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2010 Supreme(Mad) 1944
High Court of Judicature at Madras
THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN & THE HONOURABLE MR. JUSTICE P.P.S. JANARTHANA RAJA
The Commissioner of Income-Tax, Chennai
Versus
A.K. Khosla
Tax Case(Appeal) No. 232 of 2010
Decided On : 27-04-2010
For the Appellant :Patty B.Jaganathan, Advocate.
For the Respondent:S.R. Wadhawa for T.R. Senthilkumar, Advocates.
The central legal point established in the judgment is the classification of receipts as profits in lieu of salary and the applicability of relevant provisions under the Income Tax Act.
Headnote:
profits in lieu of salary - Taxation - Income Tax Act - Section 17(3)(i), Section 17(3)(iii) - The court discussed the definition of profits in lieu of salary under Section 17(3) and its applicability to the case. It also considered the retrospective effect of Section 17(3)(iii) and its relevance to the assessment year. The court analyzed the nature of the payment received by the assessee and its classification as a capital receipt. The judgment highlighted key legal provisions and their interpretations, influencing the court's decision.
Fact of the Case:
The assessee, a retired Chief Executive Officer, received a non-compete fee of Rs.22,00,000 from his former employer. The assessing officer treated the amount as profits in lieu of salary, leading to a dispute. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the assessee's position, prompting the revenue to file an appeal.
Finding of the Court:
The court held that the amount received by the assessee was a capital receipt and not taxable. It also found that the assessing officer's estimation of professional income lacked basis and was rightly deleted by the Tribunal. The court confirmed the Tribunal's order and dismissed the appeal.
Issues: The key issues revolved around the classification of the amount received by the assessee as profits in lieu of salary, the applicability of Section 17(3)(iii) retrospectively, and the validity of the assessing officer's estimation of professional income.
Ratio Decidendi: The court's decision was based on the interpretation of the Income Tax Act, specifically Section 17(3)(i) and Section 17(3)(iii), and the application of relevant case law. It emphasized that the amount received was a capital receipt and not taxable. The court also found the assessing officer's estimation of professional income to be unfounded.
Final Decision: The court confirmed the Tribunal's order, ruling in favor of the assessee and dismissing the revenue's appeal.
P.P.S.JANARTHANA RAJA
1. The appellant/revenue has filed the above Tax Case Appeal against the order of the Income Tax Appellate Tribunal, A Bench, Chennai, dated 27.04.2007 in ITA.No.1862/Mds/2004.
2. When the appeal came up for admission on 09.03.2010, this Court admitted the same on the following substantial questions of law:
1. Whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the sum of Rs.22 lakhs paid by the employer to the assessee is not profits in lieu of salary?
2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs.22 lakhs paid by the employer to the assessee would not fall under Section 17(3)(i) of the Income Tax Act?
3. Whether the definition of the profits in lieu of salary given under Section 17(3) is an exhaustive definition or only illustrative?
4. Whether Section 17(3)(iii) is an explanation which would have retrospective effect or not?
5. Whether any lump sum amount received from the employer by the employee on or after cessation of his employment would be profits in lieu of salary or not?
6. Whether in the facts and circumstances of the case, the Tribunal was right in holding for the assessing officer erred in making the estimation of Rs.2 lakhs as income of the assessee per month?
7. Whether the Tribunal was right in holding that even in the absence of any books of accounts maintained by the assessee, the assessing officer erred in making estimation of income?
3. The brief facts arising out of the case are as under:
The assessee/respondent is an individual. He is highly qualified, experienced and an eminent Chartered Electrical Engineer. The assessee/respondent was employed as Chief Executive Officer with the General Electric Company of India Limited, New Delhi. The assessee retired from the above Company on 31.01.2001 on attaining the age of 70. After his retirement, he took up the profession of consultancy. The relevant assessment year is 2001-2002 and the corresponding accounting year ended on 31.03.2001. He has also admitted the income from house property, other sources and long term capital gain. The assessee filed a return of income of Rs.32,13,540/- and also claimed exemption of Rs.22,00,000/- being non-compete fee of a capital nature. The said return was processed under Section 143(1) of the Income Tax Act on 17.03.2003. The assessing officer has also sent intimation under Section 143(1) determining the refund of Rs.8,98,673/- and the same was not granted. Later, the assessing officer enquired the nature of the retirement benefit and sent letter dated 25.07.2003. The appellant also sent reply on 29.07.2003, in which it was stated that the amount of Rs.22,00,000/- received from his former employer was exempted and the same was not taxable. The explanation was not accepted and therefore, the assessing officer was of the view that there is an escape of income and has also issued a notice under Section 148 on 01.08.2003. The assessee has also filed a reply on 15.09.2003 requesting the assessing officer to treat the return filed on 28.06.2001 in response to the notice under Section 148 of the Act. The assessing officer did not accept the contention that the amount of Rs.22,00,000/- was exempted and therefore, held that the same was assessable under Section 147 of the Act. The assessing officer completed the assessment under Sections 143(3) and 147 of the Act determining the total income at Rs.57,28,140/-. While determining the said total income, the assessing officer assessed a sum of Rs.22,00,000/- under the head "salaries" and also estimated the professional income at Rs.4,00,000/- under the head "profession". Aggrieved by that, the assessee has filed an appeal before the Commissioner of Income Tax (Appeals). The said commissioner has dismissed the appeal confirming the order of the assessment. Aggrieved by that, the assessee has filed an appeal before the Income Tax Appellate Tribunal
