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TMI Blog2010 (4) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... unless specifically stated that it operates retrospectively - if the object of the payment is unrelated to the relation between the employer and employee, it would not fall within the expression "profit in lieu of salary" under Section 17(3)(i) of the Act. - As stated above, unless a benefit/receipt is made taxable, it cannot be regarded as "income". This is an important principle of taxation under the 1961 Act. Applying the above principle to the insertion of sub-clause (iiia) in section 17(2) one finds that for the first time with effect from April 1, 2000, the word "cost" stood explained to mean the amount actually paid for acquiring specified securities and where no money had been paid, the cost was required to be taken as nil. TDS deducted by the payer can not make non taxable income as taxable income - The argument does not hold good on the ground that the employer of the assessee had deducted the tax at source only on the advice of the tax consultant and also on abundant caution. The assesee also paid advance tax only at the instance of his counsel. Concession or consent certainly does not confer any jurisdiction on revenue to assess it. Therefore, the said factors do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of consultancy. The relevant assessment year is 2001-2002 and the corresponding accounting year ended on 31.03.2001. He has also admitted the income from house property, other sources and long term capital gain. The assessee filed a return of income of Rs.32,13,540/- and also claimed exemption of Rs.22,00,000/- being non-compete fee of a capital nature. The said return was processed under Section 143(1) of the Income Tax Act on 17.03.2003. The assessing officer has also sent intimation under Section 143(1) determining the refund of Rs.8,98,673/- and the same was not granted. Later, the assessing officer enquired the nature of the retirement benefit and sent letter dated 25.07.2003. The appellant also sent reply on 29.07.2003, in which it was stated that the amount of Rs.22,00,000/- received from his former employer was exempted and the same was not taxable. The explanation was not accepted and therefore, the assessing officer was of the view that there is an escape of income and has also issued a notice under Section 148 on 01.08.2003. The assessee has also filed a reply on 15.09.2003 requesting the assessing officer to treat the return filed on 28.06.2001 in response to the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the income under the head "profession". Alternatively the learned counsel relied on the amended provision of Section 17(3)(iii) of the Act and contended that even though the said provision was inserted with effect from 01.04.2002, it is only clarificatory in nature and therefore, the assessment made under the head "salary" is in accordance with law. Under these circumstances, the order of the Tribunal is not in accordance with law and the same has to be set aside. 5. The learned counsel appearing for the assessee submitted that a sum of Rs.22,00,000/- received by the assessee from the company is only a capital receipt. It is not for the payment towards any service and whatever the service rendered by the assessee, he has been paid fee and the same was also shown as professional income. Therefore, it is nothing but a capital receipt. He further contended that Section 17(3)(iii) was inserted with effect from 01.04.2002 and therefore, it is applicable only from the assessment year 2002-2003. In the present case, the assessment year is 2001-2002 and so the said provision is not applicable to the assessment year 2001-2002. Further, it was contended that the assessing officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of twelve months following his retirement. Therefore, the assessing officer was of the view that the said amount of Rs.22,00,000/- was paid as an advance for future advice. The assessing officer brought the same under Section 17(3)(i) of the Act. But the Tribunal, after considering the above agreement and also the records, came to the conclusion that the assessee has provided consultancy service to the assessee's group companies for which he was paid consultancy fees. Whatever the services rendered by the assessee, he was adequately paid and no free service was rendered. Therefore, the Tribunal was of the view that it cannot be said to be an arrangement for payment of advance fee for future payment. A sum of Rs.22,00,000/- is paid only to restrain the assessee from freely engaging in gainful employment. The assessing officer completely disregarded first paragraph of the letter dated 11.12.2000 and only relied on the second part of the letter and came to the conclusion that only for future service. The assessing officer is wrong in holding that the amount was paid only for free services, whereas the Tribunal, after considering the facts and circumstances of the case, held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning himself from taking up any competitive employment/assignment in future which leads to grant of special compensation of Rs.27,50,000. It cannot, as suggested by the Revenue, be termed as "profit in lieu of salary" because it is not any compensation due to or received by an assessee from his employer or partner-employer at or in connection with the termination of his employment. In the modification of the terms and conditions relating thereof, the period of restriction in our considered opinion is of no consequence. And, as noted in Captain H.C. Dhanda (1970) 76 ITR 404 (MP) in matters relating to revenue, the Court must regard what is called "the substance of the matter" to bring the subject within the charge to a tax. And, therefore, the outward form of a transaction might be disregarded. 32. Having thus considered, it is held that the payment of Rs.27,50,000 received by the assessee being solely as compensation for his agreement not to take up any competitive employment/assignment in future, the same, as rightly held by the Commissioner of Income-tax (Appeals) and the Tribunal, cannot be added for the purpose of Income tax for the year 2001-2002 and question is answered acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the negative, i.e. in favour of the assessee and against the Revenue." 9. The learned counsel appearing for the Revenue relied on the judgment of this Court in the case of CHEMPLANT ENGINEERS (P) LTD., V. COMMISSIONER OF INCOME-TAX reported in (1998) 234 ITR 23) cited supra to support his contention. But in that case, the facts involved are entirely different.There is a specific finding that the compensation was paid for loss of earning the commission for procuring orders. Therefore, it has been held that it is a revenue receipt. The said judgment is not helpful to the Revenue. After taking into consideration the principles enunciated in the above said judgments relied on by the respondent/ assessee, we are of the view that the compensation received was only for not carrying on business and therefore, it is only a capital receipt and the amount is not paid for any free service rendered by the assessee. Therefore, the same cannot come under term "profit in lieu of salary" 10. In respect of other argument the amount received is to be considered under Section 17(3)(i) of the Act does not also hold good. Chapter IV of the Income Tax Act, 1961 enumerated Heads of Income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NER OF INCOME-TAX, BOMBAY CITY-I V. E.D.SHEPPARD reported in 1963 48 ITR 237, has considered the corresponding provision in Explanation 2 to Section 7(1) of the Indian Income Tax Act, 1922, wherein it has been held that when there is no employer-employee relationship between the parties, if any amount paid and not related to the relationship does not fall within the expression "profit in lieu of salary". It has also held as follows: "Once it is held that the payment in the present case was a payment made solely as compensation for loss of employment, there is an end of the appeal, because Explanation 2 in clear terms excepts such payment from being treated as a profit received in lieu of salary. The Tribunal held on the evidence before it that the payment was made solely as compensation for loss of employment. The High court rightly took the view that no distinction could be made between compensation for loss of employment and compensation for loss of prospects rooted in that employment. The High Court also rightly pointed out that if the object of the payment was unrelated to the relation between the employer and employee, it would not fall within the expression "profit receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er prescribed in the Income-tax Rules. It is further provided that "profits in lieu of salary" shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation. 28.3. The nature and the value of other fringe benefits have already been prescribed under the Rules. The value of different perquisites, benefits, amenities and other fringe benefits will henceforth be worked out in accordance with rule 3 of the Income-tax Rules which has been rewritten and notified vide No.940(E) dated 25th September, 2001. 28.4. These amendments shall come into effect from 1st April, 2002, and shall, accordingly, apply to the assessment year 2002-03 and subsequent years." From a reading of the above provision, Notes on clause and the circular explaining the Notes on clause made it clear that the above provision come into effect only from 01.04.2002 i.e., applicable only for the assessment year 2002-03 onwards. In the present case, the assessment year involved is 2001-2002, which is prior to the amendment. So the intention of the legislature does not suggest that it is clarificatory in nature and it takes effect retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses relating to the 2002 (see (2002) 254 ITR (St.)118) amendment that it has been stated that the said amendment is clarificatory. There is no such mention of the said amendment being clarificatory, anywhere in the statute itself. Such a statement in the Notes on Clauses cannot possibly bind the court when even a statement in the statute itself is not regarded as binding or conclusive. In the present case, the statute expressly states that the amendment would take effect only from April 1, 2003. Consequently, this amendment cannot possibly be applied to or in respect of any period prior to April 1, 2003. Otherwise also, it has been consistently held that a provision must be read subject to the rule that in the absence of an express provision or clear implication, the legislature does not intend to attribute to the amending provision, a greater retrospectivity than is expressly mentioned. It is settled law that a taking provision imposing liability is governed by the normal presumption that is not retrospective. Reference made to the decisions in: (i) S.S.Gadgil v. Lal and Co. (1964) 53 ITR 231 (SC); (ii) K.M.Sharma v. ITO (2002) 254 ITR 772 (SC); (iii) Gem Granites v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able rights in the nature of intellectual property rights or value additions, by whatever name called; and (d) 'value' means the difference between the fair market value and the cost for acquiring specified securities." (emphasis supplied) 14. As stated above, unless a benefit/receipt is made taxable, it cannot be regarded as "income". This is an important principle of taxation under the 1961 Act. Applying the above principle to the insertion of sub-clause (iiia) in section 17(2) one finds that for the first time with effect from April 1, 2000, the word "cost" stood explained to mean the amount actually paid for acquiring specified securities and where no money had been paid, the cost was required to be taken as nil. 15. In the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294(SC) this Court held that the charging section and the computation provision under the 1961 Act constituted an integrated code. The mechanism introduced for the first time under the Finance Act, 1999, by which "cost" was explained in the manner stated above was not there prior to April 1, 2000. The new mechanism stood introduced with effect from April 1, 2000, only. With the above definition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y at the instance of his counsel. Concession or consent certainly does not confer any jurisdiction on revenue to assess it. Therefore, the said factors do not help the revenue. In these circumstances, we are of the view that the amount received by the assessee is only a capital receipt and the same is not taxable and further the amended provision inserted by the Finance Act of 2002 comes into effect only for the assessment year 2002-2003 onwards and the same is not applicable prior to the earlier assessment years. Accordingly, we answer the questions 1 to 5 in favour of the assessee/respondent and against the revenue. 15. In respect of question No.6, the assessee/respondent has filed a return admitting the professional income of Rs.3,89,335/- for the months of February and March, 2001. The Auditor's statement also furnished to the assessing officer. The details regarding the same are as follows: February '01 (in Rs.) March '01 (in Rs.) Total (in Rs.) Retainer Fee from (i) Alstom Power Ltd. 1,00,000 1,00,000 2,00,000 (ii) Vam Organic Ltd. 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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