Law:

Section:

Section 4, read with section 16, of the Income-tax Act, 1961 [Corresponding to section 3, read with section 7, of the Indian Income-tax Act, 1922] - Income - Chargeable as - Assessment years 1953-54 and 1954-55 - Whether if payment is made in consideration of past services, it is certainly taxable but if it is given as compensation for loss of employment, then it becomes a capital payment and is not assessable - Held, yes - Services of assessee were prematurely terminated by his employer - While giving compensation to assessee for loss of his services, few restrictive covenants were also imposed upon him in order to safeguard interest of employer, by restraining assessee from entering into competitive business or by requiring him to observe forbearance in advising others who were carrying on a rival business, - Whether for observing covenants imposed on assessee, he was not required to render any kind of service to his employer and his relations with employer as an employee were completely severed - Held, yes - Whether, therefore, payment received by assessee were not of a revenue nature in whole or in part and other, therefore, not taxable - Held, yes FACTS The assessee was engaged as a general manager of the company as per the agreement. The company considered it proper to terminate the assessee's services before the expiry of the full period of 14 years. In order to settle the question of damages recoverable by the assessee, the company and the assessee entered into another agreement whereby it was agreed that the company agreed to pay to the assessee a sum per month up to the date of the expiry of the term; that the assessee would not engage in any insurance business or hold any post in an insurance office up to the expiry of the term, but he was left free to engage himself in any other business; that he was required not to divulge the secrets or any facts connected with the business of the society, or give any advice to anybody except to the society, on any insurance matter. Thereafter during the financial years relevant to the assessment year, the assessee received certain amount. The AAC held that the payment received by the assessee was not taxable. On…

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