1998 (10) TMI 538 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the issue of whether the amount received by the assessee, post superannuation, in exchange for a restrictive covenant not to accept employment with any other employer constitutes "profits in lieu of salary" u/s 17(3) of the Income-tax Act.

Comprehensive Details:
1. The appellant, an employee of a FERA company, received an amount of Rs. 1,00,000 post-retirement in exchange for a covenant not to accept employment elsewhere. The employer-employee relationship was disputed.
2. The Department argued that the amount received falls under "profits in lieu of salary" u/s 17(3) based on a Supreme Court decision.
3. The appellant contended that the receipt was capital in nature, citing precedents and the nature of the agreement.
4. The Tribunal agreed with the appellant, stating the amount was for a restrictive covenant, not related to employment termination, and hence not "profits in lieu of salary" u/s 17(3).
5. The Tribunal distinguished between proprietary and personal rights, emphasizing the capital nature of the receipt.
6. Referring to relevant case laws, the Tribunal held that the amount received did not constitute income or capital gains, aligning with the decision in Mehboob Productions (P.) Ltd.
7. Upholding the CIT(Appeals) order, the Tribunal dismissed the appeal, affirming the capital nature of the receipt and the non-taxability under the Income-tax Act.