JUDGMENT Sanjay Yadav, J. 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. Omitting what is contentious the following facts which are material to decide the issue involved have been taken from the facts before the Tribunal. The assessee was in the employment of Grasim Industries Ltd. and at the time of retirement he was holding the position of executive president in Vikram Cement, Mumbai, of Grasim Industries Ltd. He started his career in the Grasim Industries Ltd. on October 5, 1954, and served for 46 years and during this period he held key positions as chief executive, senior vice president and executive president and retired on September 30, 2000. That during the tenure of service the assessee was assigned the core responsibility of erection and commencement of cement plant of 1.8 million tons capacity per annum at Raipur. As executive president and other assignments in Grasim Industries the assessee attained considerable knowledge and special expertise and huge work experience of various industrial units run by Grasim Industries, i.e., textile, cement, etc. That after his retirement the assessee was granted an amount of Rs. As executive president and other assignments in Grasim Industries the assessee attained considerable knowledge and special expertise and huge work experience of various industrial units run by Grasim Industries, i.e., textile, cement, etc. That after his retirement the assessee was granted an amount of Rs. 27,50,000 as a special compensation in lieu of an agreement for refraining and restraining the assessee to take any employment activities or consultation which would be prejudicial to the business/interest of the Grasim Industries Ltd. At the behest and instance of the Grasim Industries Ltd., assessee had given an undertaking in this regard and the same was acknowledged, ratified and acted upon by the Grasim Industries Ltd. 4. 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. 5. 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. 5. I acknowledge and agree that if, for whatever reasons, I am unable to honour this understanding, the retirement benefits extended to me by the unit from where, I am retiring, will be withdrawn immediately. No further requests in this matter will be appreciated by the unit, once the benefits are withdrawn. If any breach of my undertaking occurs, the management besides stopping the benefits may also recover the paid benefits from the date of such breach. 6. The determination by the management whether I am in 'employment with competitors' or is engaged in 'competitive employment' shall be final and binding. 5. The assessee showed the receipt of Rs. 27,50,000 in his return filed on March 31, 2002, for the assessment year 2001-02 and claimed before the Income Tax Officer as a non-taxable receipt being the compensation for not taking up any competitive employment under a restrictive covenant considering it as a capital receipt. The case was picked up for scrutiny and notice under Section 143(2) of the Act was issued to the assessee on October 29, 2002. On January 30, 2003, the assessee was asked to submit a copy of the covenant dated October 21, 2000, and was asked to explain why this covenant be treated as capital receipt. In compliance with the said query the assessee filed a copy of letter dated March 7, 2001, from the Aditya Birla Group, Mumbai, addressed to Shri K.C. Jhanwer, executive president, Vikram Cement, Neemuch along with copy of proposal dated September 30, 2000, submitted by the assessee addressed to M/s. Vikram Cement. In the said letter, it has been mentioned that the following retirement benefits may be paid to Shri S.S. Chhaparia, the assessee: ------------------------------------------------------------------------------- Gratuity 20 months 16,02,940 Leave encashment 240 days 6,41,176 Special compensation for his agreement not to take 27,50,000 up any competitive employment/assignment in future as per the undertaking signed by him ------------------------------------------------------------------------------- 6. In the said letter, it has been mentioned that the following retirement benefits may be paid to Shri S.S. Chhaparia, the assessee: ------------------------------------------------------------------------------- Gratuity 20 months 16,02,940 Leave encashment 240 days 6,41,176 Special compensation for his agreement not to take 27,50,000 up any competitive employment/assignment in future as per the undertaking signed by him ------------------------------------------------------------------------------- 6. That on March 17, 2003, a query letter was served on the assessee by the Deputy Commissioner of Income Tax, Range II(I), Gwalior, to the following extent: Please produce the following: (1) Terms of employment and worthing of all retirement benefits (2) Details of business/employment attended to by him in the financial year 2001-02 and the financial year 2002-03. If he is director/ consultant in any other company in this period please give details thereof. (3) Section 17(3)(i) of the Income Tax Act, 1961, as such payment as profits in lieu of salary and to make it only abundantly clear and to plus possible leakage Clause (iii) of Section 17(3) has been brought in the statute with effect from April 1, 2002. (3.1) The words 'any compensation' received from employer at or in connection with the termination of his employment is sufficient to cover the payment noted above. (Retirement from service would be covered by termination of employment.) (4) The judgment cited by your learned Counsel CIT v. Best and Co. P. Ltd. [1966]60ITR11(SC) is not applicable to the facts of your case in the light of the following facts. (i) That case referred to the agreement to refrain from carrying on competitive business. (ii) In your case you have been a salaried employee of a large corporate group retiring at ripe age of 68 years and you in no way can ... on a business competitive to the business of your employer group company. (iii) You served in Co/Group for 46 years and retired at the ripe age of 68. (iv) The sum of Rs. 27.50 lakhs is part of the retirement benefits. (v) Although it has been called a special compensation for his agreement not to take up any competitive employment/assignment in future for 2 years it seems to be merely a ploy to claim the sum as capital receipt. In the light of the above fact, please state and show cause as to why the receipt of Rs. (v) Although it has been called a special compensation for his agreement not to take up any competitive employment/assignment in future for 2 years it seems to be merely a ploy to claim the sum as capital receipt. In the light of the above fact, please state and show cause as to why the receipt of Rs. 27.5 lakhs should not be treated as income as was rightly taxed by your employer-company. Please furnish the reply on March 24, 2003, as the case is being fixed on that day on request of your counsel Shri S.K. Saboo FCA, learned Counsel. 7. The assessee filed his reply on March 24, 2003, reiterating that the amount of Rs. 27,50,000 received by him is a capital receipts arising out of restrictive covenants, therefore, not liable to be taxed. The assessee relied upon various judgments of the Income Tax Appellate Tribunal, High Courts and the apex court rendered on the issue. 8. The Assessing Officer, while discarding the submissions put forth by the assessee, held that the amount of Rs. 27,50,000 to be taxable and an order under Section 143(3) was passed on March 28, 2003. Being aggrieved of the order of assessment, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Whereupon the appellate authority upholding the challenge, held by his order dated July 2, 2003, as under: I have gone through the records of the case, the written submission made by the appellant and the arguments put forward by the learned authorised representative, I find from the assessment order that the Assessing Officer has not accepted the claim of the appellant on the ground that: (1) that the case of Best and Co. Pvt. Ltd. decided by the hon'ble Supreme Court was that of an agency whereas the case of the appellant is that of one who was in service. (2) Section 17(3)(i) of the Act is squarely applicable to the case of the appellant. I find it difficult to agree with the stand taken by the Assessing Officer. From the papers filed before me, I find that the appellant is a man of high skill in the field of office work and because of the restrain put on him by the agreement with the company, he lost the source of income earning and if source of income is lost, compensation for that is a capital receipt. From the papers filed before me, I find that the appellant is a man of high skill in the field of office work and because of the restrain put on him by the agreement with the company, he lost the source of income earning and if source of income is lost, compensation for that is a capital receipt. As there was restriction for the appellant not to work in business of any type and anywhere, so the compensation was received in lieu of loss of future work and, hence, it was a capital receipt. The appellant has to act upon the agreement and is not to undertake any forbidden activity directly or indirectly. Thus, capital asset that is knowledge, skill and experience, the source of the appellant's income stood sterilized under the agreement or in other words the appellant relinquished his fundamental rights to utilize his knowledge, skill and experience for a particular period. It is, therefore, clearly a capital receipt. The law quoted by the appellant is squarely applicable and the conclusive pronouncement of the hon'ble apex court in Best and Co. Pvt. Ltd. (supra) goes totally in favour of the appellant. On similar facts, in Asst. CIT v. Prakash G. Heblkar [2002] 83 ITD 495, the Mumbai Bench of the Income Tax Appellate Tribunal has decided in favour of the assessee. In the present case also, the restrictive covenant was an independent obligation which came into operation only when the agency (service in the present case) came to an end and that, therefore, that part of the compensation which was attributable to the restrictive covenant is a capital receipt and hence not taxable. As far as the Assessing Officer's view that the case falls under the provisions of Section 17(3)(i) of the Act is concerned, it is clear that the restrictive covenant of excluding situation like the present one from the purview of Section 17(3)(i) is evident from the latest amendment in the Act which has introduced Section 17(3)(iii) with effect from year 2002-03. In view of this discussion, I am of the strong opinion that the arguments of the learned authorised representative should be accepted. In ASPY B. Talati v. ITO [2002] 75 TTJ (Mum) 106, the assessee received Rs. In view of this discussion, I am of the strong opinion that the arguments of the learned authorised representative should be accepted. In ASPY B. Talati v. ITO [2002] 75 TTJ (Mum) 106, the assessee received Rs. 1 lakh each from the company for the two relevant assessment years in appreciation of personal attributes and qualities, which were over and above his legal dues and claimed the amount for the two assessment years as exempt from tax. The Assessing Officer did not agree with the claim of the assessee. In first appeal, the Commissioner of Income Tax (Appeals) confirmed; the order of the Assessing Officer. Giving the decision in second appeal, the Income Tax Appellate Tribunal, Mumbai "A" Bench held that the payment received by the assessee from the loyalty and sincerity towards the company at the time of resignation was not taxable under Section 17(3) as provided in lieu of salary; such receipt was a capital receipt. In that case, there was not even a restrictive covenant. In spite of that the Tribunal has held the amount received as capital receipt and not taxable under Section 17(3). In the present case, the claim of the appellant is stronger in the sense that there is a 'restrictive covenant'. In view of this decision and the discussion made, it is clear that the case of the appellant should be decided in his favour. The addition of Rs. 27,50,000 is, therefore, not sustainable and is, accordingly, deleted. In the result, the appeal is allowed. 9. The Revenue being aggrieved of the aforesaid order of the Commissioner of Income Tax (Appeals) preferred an appeal before the Income Tax Appellate Tribunal, Agra. The Tribunal by its order dated November 30, 2006, affirmed the order of the Commissioner of Income Tax (Appeals) in the following terms: 10. We have heard the rival submissions. We have perused the record and the relevant case law. The learned Commissioner of Income Tax (Appeals) has given a categorical finding that the assessee was a man of high skill who had long experience at his command and was capable of starting competitive business. In order to avoid the situation, the employer M/s. Grasim India Ltd. entered into a restrictive covenant with the assessee. The learned authorised representative had rightly placed reliance on the case of CIT v. A.S. Wardekar [2006]283ITR432(Cal) . In order to avoid the situation, the employer M/s. Grasim India Ltd. entered into a restrictive covenant with the assessee. The learned authorised representative had rightly placed reliance on the case of CIT v. A.S. Wardekar [2006]283ITR432(Cal) . In this case, it was held that the sum of Rs. 175 lakhs received by the assessee for entering into a restrictive covenant of not entering into competitive business was a receipt by the assessee of a capital nature and thus not liable to tax. For this purpose, the learned authorised representative had also relied upon a few order of the Income Tax Appellate Tribunal Benches which also support the contentions of assessee-respondent. Section 17(3)(i) of the Income Tax Act. The Assessing Officer opines that the Act covers such payment as profits in lieu of salary and to make it only abundantly clear and to plug possible leakage Clause (iii) was inserted under Section 17(3) of the Act with effect from April 1, 2002. This clause reads as under: (iii) any amount due to or received, whether in lump sum of otherwise, by any assessee from any person (A) before his joining any employment with that person ; or (B) after cessation of his employment with that person. 11. From the perusal of Section 17(3)(iii), it is evident that this Clause (iii) to Section 17(3) was applicable for the assessment year 2002-03 and not for the assessment year under appeal. The learned authorised representative had rightly placed reliance on the case of CIT v. Varas International P. Ltd. [2006] 283 ITR 484. In this case, it was held that for an amendment of a statute to be construed as being retrospective, the amended provisions itself should indicate either in terms or by necessary implication that it is to operate retrospectively. Thus, we find no infirmity in the order of the learned Commissioner of Income Tax (Appeals) which is sustained for the reasons given therein. In the result, the appeal of the Revenue is dismissed. 10. The present appeal is against the aforesaid order. 11. Thus, we find no infirmity in the order of the learned Commissioner of Income Tax (Appeals) which is sustained for the reasons given therein. In the result, the appeal of the Revenue is dismissed. 10. The present appeal is against the aforesaid order. 11. Relying upon the statutory provisions, i.e., Section 17(3)(i) of the Act of 1961 which stipulates that: (3) 'Profit in lieu of salary' includes: (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto. 12. It is urged by Shri R.D. Jain, learned senior counsel appearing for the Commissioner of Income Tax; that the restrictive covenant dated October 21, 2000, is merely a device or camouflage to defeat the Income Tax liability and, therefore, the agreement in question cannot be read separately but must be read in the context to the employment in which the petitioner was engaged and the amount of Rs. 27,50,000 at the hands of the assessee was a compensation received in connection with the modification of the terms and conditions relating to termination of his employment and cannot be regarded solely as special compensation for not to take up any competitive employment/assignment in future. According to learned Counsel, the whole thing was as a mere show, and the payment was as a result of an integrated activity and, therefore, it is essential that this Court should lift the veil to ascertain its true character. It is also urged that the payment to the assessee was in consideration of past service, the experience gained and the restrictive covenant did not permanently partake of the assessee the use of skill and aptitude which he gained while in employment but was for the period of two years as is evident from clause 2 of the covenant dated October 21, 2000, which stipulates that: "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." It is further submitted that taking into consideration the "integrated activity" the amount of Rs. 27,50,000 partakes of the character of income receipt and was rightly taken into consideration as income subject to tax. 13. 27,50,000 partakes of the character of income receipt and was rightly taken into consideration as income subject to tax. 13. On the other hand, Shri K. N. Gupta, learned senior counsel appearing along with Shri Sampath Krishnan and Shri Sikandar Khan, advocate, for the assessee submits in reply that the payment of Rs. 27,50,000 made to him, were, on his relinquishment of his right to take up any competitive employment/assignment on his retirement from the service of his employer and the payment was solely a special compensation in token of his relinquishment, which was not, as submitted, in consideration of his past services but in reality was one towards compensation. It is submitted that the assessee had an enduring prospect because of the expertise he had but the same was abrogated because of the said restrictive covenant which neither was a device nor a camouflage to defeat the Income Tax liability. It is urged that the contract of employment having come to an end with effect from September 30, 2000, when the assessee stood retired on attaining the age of superannuation, the payment subsequent to the said superannuation to honour the restrictive covenant was not under the service agreement. The finding of the Commissioner of Income Tax (Appeals) and that of the Tribunal that the payment was received by the assessee solely as compensation for not to take up any competitive employment/assignment being the finding of fact cannot be interfered in an appeal under Section 260A of the Act of 1961. 14. In the matter relating to revenue as was held by the Division Bench of this Court in the case of CIT v. Captain H.C. Dhanda [1970]76ITR404(MP) that the court must regard what is called "the substance of the matter" to bring the subject within the charge to a tax. And, therefore, the outward form of a transaction might be disregarded. This observation is based on the following statement of Lord Macmillan in the case of Hunter (H. M. Inspector of Taxes) v. Dewhurst [1932] 16 TC 635 (CA). . The circumstance that a payment is described as 'compensation for the loss of office' is to my mind immaterial if the payment be in truth made as part of the bargain for remuneration on which the services in the office have been rendered. 15. . The circumstance that a payment is described as 'compensation for the loss of office' is to my mind immaterial if the payment be in truth made as part of the bargain for remuneration on which the services in the office have been rendered. 15. However, before we venture to explore the "substance of the matter", regard may be had to various decisions, because the question as to what is attributable to capital and what to revenue has led to a long controversy. 16. In K.T.M.T.M. Abdul Kayoom v. CIT [1962]44ITR689(SC), Hidayatullah J. (as he then was), speaking for the court, stated the problem regarding what is attributable to capital and what to revenue in the following words: Each case depends on its own facts, and a close similarity one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. 17. The expression "compensation for loss of office" came up for consideration before the apex court in the case of CIT v. E.D. Sheppard [1963]48ITR237(SC) , wherein their Lordships while laying down its true meaning approved the statement of Romer L. J. In Henry (H. M. Inspector of Taxes) v. Arthur Foster [1932] 16 TC 605 at page 634 to the extent that, "it means a payment to the holder of an office as compensation for being deprived of profits to which as between himself and his employer he would, but for an act of deprivation by his employer or some third party such as Legislature, have been entitled". 18. 18. Their Lordships of the Supreme Court in the case of Sheppard, supra, further approved the following observations of Rowlatt J. in Chibbett v. Joseph Robinson [1924] 9 TC 48: As Sir Richard Henn Collins said, you must not look at the point of view of the person who pays and see whether he is compellable to pay or not; you have to look at the point of view of the person who receives, to see whether he receives it in respect of his services, if it is a question of an office, and in respect of his trade, if it is a question of a trade, and so on. You have to look at his point of view to see whether he receives it in respect of those considerations. That is perfectly true. But when you look at that question from what is described as the point of view of the recipient, that sends you back again, looking, for that purpose, to the point of view of the payer; not from the point of view of compellability or liability, but from the point of view of a person inquiring what is this payment for; and you have to see whether the maker of the payment makes it for the services and the receiver receives it for the services. 19. The Division Bench of this Court in the case of Captain H. C. Dhanda [1970]76ITR404(MP) , on relying upon 20 Halsbury's Laws of England, Simonds' edition, pages 14, 150-1 and 324-5 ; Simon's Income Tax, Replacement 1964-65, Vol. III, pages 109-13, Income Tax Law and Practice, Plunket and Newport, 29th edition, pages 152-3; Principles of Income Taxation by Hannan, page 271 et seq. and The Meaning of Income in the Law of Income Tax, by F. E. La Brie, 1953, edition pages 205-15, stated that (page 427): The rule that Income Tax does not tax the value of the source of income or the amount of a capital gain therefrom ought, on principles, to apply equally to all and every form of transaction. Accordingly payments received for the surrender of rights acquired under the service agreement and found to be in the nature of capital would be excluded from taxation as income. 20. Accordingly payments received for the surrender of rights acquired under the service agreement and found to be in the nature of capital would be excluded from taxation as income. 20. In Mahesh Anantrai Pattani v. CIT [1961]41ITR481(SC) , their Lordships of the Supreme Court was concerned with the assessability to Income Tax of an amount of rupees five lakhs paid by the Maharaja of Bhavnagar to the assessee who was the Chief Dewan of the native State upon its merger in the United State of Saurashtra, on his ceasing to be the ruler of the State. At the request of the assessee, the Maharaja subsequently wrote a letter to him stating that the payment was a gift in token of his affection and regard for his loyal and meritorious services. The Income Tax authorities as well as the Appellate Tribunal held that the amount was a taxable receipt in the hands of the assessee under Section 7(1) of the Income Tax Act read with Explanation 2, before its amendment in 1955. On a reference, the High Court affirmed the decision of the Appellate Tribunal. On appeal to the Supreme Court, it was held by majority that the sum of Rs. 5 lakhs was paid to the assessee, not in token of appreciation for the services rendered as the Dewan of the Bhavnagar State but as a personal gift by the Maharaja, as a token esteem for his loyal and meritorious services and the amount was, therefore, not taxable. 21. Besides above, there are other judgments which are relied upon by the parties, viz., CIT v. Best and Co. P. Ltd. [1966]60ITR11(SC) , CIT v. A.S. Wardekar [2006]283ITR432(Cal) , CIT v. Varas International P. Ltd. [2006] 283 ITR 484, CIT v. Saroj Kumar Poddar [2005]279ITR573(Cal) . 22. In the case of CIT v. Varas International P. Ltd. [2006] 283 ITR 484 their Lordships of the apex court were concerned with the issue that "for the amendment of a statute to be construed as being retrospective, should not the amended provision itself indicate either in terms or by necessary implication that it is to operate retrospectively ? And having noted the issue having been conclusively determined affirmatively, refrained from resolving the issue. And having noted the issue having been conclusively determined affirmatively, refrained from resolving the issue. Which thus, leave no manner of doubt that the introduction of new provisions in the form of Section 17(3)(iii) introduced with effect form April 1, 2002, will not have any bearing upon the construction/ interpretation of Section 17(3)(i) and its applicability to the transactions which took place prior to April 1, 2002. 23. In the case of Best and Co. P. Ltd. [1966]60ITR11(SC) , the Supreme Court while dealing with the case of the assessee-respondent, a company carrying on business in innumerable lines, acquired, in the course of its business, selling agencies from manufacturers both in and outside India. One of them was from Imperial Chemical Industries (Exports) Ltd., Glasgow, for distribution of their explosives in certain centres. This agency came into existence in 1900 and, although terminable at will, continued up to 1947, in which year Imperial Chemical Industries (Exports) Ltd. decided that all its agencies in India and Ceylon should be taken over by the Imperial Chemical Industries (India) Ltd. ; and gave notice to the respondent terminating the agency from April 1, 1948. Towards compensation for the transfer of the agency, the respondent was paid during the three successive years after the termination of the agency, certain amounts calculated on the basis of commission on sales made by the Imperial Chemical Industries (India) Ltd. As a condition of paying the compensation the respondent undertook for a period of five years to refrain from selling or accepting any agency for explosives competitive with those covered by the agency agreements terminated. The respondent claimed that the amounts received by it (in the second and third years, assessment proceedings for the first year having become final), were capital receipts as they represented compensation for termination of the agency and consideration for the restrictive covenant. The respondent placed no material before the Department to establish the relative importance of the agency in the framework of the earning apparatus of its business or to prove that the agency was a pivot of its structure and that the respondent had closed any branch or part of its establishment in consequence of the said loss. The respondent placed no material before the Department to establish the relative importance of the agency in the framework of the earning apparatus of its business or to prove that the agency was a pivot of its structure and that the respondent had closed any branch or part of its establishment in consequence of the said loss. Their Lordships held, (i) that the compensation agreed to be paid was not only in lieu of the loss of the agency but also for the respondent accepting a restrictive covenant for a specified period; (ii) that the restrictive covenant was an independent obligation which came into operation only when the agency was terminated and that part of the compensation which was attributable to the restrictive covenant was a capital receipt and hence not taxable, (iii) that, on the facts, that part of the compensation received towards loss of the agency was a revenue receipt, as the loss of the agency was only a normal trading loss, (iv) that, if compensation was paid in respect of two distinct matters, one taking the character of a capital receipt and the other of a revenue receipt, there was no principle which prevented its apportionment between the two matters. Difficulty in apportionment was not a ground for rejecting the claim either of the Revenue or of the assessee. Therefore, apportionment had to be made of the compensation in this case on a reasonable basis between the loss of the agency in the usual course of business and the restrictive covenant. 24. In the case of A.S. Wardekar [2006]283ITR432(Cal) , the Division Bench of the Calcutta High Court was concerned with the money received by the assessee-firm which was refrained under the covenant to undertake any business similar to the business of the company which compensated. The Assessing Officer held that the receipt was of casual and non-recurring nature subject to the exemption prescribed under Section 10(3). The Commissioner (Appeals) and the Tribunal held that the sum was not assessable. On appeal the High Court held : (i) that no material had been brought on record to show that the restrictive covenant was a sham agreement. The sum of Rs. 175 lakhs received by the assessee for entering into a restrictive covenant of not entering into a restrictive business was a receipt by the assessee of a capital nature and thus not liable to tax. The sum of Rs. 175 lakhs received by the assessee for entering into a restrictive covenant of not entering into a restrictive business was a receipt by the assessee of a capital nature and thus not liable to tax. (ii) That since the sum of Rs. 175 lakhs was a "capital receipt" having no cost of acquisition or the cost of acquisition could not be calculated, the sum was not taxable under Section 45. (iii) That where the income cannot be charged under Section 45 because of the inapplicability of the computation provided under Section 48, it could not be taxed as a casual or non-recurring receipt under Section 10(3) read with Section 56 of the Act. The Tribunal was justified in law in deleting the addition of Rs. 1,74,95,000, made by the Assessing Officer under the provision of Section 10(3) of the Income Tax Act, 1961. 25. In the case of CIT v. Saroj Kumar Poddar [2005]279ITR573(Cal) the Division Bench was concerned whether on the facts it can be said that the payment under "non-compete agreement" was a colourable device, as the assessee did not sell any assets. The facts as appeared at page 576 of [2005]279ITR573(Cal) were that: The facts are not in dispute that the assessee had earlier collaboration with Gillette Company and M/s. India Shaving Products Ltd. was formed and that company has set on the units to produce Gillette blades and other shaving products, that company was formed in 1982, the assessee was the non-executive chairman of that company. Though the major shareholding was of Gillette Company, but the assessee being non-executive chairman of ISP acquired the expertise knowledge in Gillette Company products, such as knowledge regarding raw material from where it is available, cheap and better quality manufacturing technique of Gillette products and its market. He had gained this experience for a number of years that is from 1982 to 1996. The assessee has also produced the letter dated December 15, 1994, from the Credit Capital Finance Corporation, which manufactures 'shick' brand blades, addressed to the assessee wherein Credit Corporation proposed for similar type of collaboration with the assessee, as the assessee had with Gillette Company. No material has been brought on record by the Assessing Officer to support that the 'non-compete agreement' is a colourable device. No material has been brought on record by the Assessing Officer to support that the 'non-compete agreement' is a colourable device. In view of these undisputed facts, we find no reason to disturb the finding of fact of the Tribunal that the agreement is not a colourable device. 26. In W.A. Guff v. CIT [1957]31ITR826(Bom) , Chagla C.J. stated (headnote): The expression 'compensation for loss of employment', used in Explanation 2 to Section 7 of the Indian Income Tax Act, refers to any payment made whether under a legal liability or voluntarily to compensate or act as a solatium for loss of employment suffered by an employee. Consequently, if there is a compulsory cessation of a business, or of an employment, and in respect of that compulsory cessation any amount is paid, whether that amount is a compensation for which the employer is legally liable or whether it is a payment made ex gratia, it would still be compensation for the loss of employment within the meaning of Section 7 and the amount paid would be a capital receipt and exempt from tax. 27. One more class of cases receiving "compensation for loss of employment" was noted by a Division Bench of this Court in the case H.C. Dhanda [1970]76ITR404(MP) , in paragraph 29 that where the contract itself ceases altogether and the sum becomes payable in consideration of the total abandonment or abrogation of all contractual rights which the recipient had under the contract. The sum received would not be assessable except to the extent provided. 28. Similarly, in paragraph 30 it was stated (page 430): 30. There is yet another class of case, as indicated by the Court of Appeal in Henley v. Murray (H. M. Inspector of Taxes) [1950] 31 TC 351, viz., where the payment is as damages for the repudiation of the service agreement due to the abrupt and unilateral act of the employer. In dealing with that class of case, Evershed, M. R. stated: But there is another class of case where the bargain is, as it seems to me, of an essentially different character, for in the second class of case the contract itself goes altogether and some sum becomes payable for the consideration of the total abandonment of all the contractual rights which the other party had under the contract. In the course of the argument an extreme case was put to Mr. Selwyn Lloyd and Mr. Hills of an employer who breaks wrongfully a contract of service and discharges a servant wholly therefrom and the servant then sues for damages for wrongful dismissal. Although of course it is true to say that the sum awarded as damages arises from the contract in the sense that if there had never been a contract the sum of damages could never have been awarded, still both Mr. Selwyn Lloyd and Mr. Hills admitted, as I think they were bound to do, that in a case of that sort it would be impossible to suggest, if the facts were merely as I have stated them, that the sum awarded to him for damages was taxable under Schedule E." Somervell L. J. also stated: If in the case of dismissal where the employee says 'I am wrongfully dismissed' and sues for damages he is admittedly outside Schedule E and untaxable, it seems to me to follow from that, if one goes by stages, that if you take a case where equally the employer dismisses his employee and the damages are agreed without litigation, the fact that they are agreed instead of being awarded by a judge or jury cannot affect their legal position in regard to the Income Tax Code. It seems to me on the evidence that that is what happened here. The employer said, 'You must go'. I think it is perhaps clear from the position that he held that he need not have gone, but he, as he said, was forced into it; he did it at the request of the employers. The sum which he stipulated for according to his letter, it seems to me, must legally be in precisely the same position as would have been a sum for damages for wrongful dismissal. 29. The sum which he stipulated for according to his letter, it seems to me, must legally be in precisely the same position as would have been a sum for damages for wrongful dismissal. 29. Perception of the decisions noted above and to quote from H. C. Dhanda [1970]76ITR404(MP) , clearly shows that "the distinction between one class of case, (where the payment of compensation is in lieu of abondonment of all contractual rights which the recipient had under the contract or as damages for its wrongful repudiation due to unilateral act of the employer) and another class of case, (where the payment of compensation is in terms of the contract of service as remuneration for past or a deferred payment in terms thereof), runs through". It is the distinction between the two is the decision lies as to on which side of line the given case would fall. 30. Regard, in this respect can be had for the case of V.D. Talwar v. CIT [1963]49ITR122(SC) , wherein, their Lordships of the apex court, while dealing with the case of an employee who has received the amount of Rs. 25,200 towards notice pay, affirmed the view of the Patna High Court, that the assessee was liable for tax. The High Court on its turn had relied upon the judgment in Henry v. Arthur Foster [1932] 16 TC 605. It was observed by their Lordships in the case of V.D. Talwar [1963]49ITR122(SC) , in paragraph 5: This was a feature which distinguished Hunter (H. M, Inspector of Taxes) v. Dewhurst [1932] 16 TC 605 from the two Foster cases (supra) and it brought into relief the distinction between the two classes of cases, one in which there is deprivation of rights under the agreement and this would fall under compensation and the other in which there is no such deprivation. Perhaps Sir Raymond Evershed M.R. (as he then was) had this distinction in mind when in Henley v. Murray (H.M. Inspector of Taxes) [1950] 31 TC 351 he said that there were two kinds of cases which fell for consideration under this head : one in which the right of one party to call upon the other for performance of the terms of agreement may be modified or indeed wholly given up, still the corresponding right to acquire payment either of the whole sum or some less figure is reserved and is still payable under the contract and the other is where the contract itself goes altogether and some sum becomes payable for the consideration of the total abandonment of all the contractual rights which the other party had under the contract. In one class of cases the contract persists and the amount is payable under the contract and in the other class of cases there is total abandonment of all contractual rights and what is paid is in consideration of that abandonment. (emphasis supplied) 31. In the case at hand, we have noted that the assessee retired from service on attaining the age of superannuation with effect from September 30, 2000, there was thus severance of master-servant relationship and no material is brought on record by the Revenue to suggest that there existed a service contract providing therein a restrictive covenant preventing thereby the assessee to take up any employment, activities on consultation which would be prejudicial to the business/interest of Grasim Industries. It was only on October 21, 2000, that the assessee "surrenders his rights" by executing an agreement refraining himself from taking up any competitive employment/assignment in future which leads to grant of special compensation of Rs. 27,50,000. It cannot, as suggested by the Revenue, be termed as "profit in lieu of salary" because it is not any compensation due to or received by an assessee from his employer or partner-employer at or in connection with the termination of his employment. In the modification of the terms and conditions relating thereof, the period of restriction, in our considered opinion, is of no consequence. And, as noted in Captain H.C. Dhanda [1970]76ITR404(MP) in matters relating to revenue, the court must regard what is called "the substance of the matter" to bring the subject within the charge to a tax. In the modification of the terms and conditions relating thereof, the period of restriction, in our considered opinion, is of no consequence. And, as noted in Captain H.C. Dhanda [1970]76ITR404(MP) in matters relating to revenue, the court must regard what is called "the substance of the matter" to bring the subject within the charge to a tax. And, therefore, the outward form of a transaction might be disregarded. 32. Having thus considered, it is held that the payment of Rs. 27,50,000 received by the assessee being solely as compensation for his agreement not to take up any competitive employment/assignment in future, the same, as rightly held by the Commissioner of Income Tax (Appeals) and the Tribunal, cannot be added for the purpose of income tax for the year 2001-02 and question is answered accordingly. The petition is hereby dismissed. However, no order as to costs. Petition dismissed against department.