Law:

Section:

Section 17(3), read with section 17(1)(iv), of the Income-tax Act, 1961 - Salaries - Profits in lieu of salary - Assessment year 1980-81 - Assessee resigned from his services as an industrial officer during previous year relevant to assessment year in question - Thereafter, assessee executed a restrictive covenant with his employer and undertook not to take any employment with any other competitors in lieu of certain payment - Whether since amount in question having being received after cessation of employer and employee relationship, it could not be linked up with salary or perquisites and profits and would only be capital receipt - Held, yes - Whether Tribunal was, thus, not justified in treating it as part of salary for relevant year - Held, yes FACTS The assesse was in service with its employer company as an industrial officer. The assessee resigned from his service with effect from 25-5-1979. In order to prevent the assessee from accepting the employment officers made by the competitors of the employer the latter offered additional amount to the assessee on his agreeing not to accept similar job in any other competing organization for a minimum period of two years from a specified period and not to disclose or part with any information/ knowledge or know-how of the company's products/ processes which he might have acquired during his tenure with them. The assessee, on receipt of the said amount, executed a restrictive convenant and undertook not to take any employment with any other competitors, in lieu of that payment. The Tribunal treated the said amount as part of salary of the assessee and, accordingly, taxed the same under the provisions of section 17(3)(i), read with section 17(1)(iv). On reference : HELD The payment in question could hardly be linked up with the salary, or perquisites and profits. The receipt of the said amount was after cessation of the employer and employee relationship. That receipt of amount, thus, could only be capital receipt. The Tribunal was, thus, not justified in treating it as part of the salary for the assessment year 1980-81. Note : The case was decided in favour of the assessee. P.D. Damodar for the Applicant. A.N.…

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