Finance Act, 1992

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Taxation of consideration for certaion restrictive covenants, etc.

18.—(1) Chapter I of Part XXXVI of the Income Tax Act, 1967 , is hereby amended by the substitution of the following section for section 525:

“525.—(1) Where—

(a) an individual who holds, has held or is about to hold an office or employment gives, in connection with his holding thereof, an undertaking (whether absolute or qualified and whether legally valid or not) the tenor or effect of which is to restrict him as to his conduct or activities; and

(b) in respect of the giving of that undertaking by him, or f the total or partial fulfilment of that undertaking by him, any sum is paid, either to him or to any other person; and

(c) apart from this section, the sum paid would not fall to be treated as profits or gains from the office or employment,

the said sum shall be deemed—

(i) to be profits or gains arising or accruing from the office or employment and, accordingly—

(I) in a case where the profits or gains from the office or employment are or would be chargeable to tax under Schedule E—

(A) tax under Schedule E shall be charged thereon, and

(B) the tax so chargeable shall be computed under section 110 (1) (inserted by the Finance Act, 1991 ), or

(II) in a case where the profits or gains from the office or employment are or would be chargeable to tax under Case III of Schedule D, tax under the said Case III shall be charged thereon,

and

(ii) in a case within paragraph (i) (I), to be emoluments to which the provisions of Chapter IV of Part V are applied by section 125 of the said Chapter,

for the year of assessment in which it is paid;

Provided that where the individual has died before the payment of the said sum this subsection shall have effect as if the said sum had been paid immediately before his death.

(2) Where valuable consideration otherwise than in the form of money is given in respect of the giving of, or of the total or partial fulfilment of, any undertaking, the preceding provisions of this section shall apply as if a sum had instead been paid equal to the value of that consideration.

(3) Notwithstanding the provisions of section 61, where any sum paid or valuable consideration given by a person carrying on a trade or profession is chargeable to tax in accordance with the provisions of subsection (1), the sum paid or the value of the consideration given, as the case may be, may be deducted as an expense in computing, for the purposes of Schedule D, the profits or gains of that person's trade or profession, as the case may

be—

(a) in the case of a person chargeable to income tax, for the basis period, or

(b) in the case of a person chargeable to corporation tax, for the accounting period,

in which the said sum is paid or valuable consideration is given.

(4) Where any sum paid or valuable consideration given by an investment company (within the meaning of section 15 of the Corporation Tax Act, 1976 ) or a company to which the said section 15 applies by virtue of section 33 of that Act, is chargeable to tax in accordance with the provisions of subsection (1), the sum paid or the value of consideration given, as the case may be, shall, for the purposes of the said section 15, be treated as an expense of management for the accounting period in which the sum is paid or valuable consideration is given.

(5) (a) In this section ‘office or employment’ means any office or employment whatsoever such that the emoluments thereof, if any, are or would be chargeable to income tax under Schedule E, or under Case III of Schedule D, for any year of assessment.

(b) In this section references to the giving of valuable consideration shall not include references to the mere assumption of an obligation to make over or provide valuable property, rights or advantages, but shall include references to the doing of anything in or towards the discharge of such an obligation.”.

(2) Section 115 of the Income Tax Act, 1967 , is hereby amended by the substitution in subsection (1) of the following paragraph for paragraph (b):

“(b) any sum chargeable to tax under section 525;”.

(3) This section shall apply and have effect in relation to any sum paid or consideration given on or after the 24th day of April, 1992, in respect of the giving of, or the total or partial fulfilment of, any undertaking whether given before, on or after that date.