Termination payment not taxable as salary; Judgment in favor of assessee

The court held that the sum of Rs. 96,000 received post-employment termination was a capital receipt not subject to tax as part of the salary for the assessment year 1980-81. The judgment favored the assessee, ruling against the Revenue.

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Issues:
Interpretation of tax liability on a sum received post-employment termination.

Analysis:
The case involved a reference under section 256 of the Income-tax Act, 1961, where the Income-tax Appellate Tribunal referred a question of law regarding the tax liability of a sum of Rs. 96,000 received by the assessee post-employment termination for the assessment year 1980-81. The assessee was in service with a company as an industrial officer and resigned, with the resignation becoming effective on a specific date. The employer offered an additional amount to prevent the assessee from accepting offers from competitors, with the condition not to work with competitors for a specified period and not to disclose confidential information. The court analyzed the nature of the payment and concluded that it was a capital receipt, not linked to salary or profits, as it was received after the termination of the employer-employee relationship. Therefore, the court held that the sum of Rs. 96,000 was not liable to be taxed as part of the salary for the assessment year 1980-81. The judgment favored the assessee and went against the Revenue. The court disposed of the reference accordingly, with no order as to costs.

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