Law: Income Tax Act, 1961

Section: 4,17

Section 17, read with section 4, of the Income-tax Act, 1961 - Salary - Profit in lieu of salary (Compensation) - Assessment year 2008-09 - Assessee entered into an employment agreement with a company under which he was to be employed as CEO of company with effect from 1-7-2007 - By letter dated 1-5-2007, company denied employment to assessee and paid certain amount to him as compensation for non-commencement of employment - Whether for attracting section 17(3)(iii)(A) there should be existence of an employment, i.e., a relationship of employee and employer between assessee and person who makes payment of 'any amount in terms of section 17(3)(iii) - Held, yes - Whether in instant case there was no commencement of employment and, therefore, amount received by assessee was a capital receipt and could not be taxed under head 'profits in lieu of salary' - Held, yes [Paras 14 and 15][In favour of assessee] Words and Phrases : 'From any person' as occurring in section 17(3)(iii) of the Income-tax Act, 1961 FACTS â–  An employment agreement was entered into between assessee and ACEE on 10-1-2007, in terms of which, the assessee was to be employed as Chief Executive Officer ('CEO') of ACEE and the employment was to commence from 1-7-2007. â–  On 1-5-2007, a letter was written by ACEE to the assessee informing him that there being a sudden change in business plan of the company, it could not take assessee on board from 1-7-2007. â–  As a mark of goodwill/gesture, ACEE made certain payment to assessee for non-commencement of employment as proposed, after deduction of TDS therefrom. â–  The assessee did not offer said amount to tax treating same as capital receipt and also claimed refund of TDS. â–  The Assessing Officer held that the receipt by the assessee of a sum from any person prior to his joining with such person was taxable as profit in lieu of salary under section 17(3)(iii). â–  The assessee's appeal against the aforesaid order was allowed by the Commissioner (Appeals) holding that the payment was made by the prospective employer as compensation towards breach of promise and not for any services rendered or to be rendered and such…

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