assessee was employed as passenger broker by British India Steam Navigation Co. Ltd. incorporated in England ('the UK Co.') w.e.f. 13th Aug., 1937 on remuneration of Rs. 400 per month plus brokerage on all direct bookings introduced by assessee. From 1st Jan., 1965, his remuneration was increased to Rs. 2,000 per month but basically terms of his employment remained same. His appointment was terminated by letter dt. 2nd Feb., 1976 from Mackinnon Mackenzie & Co. (P) Ltd., agents for UK Co., w.e.f. termination of last voyage of steamship 'Karanjia' in 1976. assessee by his letter dt. 22nd June, 1976 addressed to Mackinnon Mackenzie & Co. (P) Ltd. requested for reasonable pension considering length of his service and present prevailing living conditions. Mackinnon Mackenzie & Co. (P) Ltd. after due consultation with its London principal, agreed to offer lump sum payment of Rs. 1,25,000 instead of monthly annuity, payment to be made to him in two instalments, first in April 1977 and next in April 1978. While conveying sanction for payment of this amount, Mackinnon Mackenzie & Co. (P) Ltd. placed on record its London principal's and their own warm appreciation for assessee's long and loyal services to UK Co. In assessment proceedings for asst. yr. 1978-79, assessee claimed first instalment of Rs. 62,500 receivable by him in April 1977 as exempt under s. 10(10A) of IT Act, 1961 ('the Act'). ITO made some inquiries from Mackinnon Mackenzie & Co. (P) Ltd. and for reasons mentioned by him in assessment order, observed that amount of Rs. 62,500 receivable by assessee from UK Co. was not eligible for exemption under s. 10(10A) inasmuch as assessee's relationship with foreign employer could not be considered as that between employer and employee. assessee had alternatively claimed before ITO that receipt of lump sum being compensation for loss of income-earning capacity was capital receipt and as such was not taxable. ITO rejected even this plea on behalf of assessee. He proceeded to tax entire amount of Rs. 62,500 as professional receipt of assessee. On appeal by assessee before CIT(A), CIT(A) scrutinised correspondence between assessee and his employer and arrived at finding that relation between UK Co. and assessee was that of employer and employee. She held that since assessee had received lump sum payment as commutation of pension, assessee was entitled to exemption under s. 10(10A). Revenue has, therefore, filed appeal before Tribunal on plea that learned CIT(A) had erred in holding that there was employer- employee relation between UK Co. and assessee and in directing ITO to grant lump sum payment of Rs. 62,500 received by assessee as commutation of pension. learned Departmental Representative in support of plea on behalf of Revenue, invited our attention to first letter of UK Co. dt. 23rd Aug., 1937 stating that assessee was appointed as 'passenger broker' of company. Further, according to letter defining terms of appointment dt. 30th Aug., 1937, remuneration payable to him was Rs. 400 per month plus 'brokerage' on all direct bookings introduced by him. According to learned Departmental Representative, this was clearly case of assessee carrying on business of brokerage on behalf of UK Co. Next learned Departmental Representative relied upon fact that UK Co. had not deducted tax from so-called remuneration payable to assessee. According to him, UK Co., if it was employer of assessee, was under n obligation to deduct tax from any payment paid to assessee by way of salary. UK Co. had naturally not deducted tax because what it was paying was not salary but brokerage for business done on behalf of UK Co. Further, it was submitted on behalf of Revenue by learned Departmental Representative that if what assessee was doing was rendering services to UK Co. for which salary was being paid to him, assessee would have claimed standard deduction under s. 16(1) of Act. assessee has not claimed any such standard deduction and no such standard deduction was allowed to him. assessee had claimed variety of expenses alleged to have been incurred by him for purpose of earning this income. learned Departmental Representative also made pointed reference to fact that assessee was not regular employee in ordinary sense and that is why he was not eligible for contributing to provident fund of UK Co. learned Departmental Representative proceeded to sum up that payment made to assessee was in nature of additional fees for services in last 40 years and for professional services rendered by assessee. learned counsel for assessee has referred to terms of appointment of assessee and stated that employer was limited company. Its business was being carried on by employees such as assessee. Referring to terms of employment, he stated that assessee was expected to carry on business of UK Co. description of assessee as broker was to describe nature of business to be carried on by assessee on behalf of UK Co. terms were absolutely clear. He was being paid nominal basic salary. additional remuneration depended upon amount of passengers booked by him. Referring to non-deduction of tax at source from salary payable to assessee, learned counsel explained that there were two modes of tax payable by salaried employee. One was deduction of tax at source by employer and other was after direct assessment on employee by ITO. In case of assessee, employer, being UK Co., did not find it convenient to comply with municipal laws of India. For lapse on part of employer, assessee should not be made to suffer. assessee was aware of his obligations under Indian Tax Act and was filing returns of income on income earned by him and paying tax direct year after year. s regards argument on behalf of Revenue that assessee had not claimed any relief under s. 16(1) in respect of payment received by him from UK Co., learned counsel has referred to provisions of s. 7 of Indian IT Act, 1922 ('the 1922 Act'), whereunder assessee was eligible for claiming all sorts of deductions enumerated in s. 7(2) such as Rs. 500 for purchase of books and publications necessary for purpose of assessee's duties, entertainment allowance, conveyance expenses and finally, any amount actually expended by assessee which he, by condition of service, was required to spend out of his remuneration wholly, exclusively and necessarily for purposes of his duties. It was argued by learned counsel for assessee that all expenses claimed by assessee were only of such nature which were expended by him wholly, necessarily and exclusively for performance of his duties. learned counsel proceeded to explain that on performance of his duties. learned counsel proceeded to explain that on enactment of 1961 Act, s. 16(1) was placed on statute book which was in pari materia with s. 7(2) of 1922 Act. Gradually this allowance came to be modified and it took final shape of standard deduction under s. 16(1) as now admissible. As to nature of receipts received by assessee, learned counsel has proceeded to argue that what assessee has received is commuted pension as stated by Mackinnon Mackenzie & Co. (P) Ltd. for his long and loyal service to UK Co. In this connection, learned counsel stated that even ITO himself has accepted position that what was being received by assessee was salary and not professional receipt. He pointed out to fact that ITO has assessed assessee's income year after year under head 'Salaries'. As to argument on basis of non-entitlement of assessee to UK Co.'s provident fund scheme, it was submitted that by very nature of his duties, assessee's employment was annual. Therefore, agreement of employment was being made year after year. Therefore, assessee was not eligible to contribute to provident fund, which was available for permanent employees of UK Co. We have carefully considered facts and circumstances of case and arguments on either side. facts of case are as stated in paragraph 2 above. question for consideration is whether assessee was employee of UK Co. or was he independent broker carrying on business with UK Co.? supplementary question, which will have to be considered, is whether payment received by assessee from UK Co. was commuted pension governed by s. 10(10A) or additional professional fees as argued on behalf of Revenue? We find that initial letter of appointment of assessee dt. 23rd Aug., 1937 offered post of passenger broker for UK Co. which was initially for period of one year and which was subject to renewal from year after year. remuneration was also fixed initially at rate of Rs. 400 per month and later at rate of Rs. 2,000 per month. incentive bonus was depended on passengers booked by him. As to payment now in dispute before us, assessee claimed pension considering his length of service, nature of service and present living conditions. Instead of monthly annuity, employer has considered it advisable to commute it and made payable in two annual instalments. As to objections on behalf of Revenue, in our opinion, learned counsel for assessee has adequately met them as detailed in previous paragraphs. In first place, referring to ITO's observations on basis of letter from Mackinnon Mackenzie & Co. (P) Ltd., it has to be observed that assessee was not employee of Mackinnon Mackenzie & Co. (P) Ltd. He was employee of UK Co. No wonder Mackinnon Mackenzie & Co. (P) Ltd. denied that he was their employee. As regards objection on behalf of Revenue that no tax was deducted at source from his salary by employer, if at all, this fact would affect taxation liability of employer. assessee's tax liability is not affected. He has arranged to file returns of income and has paid tax as levied by ITO on this income as if it was from 'salaries'. Regarding relief under s. 16(1) assessee has not claimed relief at standard rates but on basis of actuals, in keeping with his past practice and according to law in force till system of standard deduction was introduced in Act, irrespective of actual expenses incurred by assessee. As regards maintenance of separate establishment, very nature of assessee's duties required some extra help to assessee, which he was meeting through extra remuneration being received by him. In our opinion, CIT(A) was fully justified in holding that assessee was employee of UK Co. As to nature of payment received by assessee, assessee w s claiming pension from employer, viz., UK Co. Being foreign registered company, employer considered it expedient to make payment of lump sum once and for all, as clarified in letter of Mackinnon Mackenzie & Co. (P) Ltd. dt. 25th Nov., 1976. very nature of correspondence between assessee and Mackinnon Mackenzie & Co. (P) Ltd. shows that what assessee received was commuted value of pension. In circumstances, order of CIT(A) is unexceptionable and calls for no interference. assessee has filed cross-objection on ground that during c o u r s e of assessment proceedings, assessee had alternatively contended that amount of Rs. 62,500 was not taxable as income as it was on account of termination of service and discontinuance of contractual obligation. This plea is alternate plea. Since we have held in appeal filed by Revenue that relation of assessee with UK Co. was that of employee and employer and amount received by assessee was commuted value of pension, assessee's cross-objection on this ground does not survive. In result, both appeals as well as cross-objections are hereby dismissed. *** FOURTH INCOME TAX OFFICER v. C.D.J. ESSA THAVER