Income From Salary

Income From SalarySujith SurendranSalaryWhat is Salary:Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. The concept of salary goes back to the days of Roman Empire. The soldiers were given Sal (Salt) as a regard for their services. With the passage of time, the mode has changed from salt to money. However, salary, in its conceptual and legal sense, remains a reward for the services rendered.The sine-qua-non for chargeability under the head "salary" is that there must exist a relationship of employee and employer between the assessee and the person making the payment.A salary is given to an employee by the employer in lieu of a contract of service and is characterized by a master servant relationship.Factors distinguishing servant from agent- The distinction between a servant or an agent can be summarised as follows : Lakshminarayan Ram Gopal & Son Ltd.v.Govt. of Hyderabad[1954] 25 ITR 449 (SC)(i) generally a master can tell his servant what to do and how to do it; (ii) generally a principal cannot tell his agent how to carry out his instructions; (iii) a servant is under more complete control than an agent; (iv) generally, a servant is a person who not only receives instructions from his master but is subject to his masters right to control the manner in which he carried out those instructions; an agent receives his principals instructions but is generally free to carry out those instructions according to his own discretion; (v) generally a servantquaservant has no authority to make contracts on behalf of his master; generally, the purpose of employing an agent is to authorise him to make contracts on behalf of his principal; (vi) generally an agent is paid commission upon effecting the result which he has been instructed by his principal to achieve; (vii) generally a servant is paid wages or salary

The prima facie test to determine an employee-employer relationship is the direct control test under which a greater amount of supervision over an employee and less independence or discretion to perform work implies a master servant relation.Cowan v Seymour [1920] 1 KB 500 (CA)Carter v Great West Lumber Co. [1919] 3 WWR 901Shining Tailors v. Industrial Tribunal II, U.P AIR 1984 SC 23But this test is not universal in its application and does not determine in every case, having regard to the nature of employment, that he is a servant. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Generally it may be possible to say that the greater the amount of direct control over the person employed, the stronger is the conclusion in favour of his being a servant.Similarly, the greater the degree of independence the greater the possibility of the services rendered being in the nature of principal and agent.

It is not possible to lay down any precise rule of law to distinguish one kind of employment from the other. The nature of the particular business and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is a servant or an agent. In each case the principle for ascertaining remains the same -Ram Prashadv.CIT[1972] 86 ITR 122 (SC)Servant and Independent ContractorControl and supervision are relevant factors- It is difficult to lay down any one test to distinguish the relationship of master and servant from that of an employer and independent contractor. In many cases the test laid down is that in the case of master and servant, the master can order or require what is to be done and how it is to be done but in the case of an independent contractor an employer can only say what is to be done but not how it shall be done.But this test also does not apply to all cases,e.g.,in the case of ships master, a chauffeur or a reporter of a newspaper.InDhrangadhra Chemical Works Ltd.v.State of Saurashtra[1957] SCR 152, it was said that in all cases the correct method of approach is whether having regard to the nature of work there was due control and supervision by the employer.Piyare Lal Adishwar Lalv.CIT[1960] 40 ITR 17 (SC)As an alternative the Courts use the organisation test, namely, whether the person concerned was a part and parcel of the organisation. Here, the fact that the workers perform services in the employers premises, and work on the machines belonging to him, become relevant factors. [Citation]This test has been modified into the integration test which looks at whether the person performing the services is an integral part of the company or whether they conduct business similar to someone performing services as a contractor. The problem with this test is that someone can still be a contractor but also be an integral part of an organisation.[Citation]A further test is the economic control test which was applied in Hussainbhai v. Alath Factory Tozhilali Union where it was held that where a worker produces goods or services for the business of another, that other is, in fact, the employer, as he had the economic control over the workers' subsistence, skill and continued employment. In other words it is only the employer who takes the entrepreneurial risk of losing money in the employer-employee relationship but it is not so in case of a principle-agent or an independent contractor relationship.Actors and actresses are generally in the nature of independent contractors and the income earned by them is not taxable under the head salaries as they do not work for one single employer. Partners at a firm are not in a employee-employer relationship. A firm is not a legal person, it is a unit of assessment, by special provisions, but is not a full person. Since a contract of employment requires two distinct persons, employer and employee, there cannot be a contract of service. Payment of salary to a partner represents a special share of the profits.A different test has been the idea of 'mutuality of obligations' as a possible factor, i.e. whether the course of dealings between the parties demonstrates sufficient such mutuality for there to be an overall employment relationship.[Citation]In tax cases a different test namely the holding of office test applies. In CIT v. Govindaswaminthan an advocate general holding an office under the State Government terminable at the will and pleasure of the Governor and who gets a retainer and fees could not be treated as employee and his income is a professional income. He is not at par with government servants though he gets TA and DA like them as he is not subject to conduct rules and does not hold a permanent position. Similarly, in Union of India v. Pratibha Bonerjea it was held that a High Court judge is not an employee of the government. Also, a Member of Parliament is not an employee of the Government and he does not receive salary.The law relating to assessment under the head salary was thus far understood as necessitating an employee-employer relationship. However, a turning point in the tax jurisprudence however was brought by the case Justice Deoki Nandan Agarwala v. Union of India where the Supreme Court held that being constitutional functionaries like judges receive salaries just like an employee even in the absence of a strict employee-employer relationship. Thus, what became relevant were the employment and not the presence of an employer.DirectorsCompany director is not a servant- A director of a company is not a servant but an agent inasmuch as the company cannot act in its own person but has only to act through directors whohave relationship of an agent with the company -Ram Prashadv.CIT.

Company director can have dual capacity- There is no controversy that a director of a company enjoys dual capacity. He might be a director as well as an employee, but that he is an employee must not be a paper work, rather it should be proved and established on record as a fact -CITv.Smt. Shanti Devi[1992] 64 Taxman 251/[1993] 199 ITR 800 (Ori.).

Managing director can be a servant- Whether or not a managing director is a servant of the company apart from his being a director can only be determined by the articles of association and the terms of his employment. If the company is itself carrying on the business and the managing director is employed to manage its affairs in terms of its articles and under the agreement, he could be dismissed or his employment could be terminated by the company if his work is not satisfactory, it could hardly be said that he is not a servant of the company -Ram Prashadv.CIT.

ProfessionalsProfessionals rendering incidental services are not servants- Where an assessee, deriving income from profession as a musician, incidentally rendered services to a college of music, it could not be said that there was a master and servant relationship -CITv.Jnan Prakash Ghosh[1992] 62 Taxman 151 (Cal.).

LIC OfficersIncentive bonus/commission, whether taxable as salary or as business income Since in addition to salary payable to him, a Development Officer of the LIC receives incentive bonus/commission based on the insurance business promoted by him, but in addition to the salary payable to him, the additional income so derived by the Development Officer during the course of and pursuant to the terms and conditions of his employment, can be brought to tax only under the head Salaries, and not under the head Profits and gains of business or profession. CITv.M.D. Patil[1998] 229 ITR 71 (Kar.) (FB)/H. M. Pareekv.CIT[2002] 124 Taxman 335 (Raj.)

Where the LIC Development Officer claimed deduction of additional conveyance allowance and 40 per cent of incentive bonus received by him under section 16 contending that the net income after deducting the expenditure and the loss should be arrived at and the net income alone was taxable, the deduction claimed by the assessee could not be allowed -CITv.E.A. Rajendran[1977] 142 CTR (Mad.) 244.

Incentive bonus was assessable under the head Salaries and not under the head Profits and gains of business or profession, and no separate deduction apart from the deduction under section 16(i) was permissible -B.M. Parmarv.CIT[1999] 102 Taxman 552 (Punj. & Har.).

JudgesSalaries received by judges are taxable- The salary of a Judge of a High Court and the Supreme Court is income and is taxable by Act of Parliament in just the same manner as is the income of any other citizen. It is true that such judges have no employer but that,ipso facto, does not mean that they do not receive salaries.

They are constitutional functionaries. Articles 125 and 221 of the Constitution deal with salaries of such judges, and expressly state what the judges received are salaries -Justice Deoki Nandan Agarwalav.Union of India[1999] 237 ITR 872 (SC).MLAs/MPs- Section 15 is not attracted in respect of remuneration received by an MLA -CITv.Shiv Charan Mathur[2008] 306 ITR 126 (Raj.).

Arrears of salarySalary due but not paid or taxed in earlier year is taxable as arrears of salary in year of payment- Salary due to an assessee in the earlier years, which was neither paid nor was charged to tax in those years, will have to be treated as arrears of salary within clause (c), and will have to be brought to tax in the year(s) in which it was paid. The said clause (c), broadly put, is intended to catch such salary as has escaped the charge of income-tax in earlier years -CITv.Sardar Arjun Singh Ahluwalia (Decd.)[1999] 240 ITR 693/107 Taxman 246 (SC).Retirement paymentsVoluntary retirement payments received in instalments accrue in the initial year- Where the assessee took up voluntary retirement from a bank under a scheme which provided for payment of only 50 per cent of theex gratiapayment in the year of retirement and the balance 50 per cent in annual instalments over the succeeding years, the entireex gratiaamount must be treated as salary which has accrued to the assessee in the year of retirement -Y.S.C. Babuv.Chairman and Managing Director, Syndicate Bank[2002] 253 ITR 1 (AP).

UN PensionPension paid by United Nations Organisations is exempt- Pension amount received by U.N. Pensioners is exempt from tax, since such pension is nothing but salary -CITv.K. Ramaiah[1980] 126 ITR 638 (Kar.)

Pension paid to the widow of a deceased U.N. official is exempt from tax, since it was paid to her as a recompense for the contribution made by her deceased husband to the fund and was received by her in her capacity of what would have been received by her husband, had he been aliveCITv.Smt. Janaki Loganathan[2002] 257 ITR 620/124 Taxman 266 (Mad.).CITv.Smt. Dipali Goswami[1985] 156 ITR 36/[1986] 25 Taxman 39 (Cal.)Smt. Usha Shahv.CIT[1989] 175 ITR 572/[1988] 41 Taxman 167 (All.)

As per Section 15, salary consists of the following:any salary due from an employer or a former employer to an assessee in the previous year, whether actually paid or not;any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, though not due or before it became due;

any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.Once salary is taxed on due/receipt basis, it will not be taxed again on receipt/falling due, as the case may be.Section 17 (1) defines salary as including, among other things, perquisites and profits in lieu of salary. Clause (2) gives the inclusive definition of perquisites and (3) profit in lieu of salary.These two items are also included in the definition of income under section 2 (24) (iii).

What Income Comes Under Head of Salary:Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary: Salary (including advance salary)WagesFeesCommissionsPensionsAnnuityPerquisiteGratuityAnnual BonusIncome From Provident FundLeave EncashmentAllowanceAwards

Leave encashment is the salary received by an individual for leave period. It is a chargeable income whether he is a government employee or not. Under section 10(10AA) (i) there is also a provision of exemption in case of leave encashment depending upon whether he is a government employee or other employees.Any salary, bonus, commission or remuneration, by whatever name called, due to or received by, a partner of a Firm from the firm is not regarded as salary under this head.The assessee can claim relief u/s 89(1) for arrears or advance salary.Loan from employer is not salary. Hence, advance salary is taxable, while advance against salary is not.

Fees Where the assessee-doctor who was employed in a Government hospital was permitted by the Government to work in paying clinics run in medical colleges, and received a share of the fees from Government, such fees would fall within the expression fees paid in addition to salary, and would fall within the mischief of section 17(1)(iv). Such fees would be taxable as salary CIT v. Dr. (Mrs.) Usha Verma [2002] 120 Taxman 738/254 ITR 404 (Punj. & Har.).AllowancesReceipts on account of CCA, HRA and DA are in nature of income forming part and parcel of salary entailing tax liability Karamchari Union v. Union of India [2000] 109 Taxman 1/243 ITR 143 (SC).Where the assessee, a Government servant, was paid, in addition to salary, an allowance termed as family allowance to compensate for the high cost of living, the said allowance is taxable as part of salary, since the assessee received the amount by virtue of his employment, and he was not given the payment de hors his employment as a Government servant. The mere fact that the money was payable to the family members in case the assessee makes a nomination to that effect is not relevant, since it was the assessee himself who has received the payment CIT v. Dr. P.L. Meyyappan [2000] 244 ITR 543 (Mad.)/CIT v. Dr. A. Mani [2000] 244 ITR 546 (Mad.).Where the assessee-employee was paid, in addition to salary, an allowance termed as income-tax allowance, by his employer, and the assessee was not given the right to claim any further amount from the employer on account of having to pay amounts as tax in excess of the amount of the allowance, the mere grant of such allowance would not result in his salary becoming tax-free salary. If the assessee had offered the allowance also as income for tax purposes, the principle of grossing up cannot be invoked, by treating the case as a case of payment of tax-free salary CIT v. Dr. Miss Pauline E. King [2000] 243 ITR 300 (Mad.).PerquisitesEmployee must have a vested right to perquisites - One cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. In short, the employee must have a vested right therein CIT v. L.W. Russel [1964] 53 ITR 91 (SC).Unauthorised advantages are not perquisites - Any unauthorised advantage taken by the employee (like clandestine use of employers car by employee) without the authority of the employer would only create a legal obligation to restore such advantage and therefore such an unauthorised advantage will not amount to a benefit or advantage within the meaning of section 17(2)(iii) CIT v. C. Kulandaivelu Konar [1975] 100 ITR 629 (Mad.)CIT v. S.S.M. Lingappan [1981] 129 ITR 597 (Mad.)M.M. Mehta v. CIT [1979] 117 ITR 362 (Cal.)CIT v. Jawaharlal Nagpal [1988] 171 ITR 136 (MP)CIT v. C. Narayanan Nair [1989] 45 Taxman 404 (Ker.).

RENT FREE ACCOMMODATIONIn case of Government employees, who have been provided with Government accommodations, value of rent-free accommodation as perquisite would be licence fee determined by Government in accordance with rules and value of concession would be difference between such licence fee and amount of rent paid by employee. In relation to other employees, value of concession would be difference between 15 per cent or 10 per cent or 7.5 per cent of salary, as the case may be, and amount of rent actually paid. Distinction made between Government employees and others in rule 3 cannot be termed as discriminatory or unjust Coal Mines Officers Association of India v. Union of India [2004] 137 Taxman 92 (Cal.).If accommodation is provided by employer, perquisite must be valued even if it is not used by employee - The word provided in section 17(2)(i) means making it available for the use of the assessee. There may be circumstances under which the employee may not make use of the rent-free accommodation provided to him.But unless the assessee forgoes his right of the provision of rent-free accommodation provided by his employer, or waives his right before the income accrues, the notional income has to be brought to charge as a perquisite equivalent to the value of the rent-free accommodation - CIT v. Bawa Singh Chauhan [1984] 150 ITR 8 (Delhi).

Car PerquisiteWhere the Assessing Officer was unable to obtain the details of the actual expenditure incurred by the company on the maintenance and running of the car, and had not also gathered information about the type of car and whether the car was exclusively for personal use of the director or for the use for purposes of the company as also for private use, the Tribunal would be justified in adopting the method prescribed in the Table in rule 3 for valuing the perquisite CIT v. Sir Padampat Singhania (Decd.) [2000] 245 ITR 482 (All.).

VEHICLE PROVIDED BY EMPLOYERNature of vehicle or ownership of vehicle - Explanation to section 17(2)(iii)(c) envisages that the expenditure is in relation to use of any vehicle provided by the employer to the employee for enabling him to commute between his residence and place of work. There is no qualification as to the nature of the vehicle or as to the ownership of the vehicle. In fact, the Assessing Officer had also accepted that if the vehicle is owned by the employer or hired by the employer, the amount of expenditure cannot be treated as perquisite in hands of the employee. Once this is the position, it is not possible to read any further prohibition as the revenue wanted to, namely, if the vehicle is owned by the employee, the expenditure is not allowable and has to be taxed as perquisite in his hands CIT v. Reliance Industries Ltd. [2008] 175 Taxman 367/[2009] 308 ITR 82 (Guj.).MEDICAL REIMBURSEMENTConstitutional validity - There is no merit in submission that medical reimbursements do not amount to perquisite; clause (v) of first proviso to section 17(2) cannot be said to be constitutionally invalid on that ground All India State Bank Officers Federation v. Union of India [2007] 159 Taxman 129/288 ITR 614 (Bom.). Latter part of clause (v) of first proviso to section 17(2) [appearing in section after clause (vi)] to extent it treats medical reimbursement above Rs. 15,000 per annum as taxable perquisite for salaried persons, is not discriminatory and hence is constitutionally valid All India State Bank Officers Federation v. Union of India [2007] 159 Taxman 129/288 ITR 614 (Bom.).FREE EDUCATIONAL FACILITIESProviso to rule 3(5) granting exemption stands attracted only where the educational institution is itself maintained and owned by the employer and free educational facilities are provided to the children of the employee. Where, although the educational facilities were in fact being provided in the institution owned and maintained by the assessee itself, the educational facilities, were not provided free of cost and admittedly, a fee was being charged even from the children of the employees although at a concessional rate, there was no question of the proviso to rule 3(5) getting attracted. The value of the perquisite in such cases is to be computed under the main sub-rule itself Birla Vidya Niketan v. ITO [2008] 166 Taxman 492 (Delhi.)Where assessee-school was providing free education to children of staff, Assessing Officer was not justified in taking cost of education as in case of other students in same school as perquisite value in hands of employee; as per later part of rule 3(5) determination of value of the perquisite of free education is with reference to the cost of such education in a similar insti tution in or near the locality CIT v. Delhi Public School [2008] 167 Taxman 134 (Delhi).Interest free loans - The advance of either interest-free loan or loan at concessional rate of interest, by the employer to its employees would result in benefit to the employee. It relieves the employee of his liability to pay interest on such loans if the employee is required to raise loan from outside agency. While it reduces his financial liability, it will have to be considered as an income saved. In that event it can undoubtedly be treated as fringe benefit, or amenity given to the employee BHEL Employees Association v. Union of India [2003] 128 Taxman 309/261 ITR 15 (Kar.)P.N. Tiwari v. Union of India [2003] 133 Taxman 482/[2004] 265 ITR 224 (All.).The provisions shall be read down with a rider that the rate provided in the rule will be applicable unless the assessee proves to the satisfaction of the Assessing Officer that the rate of interest or any part thereof charged by the employer does not amount to any concession or benefit, having regard to the rate of interest charged for such type of loan by public financial institutions V.K. Prasad v. Union of India [2004] 271 ITR 178 (Ker.) National Federation of Insurance Field Workers of India v. Union of India [2004] 135 Taxman 307(Uttaranchal)Federal Bank Officers Association v. Union of India [2004] 140 Taxman 173 (Ker.).Interest subsidy - Where public sector undertakings like BHEL, ECLI, instead of directly giving house building loans, permitted employees to take loans from different financial institutions under schemes as per direction of Ministry of Industries and excess interest charged by financial institutions as compared to interest charged by Central Government was reimbursed to employees by these public sector undertakings, interest subsidy could not be treated as part of salary as such or a perquisite under section 17(2)(iv) or a benefit within section 17(2) (iii) or a profit in lieu of salary P.V. Rajagopal v. Union of India [1998] 233 ITR 678 (AP). Interest subsidy is a perquisite - Where the assessee, employee of a public sector company, obtained house building advance from an external source, but the employer granted interest subsidy to the assessee, being the difference between the interest charged and the interest otherwise chargeable by the employer if the loan was taken from the employer, such interest subsidy is taxable as a perquisite P. Bhavani Shankar v. CIT [2000] 242 ITR 152 (Mad.).

Payment of interest subsidy by employer-company directly to financial institution from which assessee-employees had availed house building loan, was a perquisite falling under sub-clause (iv) of section 17(2) K. Rajendran Pillai v. Union of India [2006] 156 Taxman 160 (Ker.).Interest as perquisite - Non-charging of interest on debit balance of employee-directors who were advanced interest-free loans by the company cannot be regarded as a perquisite in the hands of the directors by the company V.M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 110 Taxman 67/243 ITR 383 (SC).Even if a loan amount has been assessed under section 2(22)(e), as deemed dividend the same can be treated as perquisite under section 17(2) CIT v. T.P.S.H. Selva Saroja [2000] 244 ITR 671 (Mad.).OTHERSSalary paid to servant : New rule 3 - The employee is taxed on perquisite in respect of provision of a servant by the employer which is equivalent to the monetary benefit he receives. The servant is required to pay tax in respect of income he/she derives; and the employee is required to pay tax in respect of the perquisite, which is equivalent to the monetary benefit he receives. If the service of a servant is not made available to the employee by his employer, the employee will have to spend from his/her pocket for the salary of a servant, if he/she intends to have one. Further, if the employee does not intend to have one, it is open to him/her not to have the services of a servant from his employer. It is optional. Therefore, adding of salary of the servant provided by the employer deputed to the residence of the employee as perquisite in hands of the employee would not amount to double taxation BHEL Employees Association v. Union of India [2003] 128 Taxman 309/261 ITR 15 (Kar.).Expenditure on travel of spouse of employee : New rule 3 - There is no relationship of master and servant between spouse of employee and employer and when employee undertakes travel for purpose of his employer, taking of spouse by employee is optional and, therefore, treating cost of travel of spouse of employee incurred by employer as fringe benefit or amenity cannot be treated as either irrational, arbitrary or unreasonable -BHEL Employees Association v. Union of India [2003] 128 Taxman 309/261 ITR 15 (Kar.).Monthly medical expenses paid to managing director is a perquisite - The monthly payment as medical expenses to managing director will fall within the definition of perquisites in view of section 17(2) Gwalior Sugar Co. Ltd. v. CIT [1997] 224 ITR 321 (MP).Provision of boarding and lodging to foreign employees is not a perquisite - Where the boarding and lodging expenses of foreign nationals employed on a ship berthed in Indian port were directly met by the employer, the payments would not amount to a perquisite CIT v. Vander C.C. Malen [1997] 225 ITR 41Purchase of deferred annuity policies - Where employer-company purchased single premium deferred annuity policy out of commission payable to employee-managing-directors (assessees) in their names, amounts utilised for obtaining deferred annuity policies would form part of remuneration payable to assessees and as such be chargeable under head Salaries CIT v. Navnit Lal Sakar Lal [2000] 113 Taxman 692 (SC).Keeping in view the principles laid down by the Supreme Court in Karamchari Union v. Union of India [2000] 243 ITR 143, the amount utilised in the purchase of deferred annuity policy by the employer-company for the benefit of the employee-assessee, the benefit under the said policy accruing to the assessee on his retirement or in the event of his death, was liable to be assessed in the hands of the assessee CIT v. P. Jaiswal [2001] 252 ITR 453 (Delhi).Personal accident insurance policies are taxable only if they are of nature of personal benefit of employee - In the absence of any finding that the personal accident insurance or motor accident insurance taken by the company was for the personal benefit of the employee and not to safeguard companys own interest against possible disablement of its employee, it is not possible to come to conclusive finding whether personal accident insurance premium or medical insurance premium amounts to perquisite Mihir Textiles Ltd. v. CIT [1996] 135 CTR (Guj.) 412.Tax of employee paid by employer must be grossed up - Where the income-tax due from the employee is paid by his employer, it is a perquisite, and must be added to the salary of the employee like other perquisites and then tax must be calculated subject to any admissible deductions under the law. The contention that if the net taxable income is arrived at after adding the perquisite of the tax paid by the employer for the purpose of taxation it would amount to tax on tax, is fallacious. S. Takenaka v. CIT [1999] 237 ITR 112 (Kar.)Grossing-up will not apply when payment is not directly made to employee of foreign collaborator - Where, under agreement with foreign company, the Indian company made all payments directly to the foreign company after deducting tax at source, and the salary of the technician-employee of the foreign company who worked for the Indian company was paid abroad by the foreign company, the grossing-up principle cannot be applied on the ground that there had been a tax-free salary paid to the technician CIT v. Marco Brandolin [2001] 116 Taxman 768 (Mad.).Profits in lieu of SalaryAmount received under Voluntary Separation Scheme - Amount re ceived by assessee from his employer as payment under Voluntary Separation Scheme, would be taxable under section 17(3)(i) G.N. Badami v. CIT [1998] 144 CTR (Mad.) 289.Special Bonus on retirement - Amount paid by assessee-company to its executive director, at time of his leaving company as special bonus for exceptional services rendered by him, is profit in lieu of salary under section 17(3) J.K. Helene Curtis Ltd. v. CIT [1999] 103 Taxman 162 (Bom.).Restrictive covenant - Sum received by assessee-employee from erstwhile employer under a restrictive covenant not to take em ployment with competitor could not be treated as perquisite but is a capital receipt B.K. Kotru v. CIT [2006] 282 ITR 1 (Bom.).Scope of the expression termination of employment - The word any in the phrase any compensation occurring in section 17(3)(i) indicates both the quantum and the kind of compensation. It may be paid under a termination clause in the contract of service or it may be paid at the time of unexpected break of employment. The motive for the payment of compensation is immaterial. It may be paid in respect of loss of future remuneration or deprival of future promotion, thereby affecting the employee adversely. The payment of compensation may be voluntary or contractual. It will be taxable irrespective of the question whether the employer is liable to pay compensation in law or not. In sum and substance, the payment of compensation may be made by the employer at or in connection with the termination of employment.Even if such payment has no connection with the termination of employment, it would fall to be taxed as profits in lieu of salary. The phrase termination of employment would cover a termination in the natural course of events, the terms of employment having been completed and period of retirement having been arrived. It would also apply to premature termination of employment and termination by death or voluntary resignation. The termination of employment need not be at the instance of the employer only. It would cover the cases of voluntary retirement of an employee under a scheme framed by the employer CIT v. P. Surendra Prabhu [2005] 149 Taxman 82/279 ITR 402 (Ker.).Others - Where assessee applied for a job in a broadcasting agency in U.S.A. and she was intimated about clearing of competi tive test but job was never offered to her and in a class action suit, claim was filed by assessee and under a common consent decree, she received compensation in full and final settlement of all her claims, amount received by assessee would not be covered within expression profits in lieu of salary as appearing in section 17(3)(iii) CIT v. Smt. Rani Shankar Mishra [2009] 178 Taxman 324 (Delhi).Reimbursement of expenses can be brought under profits in lieu of salary - The reimbursement of the expenditure incurred by the employee has been intended to be roped in the definition of salary by bringing it as part of profits in lieu of salary. The expression profits in lieu of salary is not to be given a restricted meaning -I.E.L. Ltd. v. CIT [1993] 204 ITR 386 (Cal.).