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TMI Blog2016 (12) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 35 lacs received on account of termination of employment as per clause 7 of the agreement was shown by the assessee as exempt being a capital receipt - Decided in favour of assessee. - ITA No. 225/JP/2016 - - - Dated:- 23-11-2016 - SHRI BHAGCHAND, ACCOUNTANT MEMBER For The Assessee : Shri K.L. Moolchandani, Advocate For The Revenue : Shri R.A. Verma, Addl.CIT-DR ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)-3 , Jaipur dated 14-12-2015 for the assessment year 2012-13 raising following ground of appeal. On the facts and in the circumstances of the case the ld. authorities below have factually and legally erred in making and confirming addition of ₹ 35.00 lacs made on account of disallowance of compensation received on termination of agreement of legal services claimed as capital receipts:- (a) without appreciating the facts of the case in right perspective and also ignoring the case laws cited on this issue. (b) and also ignoring the fact as evident from the return filed for the period of retainership that during the period under consideration the main income of the appellant was from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. The AO taking into consideration the submissions of the assessee, agreement of the assessee with M/s. Maruti Nandan Educational Society and the compromise as per copy of S.B. Civil Writ Petition (M) No.9348/2010, came to the conclusion that this sum of ₹ 35.00 lacs is treated as assessee s income under the head Income from Business and Profession and added the same to the income of the assessee. The conclusive para of the AO is reproduced as under:- In view of the above detailed discussion, I have found that the claim of the assessee made through the submissions that ₹ 35,00,000/- being part of consultancy fee is not found acceptable. While deciding this issue, it is also mentioning here that of course the actual intention of the Statute of treating certain Receipts as Capital Receipts and also the real spirit of detailed deliberations of various Hon'ble Courts on this point cannot be termed as an escape root from paying due tax on the income actually earned but to provide relief in the case of genuine hardship of losing source of income. In the case of assessee no such genuine hardship happened as discussed above. It is a fact that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission and also the decision in ITA No. 1286/2008 dated 29-01-2013 of Hon'ble Delhi High Court in the case of Khanna and Annadhanam vs. CIT which have been taken into consideration. 2.4 The ld. DR relied on the orders of the authorities below. 2.5 I have heard the rival contentions and perused the materials available on record. The issue in question is that the assessee had received total ₹ 50.00 lacs from M/s. Marut Nandan Educational Society out of which ₹ 15.00 lacs has been declared by the assessee as professional income an paid due tax thereon. The remaining amount of ₹ 35.00 lacs received by the assessee in pursuance of clause 7 of the agreement on account of the termination of the employment was claimed as exempt income being a capital receipt. The relevant portion of clause 7 of the agreement is as under:- 7. That in case of termination of services of Shri Munindra Singh, Advocate, he shall be paid compensation of ₹ 35 lacs (Rs. Thirty Five Lacs only) within two month from the date of termination of his services/retainership. In case engineering college could not commence its activities or is discontinued or closed then no compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted as Oberoi Hotel (P) Ltd. vs. CIT (1999) 236 ITR 903. There the assessee was operating, managing and administering several hotels across the globe such as Cairo, Colombo, Kathmandu, Singapore etc. Its agreement with Hotel Oberoi Imperial, Singapore, which it was operating from 02-11- 1970 was terminated and the assessee received a sum of ₹ 29,47,500/- from the receiver of the Singapore Hotel. The Supreme Court held that the amount was received because the assessee had give up its rights to purchase or operate the property and thus it was a loss of a source of income. The receipt was accordingly held to be capital in nature. It was observed, after a review of the earlier cases, that ordinarily compensation for loss of office or agency is to be regarded as a capital receipt and the only exception where the payment received for termination of an agency agreement could be treated as revenue was where the agency was one of many which the assessee held and its termination did not impair the profit making structure of the assessee, but was within the framework of the business, it being a necessary incident of the business that existing agencies may be terminated and fresh agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of agencies was part of the normal course of its business. It was on account of this distinction that the ultimate decision went in favour of the revenue. The facts of the case before us, as noted earlier, are not in pari materia with those in Best Co. (P) Ltd. (supra). In our view the facts are more akin to the case of Kettlewell Bullen Co. Ltd. (supra) and therefore, the ratio laid down in that case is more appropriate to be applied to the present case. 9. In the result, we answer the substantial question of law by holding that the amount of ₹ 1,15,70,000/- received by the a in terms of the release agreement dated 14-11-1996 represents a capital receipt, not assessable to income tax. The appeal of the assessee is allowed with no order as to costs. In view of the above facts and circumstances of the case and the decision of Hon'ble Delhi High Court in the case of Khanna and Annadhanam vs. CIT (supra), I do not concur with the order of the ld. CIT(A). On the facts of the assessee s case, the decision of Hon'ble Delhi High Court in the case of Khanna and Annadhanam vs. CIT (supra) is applicable. Thus the appeal of the assessee is allowed. 3.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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