Money received by an employee of a foreign company while leaving the firm, even if it is paid as non-compete fee, will be taxable in India, going by a tax tribunal ruling.
In the case of a former Chief Executive Officer of Netherlands-based HCL Deluxe NV (HDX), the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled recently that that $1 million received by him on his termination from service will have to be taxed as salary.
When the business of a firm is taken over by another, the former gets a non-compete for not undertaking a similar line of activity.
"The entire amount of $1 million is assessable as profits in lieu of salary," the ITAT order said in the case of Ravinder Behl, who had appealed that the amount should not be taxed as salary.
The tribunal said the amount was paid because Ravinder Behl's service as chief executive Officer (CEO) of the company was terminated and so the payment is taxable.
Behl was an employee of HCL Deluxe NV (HDX), a company incorporated in the Netherlands, and was appointed in 1998 at a gross salary of more than Rs 50 lakh per annum.
However, there was a clause in the agreement with Behl that he would receive a non-compete fee if terminated.