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TMI Blog2016 (7) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... e said agreement in any way intended to compensate the assessee for loss of employment or in lieu of salary. Therefore in the absence of any contrary facts or material either brought on record by the Assessing Officer or by the CIT (Appeals) it cannot be held that the payment received by the assessee under the agreement dt.1.2.2007 is a profit in lieu of salary in terms of section 17(3)(iii) of the Act. Accordingly, we set aside the impugned order of the CIT (Appeals) and delete the addition on this account. - Decided in favour of assessee. - I.T.A. No. 981/Bang/2010 - - - Dated:- 22-7-2016 - Shri Vijay Pal Rao, Judicial Member And Shri Inturi Rama Rao, Accountant Member For the Appellant : Shri S. Venkatesan, C.A. For the Respondent : Shri A.R.V. Srinivasan, JCIT (D.R.) ORDER Per Shri Vijay Pal Rao, J. M. This appeal by the assessee is directed against the order dt.29.3.2010 of Commissioner of Income Tax (Appeals) for the Assessment Year 2007-08. 2. The assessee has raised the following grounds : 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held to be assessed to tax under Section 17(3)(iii) of the Income Tax Act, 1961 (in short 'the Act'). The assessee is an individual and was Financial Director in Deccan Aviation Ltd. The assessee filed his return of income for the Assessment Year under consideration on 31.10.2007 declaring a total income ofRs.29,00,170. In scrutiny assessment the Assessing Officer observed that the assessee left the company during the year and he has received an amount of ₹ 2.5 Crores as non-compete fees from the employer Deccan Aviation Ltd. (DAL). While filing the return of income the assessee claimed the same as non-taxable being capital receipt. The Assessing Officer held that the receipt of non-compete fees is taxable as per the provisions of section 28(va) of the Income Tax Act, 1961 (in short 'the Act'). Accordingly, the said amount of ₹ 2.5 Crores was brought to tax under the head Business or Profession while completing the assessment under Section 143(3) of the Act. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) and contended that the assessee was a professional being a Chartered Accountant and was appointed as Execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not for employment. The assessee never did any business and would not have business in future being a CA therefore the payment in question has no connection of doing or not doing any business neither it is received in lieu of loss caused due to cessation of employment but to restrain the assessee from sharing the secret information and knowledge of the business of the company with others. The learned Authorised Representative has relied upon the following decisions : (i) Satya Sheel Khosla Vs ITO (2016) 129 DTR (Del) (Trib) 19. (ii) CIT Vs. Pritam Das Narang 381 ITR 416 (Del). Relying upon the above decisions, the learned Authorised Representative has submitted that the existence of employment is a pre condition of invoking the provisions of section 17(3)(iii) of the Act. He has referred to the letter dt.24.1.2007 and Form 32 filed by the DAL with the Registrar of Companies intimating the change in the appointment of Director. The learned Authorised Representative has submitted that the company had already filed the requisite information of cessation of the employment of the assessee vide Resolution dt.25.1.2007 and therefore the amount received by the assessee has no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed vide letter dt.24.1.2007 which was accepted by DAL vide Board Resolution dt.25.1.2007. Though the resignation of the assessee from employment was w.e.f. 31.1.2007 however the assessee decided to resign vide letter dt.24.1.2007 which was accepted by DAL vide Board Resolution dt.25.1.2007. Thereafter the assessee and DAL entered into an agreement dt.1.2.2007 whereby the parties agreed upon that the assessee would not share the secrets of the trade/business etc with any third party and particularly with the competitors. It is pertinent to note that there is a confidential clause 6(b) in the employment agreement dt.1.3.2005 which reads as under : 6 Noncompetition : Confidentiality : Non-Solicitation and Ownership of Developments. 6 (a) 6 (b) Confidentiality. Without the prior written consent of the Board, except to the extent required by law, rule, regulation or court order, Executive shall not disclose any trade secrets, customer lists, drawings, designs, information regarding product development, marketing plans, sales plans, manufacturing plans, management organization information (including data and other information relating to members of the Board or manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or associate with anybody to promote, set up, get interest in airline business. The substance of the restrictive covenents of the agreement is to restrict the assessee to associate in any manner whatsoever with anybody or person engaged or proposed to engage in the airline business. Therefore this agreement in its plain reading cannot constitute to be related to termination of employment or to compensate the loss of salary due to termination of employment. The payment made under this agreement clearly not in the nature of compensation for loss of the employment of the assessee with DAL but it is all about the future engagement of the assessee to provide its services of knowledge in the airlines business to third party and particularly to the competitor or prospective competitor. The Hon ble Delhi High Court in the case of Pritam Das Narang (supra) while analyzing the provisions of section 17(3)(iii) of the Act has observed in paras 13 to 15 as under : 13. This Court is unable to agree with the above submissions on behalf of the Revenue. The Employment Agreement itself mentions that the employment shall commence latest by 1st July, 2007 . Although it further states that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the assessee and the person who makes the payment of any amount in terms of sectin 17(3)(iii) of the Act. The amount received by the assessee after cessation of the employment therefore was held as capital receipt and could not be taxed under the head Profits in lieu of salary . As it is clear from the surrounding fact as well as the terms and conditions of the agreement that the payment in question was made by DAL to the assessee for not sharing the assessee's knowledge of the business of airlines and particularly the secrets of the trade with third party in the business of airlines as well as any party who is going to set up the business of airlines. From the so called non-competent agreement dt.1.2.2007 it cannot be inferred that the said agreement in any way intended to compensate the assessee for loss of employment or in lieu of salary. Therefore in the absence of any contrary facts or material either brought on record by the Assessing Officer or by the CIT (Appeals) it cannot be held that the payment received by the assessee under the agreement dt.1.2.2007 is a profit in lieu of salary in terms of section 17(3)(iii) of the Act. A similar view has been taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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