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Severance pay is not taxable

Recently, the Delhi High Court had an occasion to examine the taxability of a sum of money received by a professional journalist from a foreign publisher as compensation upon termination of contract (in the matter of CIT vs. Sharda Sinha).

The journalist had been working in India exclusively for a German news magazine for almost 23 years. During the time he was working with that magazine, he was paid a flat honorarium in addition to further payments for any published contribution. The news magazine decided to terminate the contract with him. Due to loss of work place and consideration of long time association, the German magazine paid him a compensation of 3,00,000 Deutsche Mark, that is, approximately Rs 54 lakh.
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The HC also referred to a couple of Supreme Court (SC) decisions in similar circumstances wherein the SC had held that where a compensation is paid for termination of an arrangement which was in vogue for a fairly long period of time, the compensation has to be considered as a substitute for the source. Therefore, such receipts are not taxable.

Relying on the above decisions, the HC held that the amount received by the journalist from the German magazine is not taxable.

Article referred: http://www.business-standard.com/article/pf/severance-pay-is-not-taxable-116040900764_1.html

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