RAJINDER SHARMA,GURGAON vs. ACIT, GURGAON

ITA 5176/DEL/2014Status: DisposedITAT Delhi06 May 2024AY 2007-08Bench: SHRI S RIFAUR RAHMAN (Accountant Member), SHRI VIMAL KUMAR (Judicial Member)7 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that compensation received for a negative/restrictive covenant, such as a non-compete clause, is a capital receipt and not taxable, citing precedents from the Supreme Court and Delhi High Court. The Tribunal concluded that the payment of Rs. 45,00,000/- to the assessee was a capital receipt. Therefore, the Assessing Officer and CIT(A) erred in treating it as taxable income under the head 'profits in lieu of salary'.

What were the facts?

The assessee received Rs. 45,00,000/- from his erstwhile employer, Coca-Cola India Inc., after termination of employment, under a "Deed of full and complete release and agreement on trade secrets and confidentiality" which included a non-compete clause. The Assessing Officer and CIT(A) treated this amount as "profits in lieu of salary" under Section 17(3)(iii) of the Income Tax Act, 1961, and enhanced the assessee's income for Assessment Year 2007-08, also levying interest and penalty. The assessee contended that this payment was a capital receipt and therefore not taxable.

What were the issues?

Whether compensation received for a non-compete clause post-cessation of employment constitutes a capital receipt or 'profits in lieu of salary' taxable under Section 17(3)(iii) of the Income Tax Act, 1961.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 142(1),Section 234A,Section 234B,Section 234C,Section 271(1)(c),Section 17(3)(i),Section 17(3)(iii),Section 28(va)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI

Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR

For Appellant: Shri Rajinder Sharma in person, Shri Vishal Kapoor, Advocate
For Respondent: Ms. Mayuri, Sr. DR
Hearing: 24.04.2024

PER VIMAL KUMAR, JM

Appeal against order dated 1.7.2014 of the Learned Commissioner of Income Tax, Faridabad upholding order dated 31.12.2009 of the Asstt. Commissioner of Income, Tax Gurgaon (Assessing Officer) enhancing payment of Rs. 45,00,000/- under the profits in lieu of salary.

2.

Brief facts of case are that assessee declared an income of Rs. 65,68,113/- by filing return for the assessment year 2007-08 on 31.07.2007. The case of assessee was picked up under scrutiny. Notice under section 143(2) was issued to the assessee on 01.09.2008 asking the assessee’s appearance on 16.09.2008. Shri S.K. Virmani assessee’s representative appeared on behalf of assessee on 16.09.2008. Notice under section 142(1

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 142(1)

All 17,244 judgments and leading authorities on Section 142(1) →

Recent GST High Court judgments

Search GST case law →