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Income-Tax Officer Versus Anilkumar Rudra

1998 (10) TMI 538 - ITAT MUMBAI

IT Appeal No. 8975 (Bom.) of 1990 - Dated:- 9-10-1998 - T. V. Rajagopala Rao (President) And M. V. R. Prasad (Accountant Member) For the Appellant : S. M. Manohar For the Respondent : S. N. Inamdar ORDER M. V. R. Prasad (Accountant Member) This appeal is directed against the order of the CIT(Appeals) dated 3-9-1990 for the assessment year 1983-84. The ground taken reads as follows : - "On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in deleting t .....

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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 which the assessee was to receive an amount of ₹ 1 lakh in return for a covenant not to accept employment with any other em .....

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e, expertise, skill and experience related to the manufacture and marketing of the products of the party of the FIRST PART and has also acquired or otherwise come in possession of various secret information, know-how and trade secrets relating to the line of products of the party of the FIRST PART, in particular, in the manufacture of drilling rods and other mining equipment AND WHEREAS the party of the FIRST PART desires that the secret information, trade secrets and know-how should not be reve .....

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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 otherwis .....

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e himself in or take up employment with any other employer or be associated with any other person, firm, company or other body engaged in business identical or similar to the one carried on by the party of the FIRST PART, the party of the FIRST PART agrees to pay the party of the SECOND PART a sum of ₹ 1,00,000 (Rupees one lakh only) within a period of 60 days from the execution of this agreement. 5. The party of the SECOND PART shall, in case he shall accept employment or, as the case may .....

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PART or on his making any composition or arrangement with his 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 .....

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rely by virtue of a restrictive covenant entered into by him with his former employer company, in terms of which covenant he had undertaken not to accept employment with any other employer and so the amount is received only for surrendering a potential source of income and as such the receipt is of capital nature. He has also pleaded that all receipts are not of an income nature and in this context he has relied upon the decision of the Hon ble Bombay High Court in the case of Mehboob Production .....

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Mad.) and the decision of the Tribunal in the case of M.R. Muchhala v. Fourth ITO (1996) 56 TTJ (Mum.) 504. He has also relied upon the decision of the Bombay High Court in the case of R.N. Agrawala v. CIT (1960) 38 ITR 67in which the relevant portion of the head-note reads as follows : - "Held, that as the assessee 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 .....

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only a limited exemption under the provisions of section 10(3) of the Income-tax Act and considered by the Hon ble Allahabad High Court in the case of CIT v. Gulab Chand (1991) 192 ITR 495. It is explained that in this case, the Hon ble Allahabad High Court was considering the case of a surrender of tenancy and proceeded on the assumption that the capital gains arising on the surrender of tenancy was not chargeable to tax because there was no cost of acquisition for such tenancy rights in view .....

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eceipt and not a receipt of the nature of capital gains either taxable or not taxable under section 45. 6. We are in agreement with the contentions made out by the learned counsel for the assessee. As the amount of ₹ 1 lakh has been received by the assessee after his superannuation, it has nothing to do with his employment and so it is not in the nature of compensation received by him at or in connection with the termination of his employment or the modification of the terms and conditions .....

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arned 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 personal rights, on the other hand, constitutes his status or personal condition, as opposed to his estate. If he owns land, or chattels, or patent rights, or the g .....

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r are merely elements in his well-being." 7. The extinguishment of every type of right does not give rise to a capital gain. In this context, we may refer to the decision of the jurisdictional High Court in the case of Bharat Forge Co. Ltd. v. CIT (1994) 205 ITR 339/(1993) 69 Taxman 165wherein it was held that the right to sue for damages cannot be considered as a capital asset at all because such a right is not a property which can be transferred and the amount received by the surrender of .....

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