R.L. SANGANI J.M.: This appeal by Department relates to asst. yr.1981-82. assessee was working as agent for procuring insurance business on behalf of Life Insurance Corporation of India. terms and conditions of his employment as agent were governed by Life Insurance Corporation of India (Agents) Regulations 1972. assessee received Rs. 30.000 as gratuity from LIC in relevant previous year. assessee claimed that this amount was not includible in total income because provisions of s. 10 (10)of IT Act 1961 applied in respect of said amount. ITO rejected claim on ground that s. 10(10) applied to gratuity received by employee of LIC but was n agent and as such said provision did not apply. assessee filed appeal and AAC held that agent appointed by LIC under said regulations would come with in ambit of term "employee" in s. 10 (10) and as such those provisions would apply to amount received by assessee as gratuity. She directed ITO to allow exemption under said provision Department is now in appeal before us and in substance two grounds have been raised first ground is that exemption from inclusion under s. 10 (10) was wrongly allowed because assessee had not received amount as employee of LIC. second ground is that before relying on Life Insurance corporation of India (Agents) 1972 (hereinafter referred to as Regulation constituted new material. We have heard parties. As far as second ground was concerned it i s not at all sustainable. said regulations under which assesses was appointed as agent cannot be considered to be new material. There is no error in considering these regulation. On merits, submission before us on behalf of Department was that assessee could not be considered to be employee of LIC and as such provisions of s.10 (10) of Act were not applicable contention on behalf of assessee on other hand was that nomenclature "agent" was not decisive of question whether assessee was employee or not. ld. Representative of assessee relied on provision of Regulation and contended that in substance assessee was employee of LIC within meaning of that work in s. 10(10) of Act and as such exemption from inclusion as laid down in said provision was available to assessee. Clause (i) and (ii) of s. 10 (10) were admittedly not applicable to facts of this case. Clause (iii) on which reliance is placed is as follows; "(iii) any other gratuity received by employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment........to extent it does not in either case exceed one and half months salary for each of completed service calculated on basis of average salary for three years immediately preceding year in which gratuity is paid subject to maximum of thirty thousand rupees or twenty months salary so calculated which is less. Expln.: In this clause "salary" shall have meaning assigned to it in clause (h) of rule 2 of Part of Fourth Schedule." In cl. (h) of r. 2 part of Fourth Schedule term "salary" has been defined as follows: "Salary" includes dearness allowance if terms of employment so provide but excludes all other allowances and perquisites. It is clear that cl. (iii) of s. 10 (10) contemplates that employee in question who claims exemption was in receipt of "salary" from employer which was in capable of being calculated on monthly basis This clause does not grant exemption upto thirty thousand rupees to all employees who receive gratuity of thirty thousand rupees but to only those employees whose one and half month s salary for each completed year of service calculated on average o f salary of previous three years exceeds thirty thousand rupees. In case of those employees, where this figure does not exceed thirty thousand rupees, amount allowable is aforesaid figure. Consequently, in order to determine amount allowable as exemption we have to ascertain as to what was amount equivalent to one and half month s salary for each completed year of service calculated on average of salary of previous three years. In cases where this calculation is not at all feasible or possible said provision would not apply. In present case it is admitted position that case assessee is not in receipt of any fixed monthly salary from LIC. As already stated, he is agent, what all he is entitled to as compensation and remuneration for discharge of all his functions under Regulations is commission at rates set out in Schedule II on first year premiums and renewal premiums received during continuance of agency in respect of completed business under his agency and also bonus commission on first premiums as provided in Schedule III (vide cl 10 of Regulations). commission received by him cannot be termed as salary. Obviously, it is not possible to calculate "one and half months salary for every completed year of service and "average salary" of previous three years as ordained in cl. (Iii) of s. 10 (10) Consequently, said clause cannot apply to amount received by assessee though termed as "gratuity" in Regulation. "gratuity" contemplated in s. 10 (10) (iii) is gratuity which was capable in being calculated in manner described therein and not any amount which is not so capable although termed as gratuity. Besides, various clause of Regulations indicate that assessee was not "employee" within meaning of that term in s. 10 (10) (iii) of Act Under cl. 4. agents are appointed for soliciting or procuring life insurance business for corporation his function under cl. (b) is to "solicit and procure life insurance business which shall not be less than minimum prescribed in regulation". As regards gratuity, it is specifically mentioned in para 2 (5) of Schedule VI of Regulations that "no gratuity shall be admissible to agent who is also employee of corporation for period he remains such employee and his agency work such period shall not count for any purposes under said clause even after cessation of his service as employee. This clearly indicates that LIC makes clear cut distinction between its employee and agent and does not treat its agent as its employee. For cl (iii) of s. 10 (10) also agent would not be employee. It is to be noted that income by way of commission received by assessee was being offered for taxation as income from other sources and not under head income from salary but expenses incurred wholly and exclusively for earning commission. This fact is also relevant to determine whether assessee was "employee" or not. learned representative of assessee relied on decision in Priyar lal vs. CIT (1960) 40 ITR 17(SC) and Gestetner Duplicators (P).Ltd. vs. CIT (1979) 8 CTR (SC) 371 (1979) 117 ITR 1 (SC). Neither of these two decisions has any relevance in present case. In first case terms and conditions of employment clearly indicated that treasurer was servant of bank and emoluments received by him was salary. nature of work of treasurer and control and supervision of Bank indicated relationship of master and servant such is not present in our case. second decision relates to salesman who was paid commission in addition to salary. On these facts, there could be no doubt that relationship of master and servant existed. In present case there is no doubt some control of LIC over assessee, but that by itself would not indicate that relation ship was that of employer and employee within meaning of s. 10 (10) when all terms and conditions are considered in their proper respective as indicated above. We, therefore, hold that assessee was not employee of LIC within meaning of s. 10 (10) of Act and that those provisions did not apply to amount received by assessee as gratuity for reasons already given. We set aside order of AAC, and restore order of ITO rejecting claim of exclusion from total income. appeal is allowed. *** THIRD INCOME TAX OFFICER v. PITUMAL J.POHANI