2024 (4) TMI 548 - AT - Income Tax

Profits in lieu of salary u/s 17(3)(i) - payment received by the assessee as lump sum amount after his termination from service and sum received for the purchase of new car - assessee has argued that he received the aforesaid amount as lump sum amount as a settlement out of court with the employer (INX Media) of the assessee and voluntary settled the case as the reputation of the assessee was diminished due to extreme harassment and ill treatment caused by the employer HELD THAT - Hon ble Madras High Court in C.N.Badami 1997 (10) TMI 17 - MADRAS HIGH COURT has held that the amount received for encashment of leave salary would be a profit in lieu of salary and taxable under voluntary Separation Programme . The Hon ble Madras High Court in P. Arunachalam 1998 (2) TMI 42 - MADRAS HIGH COURT also followed the dictum of Badami (supra). However the perusal of the aforesaid citation shows that the Hon ble Madras High Court held as above as there was an existing agreement, whereas there was no such agreement between assessee and his employer in the facts of the present appeal, hence, the facts of the present case are easily distinguishable. CIT(A) has rightly held that the receipt of the aforesaid amount, being on account of out of court settlement and on account of the value of perquisite, deserved to be deleted and were so rightly deleted. As the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule. it would not amount to compensation in terms of section 17(3)(i) of the Act. The impugned addition was rightly deleted by the Ld. CIT(A). Decided against revenue.

Summary

Issues involved: Appeal against deletion of addition made by AO in the income of assessee for A.Y. 2009-10.

Issue 1: Treatment of amount received by the assessee as profits in lieu of salary
The AO added Rs. 2,00,00,000/- received by the assessee from his employer INX Media after termination and Rs. 13,08,444/- received as perquisites to the total income of the assessee. The CIT(A) deleted this addition, leading to the appeal. The Revenue argued that the payment should be treated as profits in lieu of salary u/s 17(3)(i). The assessee argued that the amount was received as a lump sum settlement voluntarily and should not be taxable as perquisite income. The Tribunal held that the payment being voluntary and without legal obligation did not fall under profits in lieu of salary, citing relevant case laws.

Issue 2: Applicability of Section 17(3)(iii) and interpretation of relevant case laws
The Revenue raised concerns regarding the applicability of Section 17(3)(iii) and cited judgments of the Delhi High Court and Madras High Court. The Tribunal noted that there was no existing agreement between the assessee and employer for the payment received, distinguishing it from the cases cited. The Tribunal emphasized that the arguments of the Revenue were confined to the grounds taken in the appeal and could not introduce new contentions. The Tribunal upheld the CIT(A)'s decision to delete the addition, stating that the voluntary nature of the payment excluded it from being considered as compensation under Section 17(3)(i).

Conclusion
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition made by the AO. The Tribunal found no error of law or fact in the CIT(A)'s order and held that the payment received by the assessee was voluntary and not taxable under profits in lieu of salary. The appeal was deemed unsustainable, and the decision was pronounced on 12/04/2024.