These are cross, appeals taken by assessee and Revenue against order of CIT(A), dt. 11th Dec., 2001, pertaining to asst. yr. 1998-99. At time of hearing before us, Shri K.R. Prasad, advocate, and Ms. Archana Choudhary, Departmental Representative, appeared on behalf of assessee and Revenue, respectively. arguments have been heard and taken into consideration while disposing present proceedings. present appeals can be summarized in following manner. assessee is individual who was employee of M/s Electronics & Controls, proprietary concern of one Shri Ramachandra lyer. said Shri Ramachandra lyer died on 7th April, 1997. Upon his death, partnership was formed on 16th April, 1997 by legal heirs of deceased being partners. Such partnership took over business of proprietary concern as going concern w.e.f. 7th April, 1997. At that point of time, power of attorney was executed by partners of reconstituted firm styled as M/s Electronics & Controls by way of which assessee individual was appointed as attorney on behalf of firm. In terms of said power of attorney, assessee was given powers to run day-to-day production, purchase and marketing policies based on policy decision taken by firm. copy of said power of attorney has been placed in paper book filed before us. Clause 6 of said power of attorney states that said attorney shall be full time working manager responsible for all day-to-day activities of firm except insofar as for t h e purposes of financial borrowings and policy decisions. assessee contended that in terms of said power of attorney it was clear that there was n o employer-employee relationship between partnership firm and assessee individual and if at all there was relationship, it was of principal- g e n t relationship. It appears that subsequently certain differences arose between assessee and heirs of Shri Ramachandra lyer, i.e. partners of firm. two wanted to severe relationship with assessee and his wife in relation to various group concerns of legal heirs of Shri Ramachandra lyer. settlement agreement was reached between Mrs. Sundari Ramachandra, one of partners of M/s Electronics & Controls and assessee. Copy of said agreement has been placed in paper book before us. relevant clauses of same are being reproduced hereinafter: "1. said general manager and power of attorney holder will tender his resignation and confirms having returned power of attorney and same will be treated as his resignation. resignation is accepted by partner forthwith and consequently power of attorney shall stand revoked. matter raised and agitated by workers and others would be addressed jointly by partner and Mr. B.L. Subbaraya and for this purpose Mr. B.L. Subbaraya agrees to communicate and address all concerned to effect that there are no issues or difference of opinion among partner and Mr. B.L. Subbaraya and requests them to restore normalcy and communicate that there is no necessity for them to feel agitated on matters concerning partner and Mr. B.L. Subbaraya. Both parties agree further that (a) settlement of Rs. 100 lakhs (Rupees one hundred lakhs only) will be paid to Mr. B.L. Subbaraya in full and final settlement of all dealings and transactions concerning business matter and h i s employment hitherto in Electronics & Controls, supra, Sulax Corporation, ECPL and other business settlements concerning both parties. As regards Sulax Corporation, Mr. B.L. Subbaraya undertakes to obtain resignation of partner, Mrs. Srilakshmi Subbaraya, forthwith and Mrs. Sundari Ramachandran will be at liberty to induct any further partners in business of Sulax Corporation in any manner of her choice. It is mutual desire of parties hereto that Sulax Corporation will be managed by Mrs. Sundari Ramachandran in any manner of her choice and liabilities of business will not be borne and met by Mrs. Srilakshmi Subbaraya on any account whatsoever, consequent upon submission of resignation by Mrs. Srilakshmi Subbaraya from business of Sulax Corporation as partner. As regards settlement of partner in Sulax Corporation as provided for in cl. 6 above, Mr. B.L. Subbaraya agrees that any settlement as may be made in this respect arising out of resignation of Mrs. Srilakshmi Subbaraya and payable to Mrs. Srilakshmi Subbaraya will constitute and be part of settlement of compensation of Rs. 100 lakhs as described in cl. 3 of this agreement and shall constitute as final settlement from firm on this account." Further, in terms of said agreement extended to partnership firm of group, M/s Sulax Corporation, in which Smt. Srilakshmi Subbaraya, wife of assessee, was partner. In terms of retirement deed dt. 27th Oct., 1997, wife of assessee, Smt. Srilakshmi Subbaraya, retired. In terms of cl. 2 of retirement deed, sum of Rs. 20 lakhs was agreed to be paid to her in lieu of her share of profits upto date of retirement. This amount was payable to her in addition to amount standing to her credit as on 31st March, 1997. relevant clause, i.e., cl. 2 of retirement agreement is being reproduced hereinafter to facilitate appreciation of matter: "The final account of partnership has been drawn as of 31st March, 1997. As at said date sum of Rs. 11,00,000 stands to credit of retiring party. As retiring party is retiring in middle of year, retiring party has agreed to accept lump sum amount of Rs. 20,00,000 in lieu of her share of profits upto date of retirement. Thus, in addition to amount standing to her credit as at 31st March, 1997, after adjustment of drawings made upto date of retirement, said sum of Rs. 20,00,000 shall be paid to retiring party by continuing parties in full settlement of all her right, title and interest in all assets of partnership of M/s Sultax Corporation. Out of above sum, sum of Rs. 12,00,000 (rupees twelve lakhs only) has been paid along with this retirement deed and balance of Rs. 8,00,000 (rupees eight lakhs only) shall be paid by continuing parties within 60 days of this agreement in full and final settlement of dues to retiring partner. retiring partner acknowledges receipt of part settlement of Rs. 12,00,000 (rupees twelve lakhs only) and gives her consent to receive balance payment within 60 days of agreement hereto." Against aforesaid facts, AO proceeded to finalize assessment. Firstly, it was noticed by AO that in terms of settlement, assessee was to receive sum of Rs. 100 lakhs. assessee had already withdrawn sum of Rs. 23 lakhs, from firm M/s Electronics & Controls. According to assessee, out of total sum of Rs. 100 lakhs receivable, Rs. 20 lakhs were agreed to be received towards retirement of his wife from group partnership firm and that balance of Rs. 80 lakhs was only receivable by assessee. In terms of same, assessee contended that balance of Rs. 80 lakhs was to be understood as forming capital receipt and was not liable for taxation. According to assessee, since he had given up all sources of income, and such other rights thereby, there was extinction of income earning apparatus itself and thus treated sum of Rs. 80 lakhs as capital receipt. AO, on other hand, took view that entire sum of Rs. 100 lakhs was to be treated as accruing to assessee alone and no portion of same could be treated as relating to Smt. Srilakshmi Subbaraya, assessee s wife, who had retired from group partnership firm. Noticing that since sum of Rs. 23 lakhs has already been withdrawn by assessee which constituted sum of Rs. 100 lakhs, same was liable to tax. According to AO, amount of Rs. 23 lakhs was to be treated as amount in lieu of salary being sums being withdrawn by assessee out of which Rs. 2,50,000 was given as deduction under s. 10(10), holding it as gratuity and balance of Rs. 20,50,000 was brought to tax. balance sum of Rs. 77,00,000 (i.e., Rs. 100 lakhs minus Rs. 23 lakhs) was brought to tax as assessable under s. 17(3) of IT Act. Noticing that there was litigation with regard to settlement agreement, AO concluded that there was claim for recovery of certain sums from firm and matter was sub-judiced and pending before Court. In this view of matter, although he proceeded to assess sum of Rs. 77 lakhs in hands of assessee, but made assessment on protective basis. Aggrieved by aforesaid stand of AO, matter was carried in appeal before CIT(A). CIT(A) firstly, held that Rs. 20 lakhs receivable by Smt. Srilakshmi Subbaraya, wife of assessee, on retirement from group partnership firm was not part of Rs. 100 lakhs in terms of settlement entered into with assessee. Secondly, with regard to sum of Rs. 77 lakhs, CIT(A) held that same was in dispute and therefore, by placing reliance on decision of apex Court in case of CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179: (1986) 161 ITR 524 (SC), it held that same was not taxable during year under consideration. Insofar as remaining amount of Rs. 23 lakhs was concerned, same was held to be taxable as profit in lieu of salary under s. 17(3) and thereby sustained action of AO on this count. Presently, assessee as well as Revenue are in appeal before us. assessee is in appeal against stand of CIT(A) in sustaining addition to extent of Rs. 23 lakhs and also against decision of CIT(A) in holding that sum of Rs. 20 lakhs payable to Smt. Srilakshmi Subbaraya was not part of amount of settlement agreed between assessee and Smt. Sundari Ramachandran. Revenue, on other hand, is in appeal against decision of CIT(A) with regard to relief allowed to extent of Rs. 77,00,000. Rival parties have been heard at length. After having heard parties, we proceed to dispose of issue in following manner. Insofar as facts are concerned, same lie in narrow compass and are not in dispute. assessee entered into settlement agreement with Mrs. Sundari Ramachandran, one of partners of M/s Electronics & Controls, firm on whose behalf assessee was acting as attorney. settlement agreement postulated that assessee being general manager and power of attorney holder was to severe his connection with firm and other group concerns. Also, wife of assessee being partner in another related concern of M/s Sulax Corporation was also to withdraw from firm by way of resignation. relevant clauses of settlement have been reproduced by us in earlier part of order and are not being reproduced herein for sake of brevity. Clause 3 provides that sum of Rs. 100 lakhs was payable to assessee in full and final settlement and in return thereof, assessee was to severe his relationship in Electronics & Controls, supra, Sulax Corporation, ECPL and other businesses. Thus, settlement extended not only to assessee s relationship with M/s Electronics & Controls, firm in which assessee was power of attorney but also to other group concerns. In terms of cl. 6 of settlement, reference is also made to affairs of M/s Sulax Corporation in which wife of assessee, Smt. Srilakshmi Subbaraya, was partner. In terms of said clause, said Smt. Srilakshmi Subbaraya was to resign from partnership of M/s Sulax Corporation, Further, in terms of cl. 7, it was provided that in lieu of resignation of Smt. Srilakshmi Subbaraya from it was provided that in lieu of resignation of Smt. Srilakshmi Subbaraya from partnership of Sulax Corporation, amount payable shall constitute and be part of settlement of compensation of Rs. 10 lakhs described in cl. 3. Thus, in view of aforesaid, it cannot be deduced that sum of Rs. 20 lakhs to be paid to Smt. Srilakshmi Subbaraya at time of retirement from firm, M/s Sulax Corporation and was not part of compensation settled in terms of settlement deed dt. 9th Aug., 1997 between assessee and Mrs. Sundari Ramachandran. On this count, we are not in agreement with conclusion of lower authorities to effect that sum of Rs. 20 lakhs payable to Smt. Srilakshmi Subbaraya was not part of settlement agreement dt. 9th Aug., 1997. Thus, it is only taxability of sum of Rs. 80 lakhs that is to be considered in hands of assessee before us. fact which is undisputed is that entire settlement is still subject- matter of dispute being sub judice and there is no finality attained even during year under consideration. This is clear from following facts. Subsequent to deed of settlement between assessee and Smt. Sundari Ramachandran on 9th Aug., 1997, disputes arose on its implementation. assessee filed company petition against M/s Electronics & Controls Power Systems (P) Ltd., under s. 433 of Companies Act, 1956, seeking winding up for its failure to pay dues to assessee. Incidentally, subsequent to deed of settlement dt. 9th Aug., 1997, business of partnership firm M/s Electronics & Controls was taken over by private limited company, M/s Electronics & Electronics Power Systems (P) Ltd. said winding up petition came to be dismissed by Hon ble High Court of Karnataka on 2nd March, 2000 on plea that there was no sum due from company inasmuch as settlement was between assessee and individual, Smt. Sundari Ramachandran. Subsequently, assessee instituted suit for recovery of amount in terms of settlement before Civil Court at Bangalore in O.S. No. 5898/2000, copy of which is placed in paper book filed before us. We also find from paper book that defendant, Smt. Sundari Ramachandran, has denied existence and execution of said settlement agreement dt. 9th Aug., 1997 as been concocted/fabricated. Therefore, undisputedly entire settlement agreement dt. 9th Aug., 1997 is in jeopardy. Of course, assessee has withdrawn sum of Rs. 23 lakhs from firm, M/s Electronics Controls. Therefore, having regard to binding nature of judgment of Hon ble Supreme Court in case of Hindustan Housing & Land Development Trust Ltd. (supra), to proposition that where amount was in dispute, it could not be treated as income, we do no find any infirmity in conclusion of CIT(A) that sum of Rs. 77,00,000 cannot be brought to tax during year under consideration as matter had not attained finality. However, CIT(A) went wrong in not applying same principle to amount of Rs. 23 lakhs received by assessee. Even this amount of Rs. 23 lakhs is disputed and right of assessee in said amount is inchoate and therefore, same also cannot be brought to tax during year under consideration. In view of aforesaid discussion, we have not considered other grounds raised by assessee. In result, appeal of assessee is treated as allowed and that of Revenue is hereby dismissed. *** B.L. SUBBARAYA v. DEPUTY COMMISSIONER OF INCOME TAX