Restrictive covenant payment treated as separate consideration, not employment income under Schedule E

A lump sum paid under a separate restrictive covenant in a bona fide service agreement was treated as consideration for the post-termination restraint, not as remuneration for services as director or manager. Because the payment was made for undertaking a covenant that operated after employment ended, it did not constitute a profit arising from office or employment chargeable under Schedule E. Its commercial connection with the service agreement did not alter its separate contractual character, and the sum was therefore not taxable as employment income.

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Issues: Whether a lump sum paid under a separate restrictive covenant in a bona fide service agreement constituted a profit arising from office or employment and was therefore taxable under Schedule E.

Analysis: The agreement distinguished between the respondent's remuneration for services as director and manager and the separate payment made in consideration of the post-termination restraint on carrying on competing business. The payment was not made for services rendered in the office, but for undertaking a covenant that operated after the employment ended. Treating the sum as profit from office would ignore the real character of the transaction. The fact that the payment was linked commercially to the service agreement did not alter its separate contractual nature.

Conclusion: The sum of 7,000 was not taxable as profit from the respondent's office or employment.

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