2009 (8) TMI 751 - HC - Income Tax

Income or capital Assessee founder member and secretary or educational society and working voluntarily as Headmaster of school run by society amount received for relinquishment of Life membership and secretaryship of society Assessable under Income from other sources In view of this specific contention having been taken by the assessee before the appellate authority that it is not a goodwill the assessee cannot contend contrary to the same. From the foregoing discussion it has to be concluded that the amount received by the assessee cannot be treated as a capital receipt since to forgo life membership or secretaryship, there is no capital asset which has been transferred by the assessee in favour of Dr. Paramahamsa. Further the assessee was not earning any income or making profit out of the said posts and by virtue of relinquishing the same, the assessee did not lose monetarily and as such the entire amount received from Dr. Paramahamsa by the assessee cannot be termed or construed as capital receipt.

Issues Involved:
1. Nature of the amount received by the assessee: Capital receipt vs. Revenue receipt.
2. Applicability of the term "goodwill" to the amount received.
3. Classification of the amount as "income from other sources" or not.

Detailed Analysis:

Issue 1: Nature of the Amount Received by the Assessee: Capital Receipt vs. Revenue Receipt

The primary issue was whether the sum of Rs. 37,54,266 received by the assessee for relinquishing his life membership and secretaryship of the Jayanagar Education Society should be treated as a capital receipt or a revenue receipt. The Tribunal initially concluded that the amount was capital in nature, relying on the intrinsic link between the profession and avocation of the assessee. It referenced the case of P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC), which held that teaching is an avocation and thus, the receipt was directly referable to the profession/avocation.

However, the High Court disagreed with this conclusion, noting that the receipt was not for the transfer of any capital asset. The court emphasized that the relinquishment of honorary positions without any remuneration does not constitute a loss of income or profit. The court cited several cases, including CIT v. H. R. Honnappa [1989] 180 ITR 660 (Karn), distinguishing them based on the facts that those cases involved termination of office with pecuniary benefits, whereas the present case did not involve such benefits.

Issue 2: Applicability of the Term "Goodwill" to the Amount Received

The assessee contended that the receipt could not be termed as "goodwill" because there was no sale of such goodwill. The Tribunal had noted that the society's main property was leased land, and the institution was recognized by the Department of Education, Government of Karnataka, making the question of goodwill irrelevant.

The High Court supported this view, stating that there was no capital asset transferred by the assessee in favor of Dr. Paramahamsa. The court also noted that the assessee was not earning any income from the honorary positions, and thus, relinquishing them did not result in a monetary loss.

Issue 3: Classification of the Amount as "Income from Other Sources" or Not

The High Court concluded that the amount received by the assessee should be treated as "income from other sources" rather than a capital receipt. The court emphasized that the relinquishment of honorary positions did not involve the transfer of a capital asset, nor did it result in a loss of income or profit. The court referenced the assessee's own statements under section 132(4), where he admitted receiving the amount for relinquishing the positions, further supporting the classification as income from other sources.

Conclusion:

The High Court overturned the Tribunal's decision, concluding that the amount received by the assessee for relinquishing his life membership and secretaryship should be treated as income from other sources and not as a capital receipt. The court emphasized the lack of a capital asset transfer and the absence of any monetary loss from relinquishing honorary positions. The appeal was allowed in favor of the Revenue, and the question of law was answered accordingly.

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