ITAT · Ahmedabad Bench2025§17(3)
ITAT Ahmedabad on §17(3): severance for loss of employment on acquisition is a capital receipt
Is severance paid on losing employment after an acquisition taxable as salary?
No. Compensation paid for loss of employment, not for past services, is a capital receipt outside §17(3) and not taxable.
Reviewed by Sri O. P. Yadav, IRS (R), Principal Commissioner of Income Tax (Retd.) · Published 2026-07-07
Facts in brief
- The assessee received severance compensation after employment terminated on the employer's acquisition by another company.
Issue before the bench
Whether the payment is profits in lieu of salary under §17(3) or a capital receipt.
Held
Since the compensation was for loss of employment rather than services rendered, it qualified as a non-taxable capital receipt.
Practitioner takeaway
Draft severance documentation to speak to loss of employment, not settlement of dues for service: the characterisation decides taxability.
More on this topic: Assessment & appeals: characterisation, deductions and appellate practice · Need this drafted? Appeals Drafting for CA Firms: CIT(A) and ITAT