TaxTMI 
TaxTMI 
2010 (4) TMI 130
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....17(3)(i) of the Income Tax Act? 3. Whether the definition of the profits in lieu of salary given under Section 17(3) is an exhaustive definition or only illustrative? 4. Whether Section 17(3)(iii) is an explanation which would have retrospective effect or not? 5. Whether any lump sum amount received from the employer by the employee on or after cessation of his employment would be profits in lieu of salary or not? 6. Whether in the facts and circumstances of the case, the Tribunal was right in holding for the assessing officer erred in making the estimation of Rs.2 lakhs as income of the assessee per month? 7. Whether the Tribunal was right in holding that even in the absence of any books of accounts maintained by the assessee, the assessing officer erred in making estimation of income? 3. The brief facts arising out of the case are as under: The assessee/respondent is an individual. He is highly qualified, experienced and an eminent Chartered Electrical Engineer. The assessee/respondent was employed as Chief Executive Officer with the General Electric Company of India Limited, New Delhi. The assessee retired from the above Company on 31.01.2001 on attaining th....
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....the present appeal. 4. The learned counsel appearing for the Revenue submitted that the Tribunal is wrong in holding that the amount of Rs.22,00,000/-received by the assessee is not taxable and also deleting the addition of Rs.4,00,000/- under the head "profession". He further contended that the amount of Rs.22,00,000/- was received in connection with the employment and therefore, the assessing officer is justified in assessing the income as "profits in lieu of salary". He also submitted that the employer had deducted the tax at source on the disputed amount and the assessee also estimated the advance tax and has paid the self assessment tax. The Tribunal ought to have considered that the payment is for the free advice, but without considering the same, the Tribunal is wrong in deleting the addition and he also relied on the decision in the case of CHEMPLANT ENGINEERS (P) LTD., V. COMMISSIONER OF INCOME-TAX reported in (1998) 234 ITR 23 in support of his contention. He further contended that the Tribunal is wrong in deleting the estimated professional income without basis and the assessing officer has correctly made the addition on the ground that he has not maintained the....
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....mployment or join any competing organisation or part with or use your company know-how to or for them for a period of one year from 1st February, 2001, without our permission. You will be paid a lump sum of INR.22,00,000/- for agreeing to the restraint on you freedom in the practice of your profession. In addition you have agreed that, if requested, you would provide free advice on business matters in India to Marconi business for upto twelve months following your retirement on 31st January, 2001. If, following such advice you are engaged by any Marconi business to act on their behalf, they would be required to establish, the document, a suitable consultancy arrangement with you." From a reading of the above letter, it is clear that the assessee agreed that "he will not take employment or join any competing organisation and also will not use know-how of the company for a period of one year from 01.02.2001 without prior permission". Therefore, the company has agreed to pay a sum of Rs.22,00,000/-. So the said amount is paid to the assessee for not taking up any employment. It amounts to non- compete fee. The assessing officer was of the view that the assessee/respondent has ag....
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.... for the appellant/revenue fairly stated that he is not disputing the principles enunciated in the above judgments. So it is not necessary to consider the above case law one by one except the case of Madhya Prdesh High Court in Commissioner of Income Tax V. Shyam Sundar Chhaparia reported in (2008) 305 ITR 181(MP) as well as the Bombay High Court in the case of B.K.Kotru V. The Commissioner of Income Tax reported in (2006) 282 ITR 1(Bom.) wherein the Courts considered the similar issue as in the present case. In case of Commissioner of Income Tax V. Shyam Sundar Chhaparia reported in (2008) 305 ITR 181(MP) cited supra, the Madhya Pradesh High Court has held as follows: "31. In the case at hand, we have noted that the assessee retired from service on attaining the age of superannuation with effect from September 30, 2000, there was thus severance of master-servant relationship and no material is brought on record by the Revenue to suggest that there existed a service contract providing therein a restrictive covenant preventing thereby the assessee to take up any employment, activities on consultation which would be prejudicial to the business/interest of Grasim Indust....
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....ed the similar issue of restricted covenant in B.K.Kotru V. Commissioner of Income Tax (2006) 282 ITR 1(Bom.) and held as follows: "It appears from the statement of facts that the assessee was offered employment by competitors of M/s Sandvik Asia Ltd., like M/s Widia and Drilleco. In order to prevent the assessee from accepting such offers, it appears that M/s Sandvik Asia Ltd., had offered additional amount of Rs.96,000 to the assessee on his agreeing not to accept similar job in any other competing organisation for a minimum period of two years from July 13, 1979, and not to disclose or part 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 of the said amount, executed a restrictive covenant and undertook not to take any employment with any other competitors in lieu of payment of Rs.96,000. This payment of 96,000, thus, can hardly be linked up with the salary, or perquisites and profits. The receipt of this amount is after cessation of the employer and employee relationship. This receipt of amount, thus, can only be capital receipt. The Tribunal was, thus, not just....
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....modification of the terms and conditions relating thereto; (ii)any payment (other than any payment referred to in clause (10) clause (10A) cause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman Insurance policy including the sum allocated by way of bonus on such policy. Explanation- For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10." From a reading of the above, it is clear that "the profit in lieu of salary" includes any compensation due to or received by an assessee from his employer or former employer. It is not the case that the compensation is due to the assessee. Whatever the income received by the assessee was returned by him and also a sum of Rs.22,00,000/- paid is not in connection with the termination of the employment or modification of the terms and conditions. Therefore, Section 17(3)(i) of th....
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....ith that person." The said provision was brought by the Finance Act of 2001 with effect from 01.04.2002. It is applicable only to the assessment year 2002-2003 and for the subsequent assessment years. It is prospective in nature and not retrospective as contended by the revenue. Notes on Clauses explaining various provisions containing the details reported in (2001) 248 ITR 106 page 118 Statutes deals with sub clause (b) of Clause 13, which reads as follows: "Sub Clause(b) seeks to insert a new sub-clause (iii) in clause (3) of the said section so as to include any amount due to or received, whether in lump sum or otherwise, by any assessee from any person before joining any employment, or after cessation of such employment as income of that person under the head "Salaries". This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years." The C.B.D.T. also issued a Circular No.14 of 2001 explaining the above notes on provision relating to Direct Taxes reported in (2001) 252 ITR (St.) 65 and paragraph 28.2, 28.3 and 28.4 reads as follows: "The definition of " perquisite" has also bee....
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....o the assessment year 2003-2004. It is well-settled legal position that an amendment can be considered to be declaratory and clarificatory only if the statute itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement in the statute itself, the amendment will not be considered to be merely declaratory or clarificatory. Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not he end of the matter. The Court will not regard itself as being bound by the said statement made in the statute but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a calrificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods. In this connection, see the following: (1) Sakru v. Tanaji (1985) 3 SCC 590 at pages 593-594; (2) Harding v. Commisioners of Stamps for Queensland (1898) AC 769 at 775 ti 776 (PC) (3) R.Rajagopal Reddy v. Padmini Chandrasekharan (1995) 213 ITR 340 (SC); (1995) 2 SCC 630 at 646; (4) CIT v. Patel Brothers and Co. ....
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....Finance Act 1999 with effect from April 1, 2000. The issue in that judgment is whether the said provision comes into effect retrospectively or prospectively. The Supreme Court, in paragraphs 13, 14 and 15, has held as follows: "13. We quote herein below section 17(2)(iiia), which reads as under: "(iiia) the value of any specified security allotted or transferred, directly or indirectly, by any person free of cost or at concessional rate, to an individual who is or has been in employment of that person: Provided that in a case where allotment or transfer of specified securities is made in pursuance of an option exercised by an individual, the value of the specified securities shall be taxable in the previous year in which such option is exercised by such individual. Explanation- For the purposes of this clause,- (a) 'cost' means the amount actually paid for acquiring specified securities and where no money has been paid, the cost shall be taken as nil; (b) 'specified security' means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and includes employees' stock option and sweat eq....
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.... 2001. For the aforestated reasons, we are of the view that sub-clause (iiia) cannot be read as retrospective." 13. In the case of COMMISSIONER OF INCOME TAX V. SHYAM SUNDAR CHHAPARIA cited supra, the Madhya Pradesh High Court has considered the scope of amended provision of Section 17(3)(iii) as in the present case and held that it would be applicable only prospectively and not retrospectively as contended by the revenue. After taking into consideration the principle enunciated in the above judgments, we are of the view that the amended provision viz., Section 17(3)(iii) comes into effect only prospectively and not retrospectively. 14. The learned counsel appearing for the revenue further submitted that the employer of the assessee had deducted tax at source on the disputed amount and further the assessee/respondent had also estimated the advance tax on the amount and has also paid the self assessment tax. Relying on the above factors, the learned counsel appearing for the revenue vehemently contended that the asessee himself treated the same as income nature. Therefore, the assessing officer is right in assessing the compensation under the head "salary". The arg....