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The Tax Publishers Refund of non-compete and confidentiality amount whether deductible from salary *Facts:* Assessee chose to resign from his current employer for which he was paid a severance compensation which had a Non-compete and confidentiality clause with a cooling period of 30 months. Since assessee had to take up another employment before the cooling period, he had to repay part of the severance compensation in the next financial year 2016-17 to his erstwhile employer. Assessee filed a revised return reducing his income by the repaid/refunded amount, to which revenue did not agree with the reduction in income. On higher appeal - Held in favour of the assessee that since the non-compete conditions were breached the refund had happened. Accordingly no income accrued to the assessee to that extent. The repaid amount was allowed to be reduced from the earlier offered salary income i.e. the revised return was found to be acceptable and correct. *Followed:*CIT v. Raghunath Murti (2008) 178 Taxman 144 (Del) : 2008 TaxPub(DT) 2232 (Del-HC) *Ed. Note:* Real income principle would need to be applied in such cases invariably as assessee cannot be taxed on a hypothetical income which did not accrue to him. *Case:* Pramod Murlidhar Unde v. ACIT 2023 TaxPub(DT) 782 (Pn-Trib)

The Tax Publishers

Refund of non-compete and confidentiality amount whether deductible from salary

Facts: Assessee chose to resign from his current employer for which he was paid a severance compensation which had a Non-compete and confidentiality clause with a cooling period of 30 months. Since assessee had to take up another employment before the cooling period, he had to repay part of the severance compensation in the next financial year 2016-17 to his erstwhile employer. Assessee filed a revised return reducing his income by the repaid/refunded amount, to which revenue did not agree with the reduction in income. On higher appeal -

Held in favour of the assessee that since the non-compete conditions were breached the refund had happened. Accordingly no income accrued to the assessee to that extent. The repaid amount was allowed to be reduced from the earlier offered salary income i.e. the revised return was found to be acceptable and correct.

Followed:CIT v. Raghunath Murti (2008) 178 Taxman 144 (Del) : 2008 TaxPub(DT) 2232 (Del-HC)

Ed. Note: Real income principle would need to be applied in such cases invariably as assessee cannot be taxed on a hypothetical income which did not accrue to him.

Case: Pramod Murlidhar Unde v. ACIT 2023 TaxPub(DT) 782 (Pn-Trib)