2021 (9) TMI 648 - AT - Income Tax

Nature of income - Award received as settlement through an arbitration award - Amount received for withdrawal of cases against the erstwhile partners and partnership firm - To be treated as income from business under section 28(iv) or Income from other sources under section 56(1) - HELD THAT - As decided in own case 2018 (4) TMI 1640 - ITAT MUMBAI Tribunal has upheld the decision of learned Commissioner (A) that the arbitration award is taxable as Income from other sources under section 56(1) of the Act, the issue is squarely covered insofar as the present appeal is concerned and nothing survives to be decided. Therefore, respectfully following the decision of the co-ordinate bench (supra), we uphold the decision of learned Commissioner (Appeals) by dismissing the ground raised.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Taxability of the arbitration award under the Income Tax Act.

Condonation of Delay:
The appeal by the revenue was delayed by 254 days. The revenue explained the delay was due to oversight and the fact that the CIT(A) had dismissed the assessee's appeal. The delay was attributed to the erroneous decision of the CIT(A) and the need to file an appeal against it. The Tribunal, after considering the submissions and the reasons provided, found the delay to be due to a reasonable cause. Consequently, the delay was condoned, and the appeal was admitted for adjudication on merit.

Taxability of Arbitration Award:
The primary issue was whether the arbitration award received by the assessee should be taxed under section 28(iv) or section 56(1) of the Income Tax Act. The assessee had received an arbitration award of ?28 crores as a settlement for relinquishing her rights in the partnership of M/s. P.N. Writer & Co. The assessing officer treated this amount as income from business under section 28(iv). However, the CIT(A) held that the amount should be taxed as "Income from other sources" under section 56(1).

The Tribunal noted that the arbitration award was not for the assessee's retirement from the partnership firm but for relinquishing all her rights, claims, and demands against the partnership firm and other related entities. The Tribunal upheld the CIT(A)'s decision, emphasizing that the award was in cash and, according to the jurisdictional High Court's decision in Mahindra & Mahindra Limited v CIT 261 ITR 501, section 28(iv) could not be invoked. Instead, the award was rightly taxable under section 56(1) as "Income from other sources."

The Tribunal referred to the detailed observations made in the previous decision, which included:
- The arbitration award was for relinquishing rights and claims and not specifically for retirement from the firm.
- The award included conditions unrelated to the partnership firm, such as transferring properties held by the assessee and her husband.
- The award was a composite settlement for withdrawing all suits and claims against the firm and related entities.

Based on these findings, the Tribunal concluded that the arbitration award was correctly taxed under section 56(1) and dismissed the revenue's appeal.

Conclusion:
The appeal was dismissed, and the decision of the CIT(A) to tax the arbitration award under section 56(1) as "Income from other sources" was upheld. The Tribunal's decision was pronounced on 13/09/2021.