2018 (9) TMI 1006 - AT - Income Tax

Damages/compensation received - nature of receipt - treated as capital receipt OR revenue receipt - Held that - The compensation received by the assessee was not for his professional activities but for settlement of dispute between him and some other party resulting in filing of a criminal complaint. That being the case, the amount received towards compensation/damage cannot fit in to the definition of income as per section 2(24) r.w.s 4 of the Act. This view of our gets support from the decision of the Hon ble Jurisdictional High Court in the case of Amar Dye Chem Ltd. (1993 (10) TMI 366 - BOMBAY HIGH COURT) wherein Held that the amount received towards compensation/damage for settlement of dispute is capital receipt, hence not taxable - addition to be deleted - decided in favour of assessee

Summary

Issues:
1. Whether damages/compensation received by the assessee should be treated as capital receipt or revenue receipt.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner (Appeals)-4, Mumbai for A.Y. 2011-12. The main issue was whether the damages/compensation of &8377; 6,97,94,580/- received by the assessee should be considered a capital receipt, as claimed by the assessee, or a revenue receipt, as held by the AO. The assessee, a film actor, received the amount as compensation for withdrawing a criminal complaint related to impersonation/forgery of his signature in a share sale transaction. The AO added the amount to the assessee's income, but the Commissioner (Appeals) deleted the addition based on judicial precedents.

During the assessment proceedings, it was revealed that the assessee received the compensation from Sudesh Iyer after a settlement deed was executed. The settlement required the assessee to withdraw the criminal complaint, and in return, he received the compensation. The assessee argued that since the compensation was for settling a dispute and not related to his professional activities, it should not be considered as income under Section 2(24) of the Income Tax Act. The AO disagreed and added the amount to the assessee's income, leading to the appeal.

The Commissioner (Appeals) accepted the assessee's claim that the compensation was a capital receipt, not taxable as income. The ITAT Mumbai Bench, in line with the decision of the Hon'ble Bombay High Court and previous ITAT rulings, upheld the Commissioner's decision. It was established that the compensation received for settling a dispute, not related to professional income, qualifies as a capital receipt and is not taxable. The ITAT dismissed the Revenue's appeal, affirming the deletion of the addition to the assessee's income.