SHRI B.K.KOTRU, PUNE. vs. C.I.T. PUNE.

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ITR/48/1990HC Bombay25 July 2005Bench: HON'BLE SHRI JUSTICE V.C. DAGA, HON'BLE SHRI JUSTICE A.S. AGUIAR3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the sum of Rs. 96,000/- was a capital receipt and not liable to be taxed as salary for the assessment year 1980-81. The Court reasoned that the payment was made after the cessation of the employer-employee relationship and was received by the assessee in exchange for agreeing to a restrictive covenant, which prevented him from joining competitors and disclosing confidential information. This nature of the payment, the Court found, could not be linked to salary, perquisites, or profits. Therefore, the Tribunal was not justified in treating it as part of the salary. The question of law was answered in the negative, in favour of the assessee and against the revenue.

What were the facts?

The assessee, Shri B.K. Kotru, was employed as an Industrial Officer with M/s Sandvik Asia Ltd. He resigned from his position, with his resignation accepted on February 7, 1979, and effective from May 25, 1979. Prior to his resignation, he was offered employment by competitors. To prevent him from accepting these offers, M/s Sandvik Asia Ltd. offered him an additional sum of Rs. 96,000/-. This payment was conditional on the assessee agreeing not to accept similar employment with any competing organization for a minimum of two years from July 13, 1979, and not to disclose confidential company information. The assessee accepted this offer and executed a restrictive covenant. The revenue sought to tax this sum of Rs. 96,000/- for the assessment year 1980-81.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 95,000/- (note: the judgment text mentions Rs. 96,000/- in the facts but Rs. 95,000/- in the question) is liable to be taxed in accordance with the provisions of Section 17(3)(i) read with Section 17(1)(iv) of the Income-tax Act, 1961, for the assessment year 1980-81? Assessee's contention: The sum received was a capital receipt and not taxable as salary or perquisites because it was received after the cessation of the employer-employee relationship and was in consideration for a restrictive covenant. The assessee argued that this payment could hardly be linked up with salary, perquisites, and profits. Revenue's contention: The revenue sought to tax the amount as income under the relevant provisions of the Income-tax Act, implying it was revenue in nature.

Which sections of the Income-tax Act were involved?

Section 17(3)(i),Section 17(1)(iv),Section 256

AI-generated summary — verify with the full judgment below

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

INCOME INCOME INCOME TAX REFERENCE NO. 48 OF 1990. TAX REFERENCE NO. 48 OF 1990. TAX REFERENCE NO. 48 OF 1990.

Shri B.K. Kotru, Pune

... Applicant.

V/s.

The Commissioner of Income-tax,

Pune.

... Respondent.

Shri P.D. Damodar for the applicant.

Shri A. N. Kotangale with D.A. Dubey i/b

K.C.Sidhwa for the respondent.

CORAM CORAM CORAM : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ.

DATED DATED DATED : 25.7.2005 : 25.7.2005 : 25.7.2005

ORAL ORAL ORAL JUDGMENT : JUDGMENT : JUDGMENT : (PER V.C.DAGA,J.) (PER V.C.DAGA,J.) (PER V.C.DAGA,J.)

-------------- -------------- --------------

By this reference under section 256 of the

Income-tax Act, 1961, the Income Tax Appellate

Tribunal has referred the following question of law

for the opinion of this Court:

Whether,

the

facts

and

the

circumstances

the case, the sum

Rs.

95,000/- is liable to be taxed

accordance

with the provisions of

sec.

17(3)(i) r/w sec. 17(1)(iv) of the Act

for the assessment year 1980-81?

It is not in dispute that the assessee was

service

with

M/s

Sandvik

Asia

Ltd.

Industrial

Officer.

expressed his

desire

leave

the

service and sought waiver of six

months

notice

period

accepting his

resignation

with CNR No : HCBM020003421990 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:08

effect

from 25.5.1979 allowing him to avail

earned

leave

due

to him from 2.3.1979 to

24.5.1979.

appears

that

the

request

the

assessee

was

accepted

by his employer M/s Sandvik Asia Ltd.

and

the same day, i.e.

on 7.2.1979, his resignation

was

accepted

permitting him to avail earned

leave

from

2.3.1979

24.5.1979.

the

result,

resignation

became effective from 25.5.1979.

With

the operation of the resignation master and servant

relationship came to an end on 25.5.1979 itself.

It appears from the statement of facts that

the

assessee was offered employement by competitors

M/s

Sandvik

Asia

Ltd.;

like

M/s

Widia

Drilleco.

order to prevent the

assessee

from

accepting

such offers, it appears that M/s

Sandvik

Asia

Ltd.

had

offered

additional

amount

Rs.96,000/-

to the assessee on his agreeing not

accept

similar

job

any

other

competing

organisation

for a minimum period of two years from

13.7.1979

and

not to disclose or impart

with

any

information/

knowledge

or know how of the

company

products/processes which he may have acquired during

his

tenure with them.

The assessee, on receipt

the

said amount, executed restrictive covenant

and

undertook

not to take any employment with any other

competitors in lieu of payment of Rs.96,000/-.

This

payment

of Rs.96,000/-, thus, can hardly be

linked

up with the salary, or perquisites and profits.

The Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:08

receipt

this amount is after cessation

the

employer and employee relationship.

This receipt of

amount,

thus,

can

only be capital

receipt.

The

Tribunal

was, thus, not justified in treating it as

part

of the salary for the assessment year 1980-81.

view of our finding the question is answered

the negative i.e. in favour of the assesses and

against the revenue.

Reference accordingly stands disposed of

with no order as to costs.

(A.S.AGUIAR, (A.S.AGUIAR, (A.S.AGUIAR, J.) J.) J.)

(V.C.DAGA, (V.C.DAGA, (V.C.DAGA, J.) J.) J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:08 Powered by TCPDF (www.tcpdf.org)

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