Kota, should be construed as beyond his control and the assessee was, therefore, entitled to the benefit of Rule 8(ii) of Part A of Schedule IV to the Income-tax Act, 1961. The difference between resignation and termination is that resignation is given voluntarily by the employee while the act of termination is at the instance of the employer. The short question which is involved in this case is, in case the employee is compelled to resign on account of circumstances created by the employer, then such a resignation would, for all practical purposes, be regarded as termination of service by the employer or not. Resignation is a term of legal connotation which describes certain legal results. It is characteristically a voluntary surrender of a position by an employee freely and not under duress. Resignation in dictionary sense means spontaneous relinquishing of one's own rights. It is also true that the effectiveness of a resignation depends upon rules and conditions of service, express or implied. If such rules or conditions require that resignation need not be accepted, then the resignation becomes effective as soon as it is tendered. But the general rule is that resignation is merely an offer to act and does not bring about the termination of service unless it is accepted and the principles applicable to withdrawal of offer are also applicable to withdrawal of resignation. In the case of public service, acceptance of resignation is necessary before the services of an employee can come to an end. It is also true that resignation can be withdrawn before acceptance or before, it becomes effective. Once the resignation becomes effective, it cannot be withdrawn. ;