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2017 (2) TMI 902 - ITAT MUMBAITDS u/s 192 - Amount paid to Ex-empoyees - Profits in lieu of salary - Taxability of amount received under section 17(3) - retrenched of employees - assessee in default for non deduction of tds - Held that:- Two things are noticeable first the assessee had not made any payment to its ex-employees. Section 17(3)(iii)of the Act presupposes the existence of an employment i. e. , a relationship of employee and employer between the assessee and the person who makes the payment of “any amount” in terms of section 17(3)(iii)of the Act. So, the words in section 17(3)(iii) cannot be read disjunctively to overlook the essential facet of the provision, the existence of employment i. e. , a relationship of employer and employee between the person who makes the payment of the amount and the assessee. In the case before us, the essential fact is missing. There was no employer-employee relationship between the assessee and the ex-employees. Secondly the ex-employees had paid the due taxes on the disputed amount. The assessee had claimed that it was under the bonafide belief that the amount received by the ex-employees was capital receipt. The word “compensation” is not defined under the Act. Therefore, one has to take into consideration the ordinary connotation of this expression in common parlance. It has to be in the nature of something awarded to compensate for loss, suffering or injury. When translated in the context of employment, it would imply a monetary and non-monetary amount to be given to the employee in return for some services rendered by him. Inherent in this would be the obligation of the employer to pay some amount to the employee to “compensate” him. It would also mean that the employee gets a vested right to get such an amount. In the case under consideration there the ex employee did not get vested right to receive the amounts in question. A settlement was arrived at to avoid litigation-there was no obligation on part of the employer to pay some amount to the employees to compensate them. Considering the peculiar facts and circumstances of the case, and relying upon the case of Arun Bhai R Naik (2015 (10) TMI 2434 - GUJARAT HIGH COURT ), we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity and that the assessee could not be treated assessee in default [A-I-D]. So, upholding his order, we decide the effective ground of appeal against the AO. - Decided in favour of assessee.
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