2017 (7) TMI 961 - HC - Income Tax

Penalty u/s 271(1)(c) - concealed income in the nature of success sharing bonus being the money received by her from the Dutch company for giving up her right to sue for damages - nature of income - substantial question of law - Held that - The question before us is whether the conduct of the Assessee in filing returns in the instant case, is one that warrants imposition of penalty owing to non disclosure / concealment. Assuming for a moment, if this court later returns a finding in the above said Tax Case Appeal that the receipt in question from the Dutch company should be treated as revenue receipt and not as capital receipt, that would not in any manner lead to the conclusion that the Assessee is guilty of deliberate non disclosure / deliberate concealment. That decision will only answer the question as to whether the Assessee is liable to pay tax or not. What is to be noted is, as on the date of filing of the return by the Assessee for the said assessment year in the instant case, which is 31.3.2010, the issue is as to whether the relevant payment is revenue receipt or capital receipt was clearly debatable and therefore, Assessee chose to take a position which is favourable for her. This in our opinion does not in any manner qualify as deliberate non disclosure or concealment. We do not find any mens rea on the part of the Assessee qua concealment and non disclosure. Therefore, we have no hesitation in coming to the conclusion that this may not be a case which warrants penalty proceedings under Section 271(1)(c) of the IT Act. However, this being an appeal under Section 260A of the IT Act, it can be entertained only on substantial questions of law and not even on questions of law. As there is nothing of substance, of purport or nothing that would decide the right of parties qua questions of law, we have no hesitation in holding that the two questions of law as propounded by Revenue are not substantial questions of law at all. We are also of the view that they may not even qualify as questions of law as the very language in which the questions are couched would demonstrate that there is a huge factual element built into them. Independent of the aforesaid two questions suggested by the Revenue in the Memorandum of Appeal, we also applied our mind to see if any substantial question of law arises in the instant case. To our mind, there is none. Therefore, we have no hesitation in coming to the conclusion that no substantial question of law arises in the instant case. Owing to all that have been stated supra, the instant case is not fit enough to be entertained under Section 260A of the IT Act. More so, as no substantial question of law arises, the instant appeal deserves to be dismissed.

Summary

Issues involved:

1. Whether the sum received by the Assessee from a Dutch company is a capital receipt or a revenue receipt.
2. Whether the Assessee concealed income or provided inaccurate particulars of income warranting penalty under Section 271(1)(c) of the Income Tax Act, 1961.
3. Whether the questions raised by the Revenue constitute substantial questions of law under Section 260A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Nature of Receipt (Capital vs. Revenue):
The core issue was whether the sum of ?2,67,60,000 received by the Assessee from Randstad (a Dutch company) for relinquishing her right to sue for damages was a capital receipt or a revenue receipt. The Assessee contended that the sum was a capital receipt, received for refraining from enforcing her preemptive rights to purchase shares of Ma Foi Management Consultants Ltd., which she had sold to Vedior NV. The AO, however, treated this sum as a revenue receipt under Section 28(va) of the IT Act. The CIT(A) and ITAT both found the issue to be debatable and held that there was no concealment of income, thus canceling the penalty imposed by the AO.

2. Penalty under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) of the IT Act, alleging that the Assessee had concealed income by not declaring the sum received from Randstad as a revenue receipt. The CIT(A) allowed the Assessee's appeal, canceling the penalty on the grounds that the issue was debatable. The ITAT upheld the CIT(A)'s decision, noting that the matter was res integra and pending before the High Court in T.C.A.Nos.92 and 93 of 2013. The court emphasized that mens rea, or the intent to conceal income, was crucial for imposing a penalty and found no deliberate non-disclosure or concealment by the Assessee.

3. Substantial Questions of Law:
The Revenue raised two questions for consideration under Section 260A of the IT Act:
- Whether the ITAT was correct in deleting the penalty levied under Section 271(1)(c) of the Act.
- Whether the admission of the Assessee's Tax Case Appeal by the High Court implied that the issue was debatable, thus justifying the deletion of the penalty.

The High Court, referencing the Supreme Court's judgments in M. Janardhana Rao and Hero Vinoth cases, assessed whether these questions constituted substantial questions of law. The court concluded that the questions raised by the Revenue were not substantial questions of law, as they involved significant factual elements and did not meet the criteria of being debatable or unsettled by higher courts. Consequently, the court dismissed the appeal, stating that no substantial question of law arose in the case.

Conclusion:
The High Court dismissed the Tax Case Appeal No.303 of 2017, affirming that the issue of whether the sum received by the Assessee was a capital or revenue receipt was debatable and pending before the court. The court found no deliberate concealment or non-disclosure by the Assessee, thus invalidating the penalty under Section 271(1)(c) of the IT Act. Additionally, the court held that the questions raised by the Revenue did not qualify as substantial questions of law, leading to the dismissal of the appeal.