COMMISSIONER OF INCOME-TAX Vs. SHYAM SUNDAR CHHAPARIA

JUDGEMENT

(1.) THE question of law involved in the present appeal under Section 260A of the Income -tax Act, 1961, preferred at the instance of the Revenue is as follows: Whether during the assessment year 2001 -02, the amount received by the respondent on cessation of employment with his employer will be exempted from payment of income -tax under Section 17(3)(i) of the Income -tax Act?

(2.) THE sum of Rs. 27,50,000 represents that payment to the assessee, Shyam Sundar Chhaparia, on October 21, 2000, as a 'special compensation' for his agreement not to take up any competitive employment/ assignment in future as per the undertaking signed by him with the Aditya Birla group wherefrom he superannuated on September 30, 2000. The whole question here is, whether the money which the assessee so received after his retirement under a restrictive covenant as a special compensation, in respect of which he was assessed for the year 2001 -02, part of his income for the year in question as contended by the Revenue or is it of a capital nature as held by the Tribunal.

(3.) THE agreement entered into between the assessee and his employer on October 21, 2000, was in the following terms: As an employee retiring from this unit and being granted certain discretionary retirement benefits, I agree and undertake the following: 1. Not to enter into any 'employment with competitors' (as defined herein) or be in 'competitive employment' (as defined herein) except with the written approval of the management. 2. This understanding will be valid for a period of two years starting from the date of my retirement from the unit of the group, which period is accepted as reasonable. 3. I will not seek 'employment with competitors', which will mean to include any association with any function, full time or part time, either as an employee, advisor, consultant, retainer, associate, partner, director, manager, or such other forms with an organisation, who is in direct or indirect competition with those businesses of the group, in which I was employed during the last five years of my association with the group. In other words, I should not be in any position after my retirement from the unit, which benefits such competitors of the group, in any manner. 4. 'Competitive employment', extends to all business(es) and industry(ies), in which I have worked over my career span with the group and its units. As an example, if I have worked in Viscose Filament Yam and cement businesses of the group during the last five years of my employment with the group, I will not join any organization in any form, which is in direct and/or indirect competition with the group in these businesses, i.e., viscose filament yarn and cement.