Law:

Section:

Section 17(3) of the Income-tax Act, 1961 - Salaries - Profit in lieu of salary - Assessment year 2001-02 - Whether if object of payment is unrelated to relation between employer and employee, it would not fall within expression 'profit in lieu of salary' under section 17(3)(i) - Held, yes - Whether amended provision of section 17(3)(iii) came into effect only from assessment year 2002-03 onwards and same does not have retrospective effect - Held, yes - Assessee was a chartered electrical engineer employed as chief executive officer in a company - He retired from said company on 31-1-2001 and received certain amount as non-compete fee from said company for not taking employment in any competing organization - Whether amount received by assessee could be assessed as profit in lieu of salary - Held, no FACTS The assessee was a highly qualified, experienced and an eminent chartered electrical engineer. He was employed as chief executive officer with a company. He retired from the said company on 31-1-2001 and, there-after, he took up the profession of consultancy. During the relevant assessment year, he filed his return of income and claimed exemption of certain amount received by him from his former employer as non-compete fees contending that same was of capital nature. The Assessing Officer, however, held that said amount was assessable to tax under the head 'Salaries'. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On second appeal, the Tribunal allowed the assessee's claim. On appeal, the revenue contended that the amount in question was received in connection with the employment and, therefore, the Assessing Officer was justified in assessing same as 'profits in lieu of salary'. HELD The assessee had received the amount in question as per the company's letter dated 11-12-2000. From a reading of the said letter, it was clear that the assessee had agreed that he would not take employment or join any competing organization and also would not use know-how of the company for a period of one year from 1-2-2001 without prior permission. Therefore, the company had agreed to pay that sum. So, the said amount was paid to the…

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