2018 (11) TMI 792 - AT - Income Tax

Penalty u/s 271(1)(c) - capital receipts - compensation received by assessee towards damages caused to assessee s reputation - Held that - Only an amount of Rs. 50 Lacs was due to the assessee and as per the terms of the contract the assessee had a right to receive only that much of amount in case of default by CCIL and nothing more. As against this the assessee has received an amount of Rs. 145 Lacs out of which Rs. 50 Lacs has been offered to tax by the assessee. The balance amount of Rs. 95 Lacs is stated to be received for loss of reputation etc. therefore being capital in nature claimed to be not taxable. The factual matrix leads us to believe so in view of the fact that the contract did not envisage any additional payment over and above the amount of Rs. 150 Lacs to the assessee. The perusal of documents leads us to believe that the said compensation did not accrue / arise out of exercise of profession by the assessee and could not be construed to be the income of the assessee or profits and gains of profession within the meaning of Section 2(24) and Section 28 of the Income Tax Act 1961. The compensation could not be termed as any benefit perquisites arising to the assessee out of exercise of profession. FAA in our opinion fell in error to adjudicate the same on the threshold of impact of the compensation on profit making apparatus without understating the true nature of the receipts. This being so we have no hesitation in deleting the impugned addition of Rs. 95 Lacs. We order so. AR during the course of hearing had canvassed that the compensation received for breach of the terms of the contract has been brought to tax by way of insertion of new sub-clause (e) to Section 28(ii) with effect from 01/04/2018 and therefore had no applicability to the present case. In our opinion the said submissions are irrelevant in view of the fact that the additional compensation received by the assessee did not arise from the contractual terms at all and hence do not require any further elaboration against the same. Penalty u/s 271(1)(c) - Since we have allowed assessee s appeal against quantum addition the consequential penalty do not survive. Even otherwise upon consideration of factual matrix we are of the opinion that there was no concealment of income or furnishing of inaccurate particulars on the part of the assessee. It was the case where the assessee made certain claim which has not been accepted by the revenue. Viewed from any angle the impugned penalty could not survive.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 95,00,000 received from Coca Cola India Ltd. as income liable to tax.
2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Addition:
The primary issue concerns the addition of Rs. 95,00,000 received by the assessee from Coca Cola India Ltd. (CCIL) and whether it should be treated as taxable income. The assessee, a film actress, received Rs. 1.45 Crores from CCIL upon termination of a commercial endorsement contract. She offered Rs. 50 Lacs to tax, claiming the remaining Rs. 95 Lacs as capital receipts for damages to her reputation due to alleged sexual harassment by a CCIL employee.

During assessment, the Assessing Officer (AO) added the Rs. 95 Lacs to the taxable income due to insufficient documentary evidence supporting the capital receipt claim. The first appellate authority confirmed this addition, leading to the current appeal.

The Tribunal noted that the contract stipulated a total payment of Rs. 1.50 Crores for promotional services, with specific payment schedules. Upon termination, CCIL demanded a refund of Rs. 1.45 Crores, citing non-performance. The assessee countered with a legal notice alleging wrongful termination due to resisting sexual harassment and sought damages.

The Tribunal observed that the final settlement of Rs. 1.45 Crores included Rs. 50 Lacs due under the contract and an additional Rs. 95 Lacs, which the assessee claimed as compensation for reputational damage. The Tribunal found that the contract did not provide for any additional payment beyond Rs. 1.50 Crores, and the Rs. 95 Lacs did not arise from the exercise of the profession. Thus, it was considered a capital receipt, not taxable as income.

2. Imposition of Penalty:
The second issue involved the imposition of a penalty of Rs. 31.35 Lacs under Section 271(1)(c) of the Income Tax Act for concealment of income or furnishing inaccurate particulars. The penalty was imposed due to the addition of Rs. 95 Lacs to the taxable income.

Since the Tribunal deleted the addition of Rs. 95 Lacs, the basis for the penalty no longer existed. Additionally, the Tribunal noted that the assessee's claim was made in good faith and not accepted by the revenue, indicating no concealment or inaccurate particulars. Consequently, the penalty was also deleted.

Conclusion:
Both the appeals were allowed, resulting in the deletion of the Rs. 95 Lacs addition and the penalty of Rs. 31.35 Lacs. The Tribunal concluded that the Rs. 95 Lacs received by the assessee was a capital receipt and not taxable as income, and there was no concealment or furnishing of inaccurate particulars warranting the penalty.