2010 (10) TMI 11 - HC - Income Tax

Amount received by the shareholders - consideration for voting in favor of resolution - Income u/s 2(24) - The members of Menezes family voted in favour of the resolution. As agreed, Procter and Gamble (India) Ltd (PGI the company) paid Rs.3.5 crores to the members of Menezes family. The amount was distributed amongst the members of Menezes family in the proportion agreed between them. - Held that - the burden of proving that a receipt is of revenue character initially rests on the revenue. The revenue was required to initially establish that the amount of Rs.3.5 crores received by the members of Menezes family was of a revenue character. They have not discharged that burden. On the other had, we are of the view that the receipt was a casual receipt in the nature of windfall arising out of one time event of affirmative voting on a resolution. It was not of repetitive character and was not likely to happen again - question of law answered in favor of assessee

Issues Involved:
1. Whether the amount received by the Assessee is Revenue income within the meaning of section 2(24) and taxable under section 4 of the IT Act 1961?
2. Whether the amount received by the members of the Menezes family from PGI was in the nature of a capital receipt or a revenue receipt?
3. Whether the amount received by the members of the Menezes family was a casual receipt or windfall not amounting to income under section 2(24) of the IT Act?

Issue-wise Detailed Analysis:

1. Revenue Income under Section 2(24) and Taxable under Section 4 of the IT Act 1961:
The primary issue was whether the amount received by the members of the Menezes family from PGI was considered revenue income under Section 2(24) and thus taxable under Section 4 of the IT Act. The Tribunal held that the amount received was not a business receipt but a capital receipt, as it was related to the disadvantage faced by the shareholders due to the marketing rights being taken away from Colfax. The Tribunal relied on the Supreme Court decision in CIT vs. Sirpur Paper Mills Limited, which held that compensation received for the loss of assets is a capital receipt. The Tribunal concluded that the act of affirmative voting in favor of the resolution was not a recurring event and thus the receipt of money was not in the nature of income.

2. Capital Receipt vs. Revenue Receipt:
The Assessing Officer and CIT (Appeals) had held that the amount received was income and thus taxable. They noted that the marketing agreement had ended on 31st December 1993, and the payment was not proportional to the shares held by the members of the Menezes family. The Tribunal, however, found that the money received was not proportionate to the shares held and was paid as a result of the affirmative vote on the resolution, which was a one-time event. The Tribunal's decision was based on the fact that the payment was not a regular business activity for the members of the Menezes family.

3. Casual Receipt or Windfall:
The Tribunal considered the alternative submission by the respondents that the amount received was a casual receipt or windfall. The Tribunal noted that the marketing agreement had ended, but Colfax had developed the market for the Old Spice brand over 25 years. PGI wanted to avoid litigation and ensure uninterrupted use of the brand, leading to the payment of Rs.3.5 crores to the members of the Menezes family for their affirmative vote on the resolution. The Tribunal found that the receipt was a casual receipt in the nature of a windfall, not a regular business income, and thus not taxable under Section 2(24) of the IT Act.

Conclusion:
The Tribunal's decision was upheld, concluding that the amount received by the members of the Menezes family was not taxable as income. The receipt was considered a casual receipt or windfall, arising from a one-time event of affirmative voting on a resolution, and not a recurring business activity. The appeal was dismissed, and the question framed was answered in the negative, in favor of the respondents.

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