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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Attorney(S)
Acts
  • u/s 143(3) of the Income Tax Act, 1961.
  • clause (i) sub section (3) of section 17
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Attorney(S)
Acts
  • u/s 143(3) of the Income Tax Act, 1961.
  • clause (i) sub section (3) of section 17
Smart Summary

Factual and Procedural Background

The Revenue appealed against the order dated 15.10.2015 of CIT(A)-14, New Delhi (appeal no. 15/11-12/IT/Del/2015-16) which had deleted an addition of Rs. 2,13,08,444/- made by the Assessing Officer (AO) in the income of the assessee for A.Y. 2009-10. In the assessment order dated 30.03.2011 passed u/s 143(3) the AO treated Rs. 2,00,00,000/- received from the employer INX Media after termination and Rs. 13,08,444/- received as perquisites as "profits in lieu of salary" u/s 17(3)(i). The assessee appealed to CIT(A), who deleted the addition; the Department filed the present appeal to the Income Tax Appellate Tribunal, Delhi Bench 'G'.

Legal Issues Presented

  1. Whether the CIT(A) was justified in holding that the payment of Rs. 2 crore received by the assessee from his employer was not salary, though clause (i) sub-section (3) of section 17 expressly provides that such payments are profits in lieu of salary.
  2. Whether the CIT(A) was justified in deciding the issues on the basis of the judgment of the Hon'ble Delhi High Court in Khanna & Annadhanam vs CIT (258 CTR (Del) 72) where the assessee was a chartered accountancy firm.
  3. Whether the CIT(A) was justified in deciding the issue on the basis of the judgment of the Hon'ble Delhi High Court in CIT vs Deepak Verma (ITA No. 1431 of 2008), where the payment was voluntary, which the Revenue contends is not the case here.
  4. Whether the CIT(A) was justified in ignoring the judgments of the Hon'ble Madras High Court in C.N.Badami vs CIT (1999) 240 ITR 263 (Mad) and P. Arunachalam vs CIT (2000) 240 ITR 827 (Mad) relied upon by the Assessing Officer.
  5. Whether the CIT(A) was justified in deleting the addition of Rs. 13,08,444/- that was received as perquisite from the employer.

Arguments of the Parties

Revenue's / Departmental Arguments

  • The AO was correct in treating Rs. 2 crore received after termination as compensation and a component of salary and to tax Rs. 13,08,444/- as perquisites under section 17(3)(i).
  • CIT(A) failed to distinguish the present facts from CIT vs. Deepak Verma (2010) 194 taxman 265 (Delhi), noting that the assessment in that case pertained to A.Y. 2001-02 (before insertion of s.17(3)(iii) effective 01.04.2002).
  • The AO relied on Madras High Court decisions (C.N.Badami and P. Arunachalam) which support taxation of such receipts; these should have been followed.
  • The Department pressed that the receipts were taxable; additionally, the Department attempted to raise applicability of section 17(3)(iii) (a point not considered by AO or CIT(A)).

Assessee's Arguments

  • The Rs. 2 crore was received as an out-of-court settlement from INX Media, paid voluntarily to settle reputational harm and harassment; it was not governed by any agreement or legal obligation and thus not taxable as "profits in lieu of salary" under s.17(3)(i).
  • The Rs. 13,08,444/- received for purchase of a new car could not be treated as a taxable perquisite.
  • Relied on CIT vs. Deepak Verma to the effect that ex gratia/voluntary payments by an employer, not conditioned by legal duty, are not taxable under s.17(3)(i); also relied on Arunbhai R. Naik (Gujarat HC) for similar proposition.
  • Pointing out that AO made addition specifically under s.17(3)(i), and the dispute for present appeal relates only to that provision.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Khanna & Annadhanam vs CIT (258 CTR (Del) 72) CIT(A) relied on this Delhi High Court decision; the opinion notes the case involved a chartered accountancy firm. Mentioned in Revenue's grounds as a decision relied upon by CIT(A); the Tribunal record does not elaborate further application of this decision in its reasoning.
CIT vs Deepak Verma ITA No. 1431 of 2008 (2010) 194 taxman 265 (Delhi) Held that payment made ex gratia or voluntarily by an employer, not conditioned by legal duty, is not to be treated as profit in lieu of salary under s.17(3)(i). Relied upon by the assessee; Tribunal found this reasoning persuasive for treating the payment as voluntary and non-taxable under s.17(3)(i).
C.N.Badami vs CIT [1999] 240 ITR 263 (Mad) Held that amount received for encashment of leave salary would be a profit in lieu of salary and taxable under a "Voluntary Separation Programme" where there was an existing agreement. AO relied on this decision for making the addition; Tribunal distinguished it because in the present case there was no existing agreement between assessee and employer, and therefore did not follow it.
P. Arunachalam vs. CIT [2000] 240 ITR 827 (Mad) Followed C.N.Badami; treated receipts under circumstances with agreement as taxable. AO relied on it; Tribunal distinguished on facts (absence of agreement) and did not apply its principle to the present case.
Arunbhai R. Naik vs. Income Tax Officer [2015] 65 taxmann.com 216 (Gujarat) Interpreting s.17: payment of ex gratia compensation voluntary in nature, without employer's obligation under service rules, would not amount to compensation under s.17(3)(i). Relied upon by assessee; Tribunal treated the principle as supportive of deletion of the impugned addition.
Mahindra and Mahindra ltd. vs. DCIT, MANU/1U/0033/2009 (ITAT Mumbai) Para 19.6: a Departmental Representative cannot raise points or new contentions beyond what was considered by the AO or taken in the appeal; scope of DR limited to supporting the impugned order. Applied by the Tribunal to hold that the DR could not raise the point of s.17(3)(iii) which was neither considered by AO nor CIT(A); DR's scope of arguments was limited to grounds in the appeal.

Court's Reasoning and Analysis

The Tribunal examined whether the lump sum Rs. 2 crore and Rs. 13,08,444/- could be taxed as "profits in lieu of salary" under s.17(3)(i). It noted that the AO made the addition relying on Madras High Court decisions (C.N.Badami and P. Arunachalam) which involved existing agreements entitling the employee to such payments. The Tribunal found the facts distinguishable because in the present case the receipt arose from an out-of-court settlement without any agreement or legal obligation on the employer to pay.

The Tribunal accepted the assessee's reliance on decisions (notably CIT vs. Deepak Verma and Arunbhai R. Naik) that voluntary/ex gratia payments by an employer, made of the employer's own volition and not under any legal duty, are not taxable as profits in lieu of salary under s.17(3)(i). The Tribunal further restrained the Department from advancing a new contention (applicability of s.17(3)(iii)) which neither AO nor CIT(A) had considered, invoking the Mahindra & Mahindra precedent limiting the DR's scope of arguments. On these bases the Tribunal concluded the payments were voluntary and not within s.17(3)(i), and that the deletion by CIT(A) was correct.

Holding and Implications

Appeal dismissed.

Holding: The Tribunal upheld the order of CIT(A) deleting the addition of Rs. 2,13,08,444/-, concluding the Rs. 2 crore and Rs. 13,08,444/- were voluntary/out-of-court settlement receipts and not taxable as "profits in lieu of salary" under s.17(3)(i).

Implications: The direct effect is that the impugned addition remains deleted and the Revenue's appeal is dismissed. The Tribunal found no error of law or fact in the CIT(A) order. The opinion does not state any broader novel precedent beyond the application of existing authorities to the facts of this case.

    ITO, New Delhi v. Sh. Avirook Sen, Gurgaon

    IN THE INCOME TAX APPELLATE TRIBUNAL

    DELHI BENCH 'G': NEW DELHI BEFORESHRI G.S.PANNU, HON'BLE VICE PRESIDENT

    AND

    MS. ASTHA CHANDRA, JUDICIAL MEMBER

    ITA No.6659/Del/2015, A.Y.2009-10)

    Income Tax Officer, Ward 32(5), New Delhi Vs. Sh. Avirook Sen, House No. V-30/4, DLF Phase-III, Gurgaon, Haryana
    (Appellant) (Respondent)
    Appellant by Sh. Vivek Bansal, Adv. & Sh. Vishal Chechi, Adv.
    Respondent by Sh. Anuj Garg, Sr. DR
    Date of Hearing 03/04/2024
    Date of Pronouncement 12/04/2024

    ORDER

    PER G.S.PANNU, V.P.:

    This appeal has been preferred by the Revenue against the impugned order dated 15.10.2015 passed by CIT(A)-14, New Delhi in appeal no. 15/11-12/IT/Del/2015-16, wherein an addition of Rs. 2,13,08,444/- made by AO in the income of assessee for the income of A.Y. 2009-10 was deleted.

    2. The brief facts leading to this appeal state that Ld. AO added an amount of Rs. 2,00,00,000/- received by the respondent-assessee from his employer INX Media after his termination from service and Rs. 13,08,444/-

    Page 1 of 7

    received as perquisites from the employer has been added in the total income of the assessee as profits in lieu of salary for A.Y. 2009-10, vide assessment order dated 30.03.2011 passed u/s 143(3) of the Income Tax Act, 1961. Assessee preferred an appeal against the order passed by the AO before Ld. CIT(A). Ld. CIT(A) allowed assessee's appeal and set aside AO's addition thereby leading to this appeal.

    3. Revenue Department has filed this appeal raising following grounds :

    "1. Whether the Ld. CIT(A) was justified in holding that the payment of Rs. 2 crore received by the assessee from his employer was not salary though clause (i) sub section (3) of section 17 expressly provides that such payments are profits in lieu of salary.

    2. Whether the Ld. CIT(A) was justified in deciding the issues involved in the case on the basis of judgment of the Hon'ble Delhi High Court in the case of Khanna & Annadhanam vs CIT

    258 CTR (Del) 72 where the assessee was a chartered Accountancy Firm.

    3. Whether the Ld. CIT(A) was justified in deciding the issue involved in the case on the basis of judgement of the Hon'ble Delhi High Court in the case of CIT vs Deepak Verma ITA No. 1431 of 2008, where the payment was voluntary which is not the case with the present assessee.

    4. Whether the Ld. CIT(A) was justified in ignoring the judgements of Hon'ble Madras HighCourt in the case of C.N.Badami vs CIT(1999) 240 ITR 263(Mad) and P.

    Page 2 of 7

    Arunachalam vs.CIT(2000)240 ITR 827 (Mad) relied upon by the Assessing Officer.

    5. Whether the Ld. CIT(A) was justified in deleting the addition of Rs.13,08,444/- though this sum was received as perquisite by the assessee from his employer."

    4. Respondent-Assessee appeared in the Tribunal after issuance of notice and submitted detailed paper book.

    5. We have heard the parties through their representatives and perused the material available on record.

    6. The main point for consideration under appeal is as to whether the payment of Rs. 2 crore received by the assessee as lump sum amount after his termination from service and Rs. 13,08,444/-received for the purchase of new car, can be treated as profits in lieu of salary as provided u/s17(3)(i) and taxable ?

    7. Ld. DR has argued that the Assessing Officer was right in treating Rs.2 crore received by the assessee from his employer after his termination as compensation amount as component of salary along with Rs. 13,08,444/- as perquisites. He has further argued that Ld. CIT(A) has failed to differentiate the facts of the instant case with the facts of referred case declared by the Delhi High Court reported in CIT vs. Deepak Verma, (2010) 194 taxman 265 (Delhi) as the assessment in that case was pertaining to the A.Y. 2001-02 i.e. before the insertion of Section 17(3)(iii) in the Act with

    Page 3 of 7

    effect from 01.04.2002. He has further argued that the Ld. AO was right in carrying out the aforesaid assessment by treating the aforesaid receipt of assessee as profits in lieu of salary.

    8. Ld. Counsel for the assessee has argued that the Respondent- assessee received the aforesaid amount of Rs. 2 crore as lump sum amount as a settlement out of court with the employer (INX Media) of the assessee and voluntary settled the case as the reputation of the assessee was diminished due to extreme harassment and ill treatment caused by the employer. He also argued that the additional amount of Rs. 13,08,444/- received from the employer (INX media) for the purchase of new car could not have been treated as taxable income as prequisite. He has relied on Deepak Verma (supra), wherein Hon'ble Delhi High Court has held that if payment is made as ex gratia or voluntary by an employer out of his own sweet will and is not conditioned by any legal duty or legal obligation, either on sympathetic grounds or otherwise, such payment is not to be treated as profit in lieu of salary under sub clause (i) of section 17(3). He has further submitted that the AO has made the addition by specifically relying on sub-clause (i) of Section 17(3) and at this stage, the dispute is only in respect of the assessment made u/s 17(3)(i) only and prayed to confirm the impugned order passed by Ld. CIT(A).

    9. Ld. Counsel for the assessee has cited Arunbhai R. Naik vs. Income Tax Officer [2015] 65 taxmann.com 216 (Gujarat) wherein Hon'ble Gujarat

    Page 4 of 7

    High Court while interpreting Section 17 of the Act, held that payment of ex gratia compensation received by the employee u/s 17(3) if voluntary in nature without being any obligation on part of employer to pay any further amount to assessee in terms of service rules, it would not amount to compensation in terms of section 17(3)(i).

    10. It is clear that the Ld. AO while making addition of Rs. 2,13,08,844/- u/s 17(3)(i) has relied upon C.N.Badami vs. CIT [1999] 240 ITR 263 (Mad) and P.Arunachalam vs. CIT [2000] 240 ITR 827 (Mad). Hon'ble Madras High Court in C.N.Badami (supra), has held that the amount received for encashment of leave salary would be a profit in lieu of salary and taxable under "voluntary Separation Programme". The Hon'ble Madras High Court in P. Arunachalam (supra) also followed the dictum of Badami (supra). However the perusal of the aforesaid citation shows that the Hon'ble Madras High Court held as above as there was an existing agreement, whereas there was no such agreement between assessee and his employer in the facts of the present appeal, hence, the facts of the present case are easily distinguishable. Ld. CIT(A) has rightly held that the receipt of the aforesaid amount, being on account of out of court settlement and on account of the value of perquisite, deserved to be deleted and were so rightly deleted.

    11. As far as the argument of Ld. DR with respect to the applicability of Section 17(3)(iii) of the Act are concerned, the order dated 09.04.2009 passed by Co-ordinate Bench of ITAT Mumbai in Mahindra and Mahindra

    Page 5 of 7

    ltd. vs. DCIT, MANU/1U/0033/2009, is relevant. The relevant para 19.6 reads as under :-

    "……………. In our considered opinion the learned Departmental Representative has no jurisdiction to go beyond the order passed by the Assessing Officer. He cannot raise any point different from that considered by the A.O. or CIT(A). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. If the learned D.R. is allowed to take up a new contention de hors the view taken by the Assessing officer that would mean the learned A.R. stepping into the shoes of the CIT exercising jurisdiction under Section 263. We, therefore, do not permit the learned D.R. to transgress the boundaries of his arguments."

    In the present appeal, neither Ld. AO nor Ld. CIT(A) has considered the point raised by Ld. DR and the scope of arguments of ld. DR in the present appeal has to confine to the grounds taken in the appeal and he cannot be permitted to set up altogether a new case and assume his position as that of Ld. CIT under section 263 of the Act.

    12. As the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule. it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned addition was rightly deleted by the Ld. CIT(A). The aforesaid point is accordingly determined against the revenue department. The appeal is accordingly not

    Page 6 of 7

    sustainable as we don't find any error of law or fact in the impugned order passed by Ld. CIT(A). The department appeal is liable to be dismissed.

    13. In the result, the appeal of Revenue is dismissed. Order pronounced on 12/04/2024.

    Sd/- Sd/-

    (ASTHA CHANDRA) (G.S.PANNU)

    JUDICIAL MEMBER VICE PRESIDENT

    Dated: 12/04/2024

    Binita, Sr. PS/SR Bhatnagar Copy forwarded to:

    1. Appellant

    2. Respondent

    3. CIT

    4. CIT(Appeals)

    5. DR: ITAT

    ASSISTANT REGISTRAR

    ITAT, NEW DELHI

    Page 7 of 7

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    ITO, New Delhi v. Sh. Avirook Sen, Gurgaon
    (Apr 12, 2024)