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Commissioner of Income Tax –IV Versus Pritam Das Narang

2015 (9) TMI 851 - DELHI HIGH COURT

Income as profits in lieu of salary - whether ITAT fall into error in holding that the sum recived was compensation in the hands of the Assessee and could not be treated as income as profits in lieu of salary and allowing the credit of TDS? - Held that:- The Court is unable to accept the interpretation sought to be placed on the plain language of Section 17 (3) (iii) of the Act by the Revenue. The words "from any person" occurring therein have to be read together with the following words in sub- .....

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relationship of employer and employee between the person who makes the payment of the amount and the Assessee.

The Court accordingly concurs with the concurrent view of the CIT (A) and the ITAT that this was a case where there was no commencement of the employment and that the offer by ACEE to the Assessee was withdrawn even prior to the commencement of such employment. The amount received by the Assessee was a capital receipt and could not be taxed under the head 'profits in lieu of .....

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not be taxed as income under any other head. - Decided in favour of the Assessee

Also the order of the CIT (A), as concurred with by the ITAT, that the Assessee is entitled to the refund of the TDS paid on ₹ 1,95,00,000/- and that the refund of TDS may be adjusted against tax demand if any arising on appeal effect being given to the said order of the CIT (A) is upheld. - Decided in favour of the Assessee - ITA 203/2014 - Dated:- 16-9-2015 - S. Muralidhar And Vibhu Bakhru, JJ. Fo .....

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wing questions of law were framed: (a) Did the ITAT fall into error in holding that the sum of ₹ 1,95,00,000/- in the circumstances of the case, was compensation in the hands of the Assessee and could not be treated as income as profits in lieu of salary? (b) Did the ITAT fall into error in allowing the order of the CIT (Appeals) in allowing the credit of TDS of ₹ 22,09,350 on ₹ 1,95,00,000/- to the respondent? 3. The facts are that the Assessee filed return of income on 28th J .....

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1st April, 2007 to 31st August, 2008. The Assessing Officer (AO) noticed a credit entry of ₹ 1,70,90,650/-. The Assessee filed a letter on 16th November, 2010 explaining the circumstances under which the payment was received from M/s. ACEE Enterprises ('ACEE') against an Employment Agreement entered into between him and ACEE on 10th January, 2007. In terms of the said Employment Agreement, the Assessee was to be employed as Chief Executive Officer ( CEO ) and the employment was to .....

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Company vis-a-vis foraying into new financial ventures" and that "the company is extremely disappointed to convey that it shall not be able to take you on board from 1st July, 2007 as per employment contract." ACEE promised to reconsider the Assessee s services "as and when its operation starts". The second letter was dated 15th May 2007 which was the Assessee's response to ACEE that the news was a "big financial loss personally" since there were "man .....

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ial loss incurred by me". 6. On 25th August 2007, ACEE informed the Assessee that "as a mark of goodwill/gesture" it was pleased to announce a payment of ₹ 1,95,00,000/- to the Assessee subject to income tax compliances as "a one-time payment to you for non-commencement of employment as proposed." Before the AO, the Assessee pointed out that the tax of ₹ 22,09,350/- had been deducted at source by a letter dated 7th December, 2010. The Assessee offered an expl .....

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e Finance Act, 2001 with effect from 1st April, 2002. The AO also sought to distinguish the decision in CIT v. Rani Shankar Mishra (2010) 320 ITR 542 (Del) which was referred to by the Assessee on the ground that the compensation in that case was received pursuant to a gender discrimination claim stemming from the company s refusal to offer the woman candidate a position whereas in the present case the job was offered and accepted. The AO also drew an adverse inference as regards failure to disc .....

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) had been brought in to account for joining bonus' received from the prospective employer as profit in lieu of salary liable to be included as part of taxable income under the head salary or also the amount paid to an employee 'after the employment comes to an end (termination bonus). The CIT (A), after analysing the documents on record, came to the conclusion that there was no master and servant relationship between the Appellant and ACEE. No payment had been made by ACEE to the Appell .....

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ceipt could not be taxed as a business/professional receipt under Section 28 or as a gift under Section 56 of the Act. The CIT(A) concluded that the receipt by the Assessee was bonafide and, accordingly, deleted the addition. The CIT (A) further ordered that "the appellant is entitled to refund of TDS paid on ₹ 1,95,00,000/- and accordingly the refund of TDS may be adjusted against tax demand if any arising on appeal effect to this order, and further refund due may be given to appella .....

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DS of ₹ 22,09,350/- on Rs.l.95 crore to the assessee?" 10. On the first issue, the ITAT concurred with the CIT(A) that prior to the coming into existence of any relationship of employer and employee between the Assessee and ACEE, the offer on the basis of which the employment agreement was drawn up had itself come to an end. This was a case where a prospective employee i.e. the Assessee had been compensated for denial of opportunity to be employed by the prospective employer. Therefor .....

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that since the wording of Section 17(3)(iii) of the Act was that "any amount received from any person", it was not necessary that the amount had to be received only from an employer in order that such sum be brought to tax in the hands of an assessee under the head 'profits in lieu of salary'. It was submitted that the expression "any person" could include a prospective employer as in the present case. It was submitted that the clauses of the Employment Agreement show .....

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ntions that the employment shall commence latest by 1st July, 2007 . Although it further states that the employee "shall endeavour to join the company as early as possible", the intention and expectation of the parties was that the employment would commence not earlier than 1st July 2007. This becomes evident from a reading of the letter dated 1st May 2007 written by ACEE to the Assessee in which it stated that that it would not be possible to take the Assessee "on board from 1st .....

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The words "from any person" occurring therein have to be read together with the following words in sub-clause (A): "before his joining any employment with that person". In other words, Section 17 (3) (iii) (A) pre-supposes 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. Likewise, Section 17 (3) (iii) (B) also pre-suppos .....

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