1995 (3) TMI 177 - AT - Income Tax

Summary

Issues Involved:
The judgment involves issues related to the taxability of a sum received by the assessee from the employer, specifically whether it should be considered as profits in lieu of salary u/s 17(3)(i) and (ii) and the levy of interest u/s 216.

Taxability as Profits in Lieu of Salary:
The appeal was against the order upholding the sum of Rs. 1 lakh received by the assessee as assessable profits in lieu of salary u/s 17(3)(i) and (ii). The assessee argued that the receipt was capital in nature due to a restrictive covenant affecting income-making apparatus and not related to business done as an employee. The CIT (Appeals) concluded that the compensation was within the scope of 'profits in lieu of salary' u/s 17(3), as it was received in connection with termination of employment, thus upholding the assessment.

Compensation for Loss of Future Employment:
The assessee contended that the compensation for loss of future employment was a capital receipt not liable to tax. The agreement between the assessee and the company contained restrictive covenants preventing the assessee from engaging in competitive business, leading to compensation. The Tribunal held that the compensation was for loss of profit-earning source of income, not loss of profits, and thus capital in nature. The order of the CIT (Appeals) was set aside, directing the exclusion of the capital nature compensation.

Levy of Interest u/s 216:
Although the assessee had initially taken a ground relating to the levy of interest u/s 216, this ground was given up during the hearing and not pursued further.

This judgment highlights the interpretation of tax laws regarding profits in lieu of salary, capital receipts, and the treatment of compensation for loss of future employment. The Tribunal's decision favored the assessee, emphasizing the capital nature of the compensation received.