TMI Blog1998 (10) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... loyee relationship. 2. The appellant was an employee of M/s. Vulcan-Laval Ltd., which was a FERA company and manufactures industrial machineries for various applications like drilling rods, mining equipment etc. The appellant was with this company for about 27 years, from 1954 to 1981. He was an Engineer and a Geologist and when he retired on 22-9-1981, he was the head of Mining and Drilling Division. During his service with the company he was sent abroad many times for getting trained with the parent company, i.e., M/s. Alfa Laval of West Germany. He retired on superannuation on 22-9-1981 and the employer-company entered into an agreement dated 29-7-1982, i.e., about 10 months after the date of superannuation, with the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er body engaged in the manufacture and/or dealing in the products presently manufactured and/or dealt with by the party of the FIRST PART AND WHEREAS the party of the SECOND PART has agreed to be bound by the aforesaid restrictions AND WHEREAS the parties hereto wish to incorporate the terms and conditions of this agreement in writing WHEREBY IT IS AGREED AS FOLLOWS : 1. The party of the SECOND PART shall not after retirement from employment with the party of the FIRST PART accept or be engaged in the employment of or be associated, directly or indirectly with any other person, firm, company or other body manufacturing or otherwise dealing in products identical or similar to those manufactured or dealt with by the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors; (ii) dissolution or winding up of the party of the FIRST PART. 7.This agreement supersedes, cancels and annuls any oral agreements, representations or undertakings subsisting between the parties hereto. 3. The learned DR pleaded that the sum of ₹ 1 lakh received by the assessee during the accounting year relevant for the present assessment year is in the nature of profits in lieu of salary and so this is rightly brought to tax under the provisions of section 17(3)(i) of the Income-tax Act. He has relied upon the decision of the Hon ble Supreme Court in the case of CIT v. G.R. Karthikeyan (1993) 201 ITR 866/ 68 Taxman 145and pleaded that the word income is of widest amplitude and would rope in within its scope al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s employment was terminated the payment made to him was not under the terms of the agreement of employment, and notwithstanding the fact that the assessee was being compensated for loss of employment and was also giving up all his claims against the company and binding himself to a covenant not to accept employment which may be detrimental to the interest of the company in a certain area, the payment was in the nature of capital and was not assessable in the hands of the assessee. 5. In response to a query from the Bench, the learned counsel clarified that the amount in question cannot even be treated as an income of a casual and non-recurring nature which enjoys only a limited exemption under the provisions of section 10(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits in lieu of salary under section 17(3) of the Income-tax Act. The amount is received purely in lieu of a restrictive covenant which puts fetters on the freedom of the assessee to engage in employment of his choice. The right surrendered by the assessee is only a personal right and not a proprietary right. We may refer to Salmond on Jurisprudence for the distinction between these two sets of rights. The learned author brings out the distinction as follows (Page 43) : - Another important distinction is that between proprietary and personal rights. The aggregate of a man s proprietary rights constitutes his estate, his assets, or his property in one of the many senses of that most equivocal or legal terms. The sum total of a man s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set by fire was held not to be taxable under the head Capital gains because there is no transfer in favour of a different party when an asset is destroyed. In the light of these decisions, we have to hold that in the case of the assessee, the surrender of the right which is of a personal nature consequent to a restrictive covenant, does not involve the receipt of any income of the nature of capital gain and so the amount received by virtue of the covenant cannot be regarded as even a casual receipt liable to tax by virtue of the decision of the Allahabad High Court in the case of Gulab Chand (supra). We are of the view that the decision of the jurisdictional High Court in the case of Mehboob Productions (P.) Ltd. (supra) is a clear author ..... X X X X Extracts X X X X X X X X Extracts X X X X
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