Income Tax Act, 1961

--Head of income--Business income or salary income Income earned from non-compete agreement--Assessee was a General Sales Agent (GSA) of Uzbekistan Airways (UA) Uzind Corporation (UC) and received a salary in that capacity. By a non-compete agreement (NCA), assessee received an amount of 7 per cent of the cargo freight and cost of tickets payable by UC to UA in addition to his regular salary. For relevant assessment year, UC showed the non-compete fees as business expenditure and assessee was showing only a part of it (the amount actually received by him during each assessment year) as business income. Assessing officer concluded that commission credited to the firm, UC was Rs. 8.47 crores, while the assessee had shown Rs. 74 lakhs as business income, which was to be taxed as salary. Assessee contended that since control was by him, it was his business and therefore, the amount was business income. It was argued that after the agreement was entered into, he began receiving amounts from UC in a dual capacity i.e., salary in his capacity as an employee of UC and non-compete fees for not carrying on any business similar to that of the firm UC. Thus, he was entitled to receive the amount under the commission even after termination of employment with UC. Therefore, commission was paid out of a separate agreement which did not flow from the employer- employee relationship. It was thus taxable as a business income under section 28(va). Held: In CIT v. P. Ramajayam 2004 TaxPub(DT) 47 (Mad-HC) : (2004) 186 CTR (Mad) 477, the assessee was engaged as a manager of a retail show store and was paid on a salary-cum-commission basis. The court held in favour of the assessee because under the commission agreement, he had a great amount of freedom to exercise his duties, and would thus not qualify as being 'employed' under the agreement. Thus, the income earned from the second capacity under the contract for service, would not be taxed under the head 'Income from salary'. The ratio of the above case would be inapplicable in this case as the second capacity in which the assessee earned the commission from the non-compete agreement could not be established. The assessee continued to earn the non-compete commission in his capacity as an employee, to refrain from carrying on any business similar to that of UC. Therefore, the commission amount clearly was part of salary answering the description under the inclusive definition under section 17.

Income Tax Act, 1961 Section 14

Income Tax Act, 1961 Section 16