Compensation for denied employment was held outside profits in lieu of salary and treated as a capital receipt.

Compensation and interest received in settlement of a class action claim for denial of employment were treated as a capital receipt because they did not arise from an employer-employee relationship. Section 17(3)(iii) covers amounts received in connection with employment, including before joining or after cessation, but the assessee had never been offered the job, never rendered services, and never entered employment. The settlement was paid for non-appointment, not as remuneration or recompense for services, so it was not taxable as profits in lieu of salary under section 17(3)(iii).

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Issues: Whether the compensation and interest received by the assessee in settlement of a class action claim for denial of employment could be taxed as profits in lieu of salary under section 17(3)(iii) of the Income-tax Act, 1961, or was a capital receipt.

Analysis: Section 17(3)(iii) applies to amounts received from a person in connection with employment, either before joining employment or after cessation of employment. The assessee was never offered the job, never entered into any employer-employee relationship, and never rendered any service. The settlement amount was paid as compensation for not being appointed, not as a reward or recompense for services. On that factual basis, the receipt did not arise out of employment and could not be brought within the definition of salary or profits in lieu of salary.

Conclusion: The amount was not taxable as profits in lieu of salary under section 17(3)(iii) and was rightly treated as a capital receipt; the appeal failed.

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