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TMI Blog2012 (6) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - IT APPEAL NO. 1587(PUNE) OF 2007 - - - Dated:- 24-6-2011 - SAILENDRA KUMAR YADAV, D. KARUNAKARA RAO, JJ. Smt. Deepa Khare for the Appellant. Sanjay Singh for the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned sum of Rs.7.5 lakhs was not offered as a taxable receipt in view of the peculiar nature of the receipt. During the reassessment proceedings, the AO issued a questionnaire dt. 23-6-2006 to the assessee and to which the assessee responded from time to time. Some of the relevant information emerging out of the submissions of the assessee as mentioned in para 2.1 of the assessment order are reproduced as under : "The services of the assessee were terminated on 25-5-2000 vide letter dt. 18-7-2000, which is enclosed in annexure at page No. 3 of this order. In para 2, of this letter, it has been mentioned that the payment was made to the assessee, as there was request from him, to compensate him at this stage of his career. In paras 4 and 5 of this letter, it was mentioned that the termination has been accepted by the assessee after both the parties have amicably resolved the matter and had withdrawn all the allegation and counter claims against each other. The assessee in its submissions (reply to query No. 5), furnished the correspondence between the assessee and Royal Bombay Yacht Club. As per this correspondence the assessee submitted following documents : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum of Rs.7.5 lakhs. Other issues raised before the CIT(A) include disallowance of a sum of Rs. 3,462 on account of value of perquisite in respect of rent free accommodation, disallowance of a sum of Rs. 5,600 as perquisite being free food provided by employer. Other ad hoc disallowance amounting to Rs. 15,000 in the accounts (telephone expenses, entertainment expenses, repair and maintenance expenses, membership fee) etc. was also made. Before the CIT(A), in connection with the sum of Rs.7.5 lakhs, the assessee repeated the same arguments that were made before the Assessing Officer. The assessee argued before him that the said amount was received much after the termination of the assessee on 18-7-2000 and therefore the said amount cannot constitute income as per the provisions of sec. 24 of the Act. It is not a profit in lieu of salary as per the assessee. Other submissions are given in para 3.2 of the impugned order. The assessee further mentioned that his employment in the club is of temporary nature and it is for a period of three years with an annual salary of Rs.3.8 lakhs and the amount received is an ex-gratia payment as he has to leave the services in view of the bad co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same are reproduced hereunder. "1. The question for consideration before the Tribunal is regarding applicability of provisions of section 17(3)(i) as profits in lieu of salary to the sum received by the appellant from his employer on termination of his services. The following are the contentions raised by the appellant so as to submit that the impugned sum received from the employer is not taxable u/s 17(3)(i) as profits in lieu of salary. (i) An amount is taxable under the head salary if there is a contract of employment between the employer and the employee for rendering any services by the employee. The amount would be treated as salary if it is paid for the services rendered and there is a relationship of employer and employee. Section 17(1) which defines salary as inclusive of profits in lieu of salary in sub-clause (iv). All the sums mentioned in the section 17(1) represent sums which are paid against the rendering the services by the employee. As laid-down by the various Courts the pre-requisite for taxing an amount as profits in lieu of salary u/s 17(3)(i) is that there should be an obligation to pay such sum on the part of the employer and such obligation must ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that any amount due to or received, whether in lump sum or otherwise by any assessee from any person- (A) before his joining any employment with that person; or (B) after cessation of his employment with that person. This amendment is wide enough to include all such payments that are paid to the employees in addition to the sums that are payable as per the express terms of employment. The said clause does not use the expression 'compensation'. The amendment is applicable from AY 2002-03 and implies that earlier such sums were not taxable u/s 17(3). (iv) Though the amount has been calculated as severance package on the basis of unexpired period of service, it was not paid to the appellant as obvious or legal dues of the appellant but it was paid after much disputes and allegations and complaints by the appellant. There were personal allegations, abuses as also physical injuries to the appellant in the entire process and in consideration of settlement of the whole dispute the amount has been paid. In view of the above submissions, it is submitted that the impugned amount is not taxable as profits in lieu of salary u/s 17(3)(i). 7. On the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for annual salary of Rs. 3.18 lakhs. Employer provided accommodation too. The said employment was terminated vide letter dt. 8-7-2000 i.e., after the end of the first year and the same is against the original offer letter dt.27-5-1999. The said termination letter provides the terms and conditions of the agreement of the retirement and these conditions include vacate the premises allotted to him as service accommodation as mentioned in para 4 of the letter and the club has to pay him a sum of Rs.7.5 lakhs, which is equivalent of salary for the rest of the period of three years up to May, 2002. Otherwise, there were differences cropped up between the employer and the employee and they led the assessee to resort to legal recourse and police involvement. The club resorted to eviction of the assessee's family from the said service apartment of the Club. 9. Thus, the case of the assessee in our opinion is that the said amount of Rs.7.5 lakhs is (i) an ex-gratia payment, (ii) a voluntary payment received from the Club, (iii) a capital receipt and an exempt receipt which is not chargeable to tax; (iv) a receipt which is outside the ambit of the provisions of sec. 17(3)(i) of the Act etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. Consequently, the said receipt constitutes a 'compensation' which falls under the scope of the expression 'any compensation in course' used in sec. 7(3)(l)(i) of Act. Ld. DR distinguished all the cases relied upon by the Ld. Counsel. 11. We have considered the above divergent stands of the parties on the issue. In short, we have to decide here whether the said amount constitutes ex-gratia payment or any compensation. For this purpose, we have to examine the characteristic features of 'compensation' and existence of obligations attached thereto vis-a-vis the ex-gratia' which is often paid by the employer as a token of gratitude to the employee to the services rendered by him without any obligations attached. It is undisputed and trite law that ex-gratia payment is qualified by voluntary payment by the employer to the employee. On the contrary, compensation is always with an obligation from the side of the employee. Thus, we have to examine the paper before us to decide whether the said amount implies any obligation or in the alternative there are voluntary payment by the employer. For this purpose we have examined the relevant documents on the issue and are of the opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee never worked for this period, which registered the acrimonious relationships between the club and the assessee. It is evident from the above letters that the assessee occupied the service apartment of the club and refused to vacate the same till the dispute is resolved. Termination letter refers to an expression 'agreement' in para 7 of the same. All these documents refer to the litigations, claims-counter claims, agreements, obligation, 'ex-gratia', compensation', 'part of the salary' etc. indicating that no legal meaning is to the attributed to these expressions and they were used in a colloquial sense. That leaves an issue whether the amount in question is received in connection with the employment or not. 13. For this purpose, we have to examine the provisions of sec. 17(3) of the Act. Assessee's attempt to invoke clause (iii) of sec. 17(3), in our opinion, is a futile attempt as the said provision was brought into the Statute subsequent to the year under appeal and, therefore, the same is inapplicable to the assessment year 2001-02. Therefore, the other core arguments to be examined for resolving the case are: (A) Whether the sum is a compensation or otherwise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alary' and it is taxable u/s 17 of the Act. We have already discussed that the impugned sum is compensation and not the ex-gratia payment. In our opinion, said amount is received from the employer as the assessee continued to stick to the Club by not vacating the premises i.e., service apartment and therefore, the Club shall not be deemed as the Ex-employer too. Consequently, the absence of any detailed contract employment does not make any difference in this case as the assessee claimed to be the employee of the Club and therefore refuse to vacate the service apartment and the club premises. Therefore, the case of the assessee fall in the said clause (i) above. Regarding the clause (iii) of section 17(3), we have already indicated that the said clause is inapplicable to the AY under consideration. C. Whether the citations relied upon by the counsel for the assessee are applicable: In this regard, we have perused the important decisions relied upon by the Ld. Counsel for the assessee. Case wise conclusions of the said decisions are as under: (a) CIT v. Ajit Kumar Bose s case (supra): "Salary-Profits in lieu of salary-Assessee's services terminated by employer by giving him re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. From the above, 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. 15. Applying the above to the facts of the instant case, in our opinion, the sum of Rs. 7.5 lakhs received by the assessee-employee is I strictly subjected to certain obligations. A. Some of the said obligation culled out from the records before us are: (i) employer shall retire; (ii) employer shall stop making claims and counter claims vis-a-vis the Club; (iii) employer shall vacate the service apartment allotted to him by the club; (iv) employer and his family shall forgo all lien on the club and its facilities; (v) amount paid is the salary for rest of the contract period of three years etc. With so many obligation attached to the said payment, we find no difficulty in arriving to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffering or injury' and it is often used in the context of 'salary or wages' (Oxford dictionary). Considering the involuntary nature of the payment with obligations attached to the same, in our opinion, the said payment is given to compensate for 'loss' salary for 25 months. Such payments are considered compensations as held in the judgment in the case of G.N. Badami (supra), where the Hon ble High Court held that the amount received by the employee when opts for leaving the service constitutes salary taxable as 'profits in lieu of salary' u/s 17(3)(i). Thus, the impugned receipt of Rs. 7.5 lakhs falls within the ambit of the expression 'any compensation' used in clause (i) of section 17(3) of the Act relating to 'profits in lieu of the salary'. Clause (iii) of section 17(3) is inapplicable to the AY under consideration as discussed above and therefore, the argument of the Ld. Counsel as mentioned in the written note is dismissed. Therefore, the order of the CIT(A) does not call for any interference on the matter. Accordingly, the ground No. 1 raised by the assessee is dismissed. 16. Rent free accommodation - Addition of Rs. 3,462 : Regarding the decision of the CIT(A) in confir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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