HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
The Commissioner of Income-tax, Bombay v. E. D. Sheppard
Civil Appeal No. 527 of 1961
[1964] 1 SCR 163 ·
Indian Income-tax Act, 1922: section 7(1), Explanation 2 (pre-1955 form)
Holding and result. By a three-to-one majority, the Court held that shares allotted by the former employer solely to compensate for termination and loss of employment prospects were outside profits in lieu of salary under the then Explanation 2 to section 7(1). The Revenue appeal was dismissed with costs.
Sources & disclosures includedDownload original judgment / order
Four-judge bench; majority judgment delivered by S. K. Das, J.; Raghubar Dayal, J. dissented. · S. K. Das, J. · J. L. Kapur, J. · A. K. Sarkar, J. · Raghubar Dayal, J.
01 · Facts of the case
Killick Nixon & Co. terminated Sheppard’s renewed three-year employment during a corporate reorganisation. The successor employed him from the next day on altered terms, while the old partnership caused 1,700 shares, valued at Rs.2,21,000, to be allotted free. The Tribunal accepted the partners’ evidence that the allotment compensated for loss of employment and was not remuneration for past services.
02 · Discussion by the Hon’ble Court
The majority rejected Revenue’s argument that compensation meant only damages legally enforceable under the service contract. It treated deprivation of employment, and prospects rooted in that employment, as capable of supporting compensation even when another job followed immediately. Once the Tribunal’s evidentiary finding of sole compensation stood, the statutory exception controlled.
03 · Judicial decision
The majority held that Explanation 2 did not convert the share allotment into taxable salary because the payment was solely for loss of employment. The dissent considered the employment terminable on notice and the shares connected with past service, and would have taxed them as profits in lieu of salary.
04 · Outcome / in whose favour
By the majority, the Commissioner’s appeal was dismissed with costs and the High Court’s answer in favour of the assessee remained undisturbed.
05 · AKHB REVIEW POINT
AKHB analysis: for historical termination receipts, identify the statutory version, the fact-finder’s conclusion about the payment’s sole purpose, and whether lost prospects are genuinely rooted in the ended employment. Do not transplant the result to current salary provisions without checking the present text and later treatment.
Source & verification
Download original judgment / order · Open cited source rendition
Complete 37-page SCR asset read in page-preserving text and every page image inspected, including the three-judge majority, the dissent and the final By Court order.
- Exact catalogue SHA-256 and 37-page count verified; the complete report was read and every source page image inspected.
Statutory scope
The ruling construes section 7(1) and Explanation 2 of the 1922 Act as they stood before the 1955 amendment. Verify the current Income-tax Act, 1961 and later authorities before reliance.
Later treatment
Source checked 2026-10-12. No comprehensive later-treatment or present-law clearance is represented. This note reports a historical salary-receipt ruling under the Indian Income-tax Act, 1922.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
AI disclosure & professional disclaimer
This AKHB research note was prepared with AI assistance from the identified primary report and has not been represented as independently human-reviewed.
General legal and tax research only; not legal or tax advice. Verify the complete judgment, governing statutory version and subsequent judicial treatment before reliance. The AKHB REVIEW POINT is editorial analysis, not the Court's holding, and no current-law clearance is claimed.