TMI Blog2008 (5) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... class action, i.e., collective suit by several plaintiffs having a common cause was filed in the United States Courts on behalf of women who had been denied employment at the United States Information Agencies because of their sex, in violation of Title VII of the Civil Rights Act, 1964. The litigation come to an end by way of a consent decree dated 28-6-2000 between the plaintiffs and the United States Government in terms of which the US Government was to pay monetary compensation in full and final satisfaction of all claims for all relief including all claims for back pay instatement, front pay, retirement and other employee benefits and pre-judgment interest. Further there was a provision for post-judgment interest on the principal amount of settlement proposals from the date on which the consent decree was approved by the order of the Court up to the date of payment. Under the terms of the Consent Decree, the settlement was to become final after all appeals were received. Four women filed appeals in March, 2001 challenging the denial of their inclusion in the Class, which were finally settled in the Supreme Court and the process of payment of settlement fund was started in Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployee relationship, which is so crucial and vital to tax a receipt under the salary head, the amount received could by no stretch of imagination be taxed under the provisions under that head even as the Consent Decree might mention terms that are akin to salary and other receipts figuring under that head. I strongly feel that these terms have perforce been used to arrive at the figure of the compensation that had to be arrived at to quantify the liquidated damages that have been awarded to the appellant for the injury caused to her by denying her the employment after having been declared employable, by following a discriminatory gender practice, prohibited by law in the United States. This is clear from the impugned assessment order as well, wherein the Assessing Officer has accepted that the appellant received compensation and added that the appellant was also entitled to interest on the basic compensation of $ 345,580.01 from the date of approval of Consent Decree to the date of payment. 7.2 In a suit for damages, the Court a wards pecuniary compensation to the plaintiff for the injury or damage caused to him by the wrongful act of the defendant. After it is proved that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l make the receipt casual. Even assuming for a moment, that the receipt involved is a casual receipt, which it very much looks like, the next question to be answered is whether it is capital or revenue in character, for all casual receipts are not revenue receipts. The question as to whether a receipt is revenue or capital in nature has been decided in cases umpteen by Higher Courts including the Apex Court. But these relate mostly to business or professional head and are clearly inapplicable in the case of the appellant. After going through a plethora of cases on the subject, the closest I could come are two English cases, namely, Renfrew Town Council v. IRC 19 TC 13 and Burma Steamship Co. v. IRI 16 TC 67. The first relates to compensation for damages for personal injury. In that it was held that if the damages relate to an injury causing permanent disablement, they will amount to capital receipt. If, however, the disablement is of temporary nature, the receipt by way of damages will be revenue in nature. In Renfrew Town Council v. IRL 19 TC 13, it was held that if a railway passenger meets with an accident and receives damages for permanent disablement, the damages will be a cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensation shall be obliged to compensate for such losses as directly flow from its breach. Chitty on Contracts (27th Edition Vol. 1 para 26.041) stated "Normally, no damages in contract will be awarded for injury to the plaintiff's feelings, or for his mental distress, anguish, annoyance, loss of reputation or social discredit caused by the breach of contract.... The exception is limited to contract whose performance is "to provide piece of mind or freedom from distress"..... Damages may also be awarded for nervous shock of an anxiety state (an actual breakdown in health) suffered by the plaintiff, if that was, at the time the contract was made, within the contemplation of the parties as a not unlikely consequence of the breach of contract." 6. With regard to the legal ground taken by the assessee, challenging the validity of reopening under section 147, the CIT (Appeals) after discussing various decisions of Hon'ble High Court and Hon'ble Supreme Court reached to the conclusion that in the present case, there were sufficient ground for issuing the notice under section 148 of the Act. In this regard, the CIT (Appeals) recorded a finding to the effect that in respect of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 17(3)(ii) of Income-tax Act, 1961. On the facts and in the circumstances of the case that the ld. CIT(A) erred in deleting the addition of Rs. 35,61,882 on account of interest on compensation treating the compensation received from US Government as capital receipt whereas the terminology used in the judgment clearly mentioned that the payment is on account of back pay, instatement, front pay, retirement and other employee benefits and pre-judgment interest and receipt of interest under consent decree with effect from date of approval would clearly be a revenue receipt." 8. Grounds of revenue for assessment year 2004-05 are as under: "1. On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in deleting the addition of Rs. 50,94,363 treating the compensation received from the U.S. Government as capital receipt whereas the terminology used in the judgment clearly mentioned that the payment is on account of back pay, instatement, front pay, retirement and other employee benefits and pre-judgment interest and the receipt is squarely taxable in the hands of the assessee as salary under section 17(3)(ii) of the Income-tax Act, 1961. 2. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Washington DC Office for evaluation. In the year 1984, the assessee received a notice of rating dated 28-11-1984 from Voice of America informing the assessee that she was eligible for international radio broadcaster (option Hindi), with period of consideration up to one year of issue date, i.e., 27-11-1985. However, the assessee was never given an offer of appointment. 13. In 1989, the assessee received 'Public Notice' dated 4-10-1988 issued by the United States District Court for the District of Columbia drawing the attention of women who sought employment with the Voice of America between 8-10-1974 and 16-11-1984. The public notice stated that the United States District Court, Columbia, in a class action lawsuit, has found United States Information Agency including Voice of America liable for sex discrimination against female applicants for various positions. Those who considered themselves victims of sex discrimination were asked to obtain and fill up a claim form to claim relief available to class members, which as stated in the notice, "may include monetary award and/or priority consideration for a current position with the Agency." The assessee filled up the Form on 7-3- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered by the assessee in the assessment year 2004-05 as income from other sources, in her tax returns. In the assessment year 2003-04, assessment was responded under section 147 and Assessing Officer called for various information/documents to find out the exact nature of payment, etc. The Assessing Officer stated that specific replies to the questionnaire dated 14-2-2005 was not filed in spite of giving so many opportunities. It was, therefore, concluded by the Assessing Officer that by one means or other the assessee was evading furnishing details called for during the assessment proceedings. On the basis of wordings of consent decree, the Assessing Officer held that amount was received by the assessee for her claim of back pay instatement, front pay, retirement and other employee benefits, pre-judgment interest. The Assessing Officer passed ex parte order under section 144 wherein he brought to tax net amount of basic compensation of Rs. 1,67,91,732. The Assessing Officer also observed that assessee was also entitled to interest on basic compensation (back-pay). Accordingly, interest income of Rs. 35,61,732 was also brought to tax net. The Assessing Officer treated the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein by class members and any other persons who would otherwise be entitled to individualized determinations of their claims through Teamsters hearings under the Court's 19-1-1988 remedial opinion and order, as amended, and Order of Reference to the Special Master, including without limitation all claims for back pay, instatement, front pay, retirement and other employee benefits, and pre-judgment interest and subject also to Paragraph 5 of this Consent Decree. Defendants shall also pay Plaintiffs post-judgment interest on the principal amount of settlement proceeds, pursuant to 28 USC 1961, from the date on which this Consent Decree is approved by order of the Court following a fairness hearing up to the date of payment." 14. In view of the above, it is crystal clear that amounts so received by the assessee out of settlement fund of $508 million, was not in her capacity as employee or ex-employee, but was only compensation for the injury caused to her by denying her employment after having been declared employable by following a discriminatory general practice, prohibited by law in the United States of America. Accordingly, the same is capital receipt in nature not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that pre-judgment interest is part and parcel of settlement fund of $508 million, no addition is to be made, however, if is such pre-judgment interest is found to be in addition to assessee's share in settlement fund of $508 million, the same is required to be added in the total income under the head "Income from other sources". We direct accordingly. So far as post judgment interest and interest paid on refund by IRS, USA is concerned, the same is liable to tax as income from other sources. The assessee had already offered this income in the return for assessment year 2004-05. 16. In the assessment year 2004-05, the assessee had also objected the action of CIT (Appeals) for not passing any order for the addition of Rs. 78.38 lakhs made by the Assessing Officer over and above what has been actually received by the assessee towards compensation and post-judgment interest. As the CIT(A) has not dealt with this issue, in the interest of justice, we restore this ground to the file of CIT (Appeals) for deciding the same as per law after affording reasonable opportunity of being heard to the assessee. We direct accordingly. 17. Ground taken in the cross-objection by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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