2012 (6) TMI 347 - AT - Income Tax

Profit in lieu of salary - perquisite - Whether CIT(A) erred in confirming the order, bring to tax sum of Rs. 7.5 lakhs as the compensation after termination of employment as profits in lieu of salary - any compensation received by an assessee from his employer in connection with the termination of his employment, the modification of restrictions thereto relating to the termination of employment, the same constitutes compensation taxable u/s 17(3)(i) of the Act. - it is also clear that any sum received by the assessee from the employer or former employer in connection with the termination of his employment, such amount falls within profits in lieu of salary as per clause (i) of sec. 17(3) of the Act. - the sum of Rs. 7.5 lakhs received by the assessee-employee is strictly subjected to certain obligations. - Clause (iii) of section 17(3) is inapplicable to the AY (2001-02) under consideration - Decided against the assessee Rent free accommodation - Held that - there is no dispute on the allotment of the rent free accommodation to the assesse. CIT(A) relied on rule 3(1) of the I T Rules, 1961 and taxed the said perquisite at the rate of 10% of the salary, which is in order. Accordingly, the order of the CIT(A) does not call for any interference and thus, ground is dismissed Free Food of the Club - Perquisite of Rs. 5,600 Held that - assessee has undisputedly availed the said perquisite and therefore attracted the provisions of rule 37(iii) relating to free meal provided by the club-employer. order of the CIT(A) does not call for any interference on this issue. Accordingly dismissed Ad hoc disallowance for want of evidences - held that - disallowances in the claims for want of evidences. The assessee could not demonstrate the genuineness of the claims either during the assessment proceedings or in first appellate proceedings. Assessee could not improve his case in before us too. We have examined the facts and discussed if the claims of the assessee must be allowed when the claim of deduction is made by him but could not evidence the claim. - Decided against the assessee.

Summary

Issues Involved:
1. Taxability of compensation received after termination of employment.
2. Disallowance of perquisite value for rent-free accommodation.
3. Disallowance of perquisite value for free food provided by the employer.
4. Ad hoc disallowance of various expenses (Telephone, Entertainment, Repair & Maintenance, Membership Fees).

Detailed Analysis:

1. Taxability of Compensation Received After Termination of Employment:

The core issue revolves around whether the sum of Rs. 7.5 lakhs received by the assessee from Royal Bombay Yacht Club (RBYC) post-termination is taxable as "profits in lieu of salary" under Section 17(3)(i) of the Income-tax Act, 1961. The assessee argued that this amount was an ex-gratia payment, voluntary in nature, and thus not taxable. The Assessing Officer (AO) and Commissioner of Income-tax (Appeals) [CIT(A)] disagreed, treating it as compensation linked to employment termination and taxable under Section 17(3)(i).

The Tribunal examined the nature of the payment, noting that it was part of a settlement agreement following disputes between the assessee and the employer, which included obligations for the assessee to vacate premises and withdraw claims. The Tribunal concluded that the payment was not voluntary (ex-gratia) but a compensation for the unserved period of employment, thus falling under the scope of Section 17(3)(i). The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

2. Disallowance of Perquisite Value for Rent-Free Accommodation:

The CIT(A) confirmed the addition of Rs. 3,462 as the value of the perquisite for rent-free accommodation provided by the employer. The Tribunal found no dispute regarding the allotment of rent-free accommodation and upheld the CIT(A)'s reliance on Rule 3(1) of the Income-tax Rules, 1961, which justified the taxation of the perquisite at 10% of the salary. The Tribunal dismissed the ground raised by the assessee, affirming the CIT(A)'s decision.

3. Disallowance of Perquisite Value for Free Food Provided by the Employer:

The CIT(A) also confirmed the addition of Rs. 5,600 as the perquisite value for free food provided by the employer. The Tribunal reviewed the relevant paragraphs of the CIT(A)'s order and found that the assessee had indeed availed the perquisite, attracting the provisions of Rule 37(iii) concerning free meals. The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

4. Ad Hoc Disallowance of Various Expenses:

The CIT(A) confirmed the ad hoc disallowance of expenses incurred by the assessee, including Telephone expenses (Rs. 5000), Entertainment Expenses (Rs. 6000), Repair & Maintenance (Rs. 2,200), and Membership Fees (Rs. 2,000). The Tribunal noted that both the AO and CIT(A) made these disallowances due to the assessee's failure to provide evidence supporting the claims. The Tribunal emphasized that the onus of proving the genuineness of the claims lies with the assessee, which was not discharged in this case. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on these grounds.

Conclusion:

The Tribunal dismissed the appeal of the assessee, upholding the CIT(A)'s decisions on all grounds. The Rs. 7.5 lakhs received post-termination was deemed taxable as "profits in lieu of salary," and the disallowances related to perquisites and various expenses were confirmed due to lack of evidence.