TMI Blog1997 (2) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... osta Co. and Middland Bank Ltd., Securities Department, Head-Office, London in 1953, Amalgamated Chemicals Dyestuffs Co. Ltd., Bombay. This was a subsidiary of J.R. Geigy SA Basle, Switzerland. This firm later known as Suhrid-Geigy. Assessee was in the Marketing Division of dyestuffs and textile auxiliaries. The success of the brand TINOPAL (a whitening agent) goes to the credit of the assessee. In January 1961, assessee joined the pharmaceutical division as Deputy to the Managing Director and in December 1962, he took over from him as the Head of the Pharmaceutical Division. He continued to serve to Suhrid-Geigy in this position until leaving the company in August 1973. 4. On 15th August, 1973, assessee joined CIBA of India Ltd., as the Head of its Pharmaceutical Division. This company had merged with CIBA A.G. Basle and J.R. Geigy SA. In 1975, assessee was appointed to the Board of the Company and from which post he retired some time in 1980, handing over charge as head of the Pharmaceutical Division and taking over the responsibility of Government relations and export co-ordination. 5. The assessee entered into a whole-time employment of HCGL as director, staff functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of providing consultancy to other companies, the business of which is similar to that carried on by the Company. 7. For the relevant assessment year, assessee filed his return reflecting therein an income of ₹ 1,47,180. This includes pension received from HCGL. To this income Assessing Officer added ₹ 11 lacs. He opined that this amount was received by the assessee for the services rendered by him during his employment with HCGL. The resignation from the company and various other events were made use of as a convenient ploy to help the assessee in getting a huge sum of ₹ 11 lacs without paying any tax thereon. The amount of ₹ 11 lacs was treated income in the hands of the assessee as profits in lieu of salary paid by the former employer. It was stated to be covered by the provisions of section 17 of the Income-tax Act, 1961. The CIT(A) confirmed the addition made on this count. 8. Shri B.K. Khare along with Mr. P.M. John appeared before us on behalf of the assessee. It was vehemently argued that the amount of compensation received as per the terms of contract dated 11-4-1983 is not exigible to tax. The receipt was stated to be of capital natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasoning given apropos the so-called subterfuge. Revenue proceeded only on the basis of surmises. On such jejune reasonings, addition cannot be sustained. The payment was received from a well-known company of international repute. If the department intends to prove to the contrary, the burden does not rest on the assessee, it is on the department to prove that the transaction was with, a mala fide intention. No direct or circumstantial evidence to that effect was ever produced. Further, Shri Khare relied on some precedents to support the case. 14. Shri M.P. Kotwal, learned Departmental Representative appeared before us. It was argued that the amount of compensation received by the assessee on account of a restrictive covenant is exigible to tax, inasmuch as, this is a revenue receipt. This amount was given by the former employer in consideration of the past services. In order to avoid the tax liability suitable nomenclature was used. This cannot alter the real character of the receipt. 15. The narrative of the agreement was set out by the Assessing Officer in his order. In order to establish that the restrictive covenant was a ploy to evade tax, following facts were giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was so indispensible why did the company allow the assessee to retire without giving the requisite time for notice of 180 days. Further, the assessee in his resignation letter mentioned that he was to start his own consultancy services after retirement. When the company had this knowledge, it is not known by the company could not act immediately about the impact of consultancy services to be undertaken why the assessee on its business. Why the company took one month time to become aware of this aspect. 19. The learned D.R. further stated that as per the claim of the assessee he started his consultancy services in January 1983. He was approached by a few competitors of HCGL. Assessee furnished a copy of letter dated 17-1-1983 addressed by him to the Chairman, Cosme Mathias Menezes Pvt. Ltd. In this letter, he mentioned that he had experience of five years in export business. He did not refer anything about his association with HCGL. Besides this, he could not produce any other material to demonstrate that he was contacted or he was approached by anybody else in connection with the consultancy services. 20. According to ld. D.R., the assessee purposely avoided any refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or evidence with the department to say so and to arrive at this conclusion - nothing to this effect was discussed in the impugned order. 24. It is patently clear that the restrictive covenant was entered into consequent upon the termination of employment with HCGL. As per the terms of employment, assessee was duty bound not to divulge the secrets of the business. We have perused the relevant clauses, apropos the same as mentioned in the Indenture filed before us. Now the question arises whether the conditions contained in the terms of employment could be extended beyond the date of termination of his services ? 25. Apex Court in the case of Shri Krishan Murgai (supra) has held that under section 27 of the Contract Act, if the service covenant extends beyond the term of the service it is void. It is further laid down in the judgment that no single Indian decision was brought to the notice of the Court, where injunction was granted against the employee after the termination of his employment. This be so, HCGL was not in a position to enforce the term for not divulging the secrets, consequent upon the termination of employment. We, therefore, do not find much force in the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich inculcate the theory of going beyond the apparent . . . . should be narrowly watched jealously regarded and never to be pressed beyond its true limits. The onus to prove the contrary lies upon the party who alleges it not upon one who denies it. This principle is embeded in the common law dictum : AFFERMENTI NON NEGANTI INCUMBIT PROBATIO. 32. Having regard to the facts and the circumstances of the case and after considering the precedent relied upon in the matter, we are of the opinion that the case of the assessee falls beyond the ken of the ratio laid down in the case of McDowel. There is no ample material with the department to challenge the bona fide of the agreement. As such, it cannot be construed to be a subterfuge. 33. Now the question arises whether the payment made against the restrictive covenant was a capital receipt or a revenue receipt in the hands of the assessee. Ex gratia payments on cessation of employment was treated as capital receipt in the case of CIT v. Ajit Kumar Bose [1987] 165 ITR 90/[1986] 26 Taxman 510 (Cal.). In the case of Lachhman Dass v. CIT [1980] 124 ITR 706 (Delhi), it was held that payment made to the assessee had no relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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