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TMI Blog2018 (11) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(24) and Section 28 of the Income Tax Act, 1961. The compensation could not be termed as any benefit, perquisites arising to the assessee out of exercise of profession. FAA, in our opinion, fell in error to adjudicate the same on the threshold of impact of the compensation on profit making apparatus without understating the true nature of the receipts. This being so, we have no hesitation in deleting the impugned addition of ₹ 95 Lacs. We order so. AR, during the course of hearing, had canvassed that the compensation received for breach of the terms of the contract has been brought to tax by way of insertion of new sub-clause (e) to Section 28(ii) with effect from 01/04/2018 and therefore, had no applicability to the present case. In our opinion, the said submissions are irrelevant in view of the fact that the additional compensation received by the assessee did not arise from the contractual terms at all and hence, do not require any further elaboration against the same. Penalty u/s 271(1)(c) - Since, we have allowed assessee’s appeal against quantum addition, the consequential penalty do not survive. Even otherwise, upon consideration of factual matrix, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner of Income Tax- Circle 11(1), Mumbai [in short referred to as AO ] at ₹ 258.91 Lacs after certain additions as against returned income of ₹ 157.54 Lacs filed by the assessee on 01/11/2004. The assessee derived income by way of fees for acting assignment in films, stage shows and by way of endorsements. The addition of ₹ 95 Lacs representing certain receipts from Coca Cola is the sole subject matter of dispute before us. 2.2 During assessment proceedings, it transpired that the assessee received a sum of ₹ 145 Lacs from a multi-national company namely M/s Coca Cola India Limited [in Short referred to as CCIL / company] but offered only a part of the same i.e. ₹ 50 Lacs to tax and claimed the balance ₹ 95 Lacs to be capital receipts in nature in view of the fact that the same represented compensation received by assessee towards damages caused to assessee s reputation. However, the failure to substantiate the same with sufficient documentary evidences and for want of proper justification thereof resulted into impugned addition in the hands of the assessee. The same upon confirmation by Ld. first appellate authority on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order wherein Ld. AO opined that the amount of ₹ 145 Lacs received by the assessee was in lieu of settlement between the two parties for breach of terms of celebrity engagement contract [in short Commercial Contract / Contract] dated 11/02/2002 and therefore, the stated amount was taxable in the hands of the assessee. In defence, the assessee by way of written submissions, inter-alia, submitted that the assessee entered into a commercial contract with CCIL to endorse / promote the products of CCIL for consideration of ₹ 1.50 Crores. For certain reasons, the said commercial contract was cancelled / terminated prematurely and accordingly, a settlement agreement dated 18/09/2003 was entered pursuant to which the assessee received a sum of ₹ 1.45 Crores. It was further submitted that the full amount of ₹ 1.45 Crores was received as compensation in lieu of sexual harassment case filed by the assessee against an employee of CCIL . However, out of abundant caution, the assessee considered a sum of ₹ 50 Lacs which was outstanding amount due to her under the commercial contract as her income. It was submitted that extra compensation received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal settlement for all her claims against Coca-Cola arising out of or in relation to the Celebrity Agreement and the subsequent termination thereof, and SS confirms that she has no claim of whatsoever nature against Coca-Cola. 5.2.2.2 Whereas, the appellant had received the aforesaid sum of ₹ 1.45 crores from M/s.Coca Cola India Ltd., it had offered to tax only a sum of ₹ 50,00,000/- as income and the remaining amount of ₹ 95,00,000/- was treated by her as a capital receipt not chargeable to tax. Undisputedly, the appellant had received compensation for termination of a contract but such contract was one of many which the appellant held including, inter-alia, professional contracts for acting in films, professional contracts for stage shows and professional contracts for commercial endorsement. The termination of contract with M/s.Coca Cola India Ltd. did not impair the profit-making structure of the appellant, but was within the framework of appellant's business and profession, it being a necessary incident of the business that the contract may be terminated and fresh commercial endorsements and fresh professional contracts for acting in films and stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Seth Banarsi Das Gupta Vs. CIT (1971) 81 ITR 170 (All) has held that the amount received by the assessee under a compromise decree, in a suit for setting aside the lease was a revenue receipt. Similarly, in the case of United Construction Contractors vs. CIT (1994) 208 ITR 914, 919-20 (Ker) . following CIT vs. Govinda Chaudhary Sons (1993) 203 ITR 881 (SC), dispute regarding payment due from PWD was settled through arbitration. Such amount along with interest were held to be revenue receipt even though payment was delayed as a result of certain disputes. 5.2.2.4 Having regard to facts and circumstances of the case and in view of the above, the entire receipt of ₹ 1.45 crores, and not only ₹ 50 lacs as offered by the appellant, is a revenue receipt chargeable to tax. Therefore, the addition of ₹ 95 lacs made by the A.O. under the head Business and Profession is confirmed. Ground of Appeal No.2 is not allowed. As per the observations, the payment received by the assessee arose out of cancellation of the commercial contract and did not affect the trading structure of assessee s business or profession. Further, the terminatio ..... 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Rs.5 Lacs On completion of 30 days or 30/12/2003 Total Rs.150 Lacs The eventuality of defaults and consequences thereof has been provided under Clause-9, which reads as follows:- Default and its Consequences: At any time during the Term: a) should Sushmita fail to fulfill any of her obligations hereunder for a period of fifteen (15) days from the date of notice from Coca-Cola to fulfill her commitments hereunder, fails to comply with the terms of such, Coca-Cola shall have the right to terminate this Agreement forthwith without payment of any further compensation and shall be entitled to pro rata refund of all monies paid to Sushmita as per clause 9 (b). b) notwithstanding anything hereincontained should Sushmita neglect, default, fail and/or breach, any of her obligations under Clauses 3(c), 4, 6(b), 6(c), 6(d), 15 and/or any of the representations, warranties and undertakings as specified in Clause 5, Coca-Cola shall in addition to its other legal and equitable remedies, have the right to forthwith terminate this Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3 In response to aforesaid termination, the assessee, through its solicitors firm M/s Bachubhai Munim Co ., issued a legal notice dated 07/04/2004 to Doughlas N.Daft, Chairman of CCIL, USA Alex Von Behr, President CEO of CCIL, India wherein the assessee while disputing the termination of the contract alleged that the termination was mala-fide and dishonest and was for the collateral and illegal purpose to punish the assessee since she rightly resisted the sexual harassment by an employee of CCIL in the course of discharge of his duties. It was further stated that the assessee held CCIL and its USA based parent company liable for all the consequences flowing from the assessee being made a victim of sexual harassment by an employee of CCIL and for having failed to discharge its statutory duty of providing the assessee with a safe work place environment protected from sexual harassment. In the said notice, the assessee claimed the balance sum of ₹ 50 Lacs due to her under the contract and specifically reserved her right to claim the damages arising out of her being sexually harassed for having disparaged her well established professional reputa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evert. 7. The allegations on the basis of which the Agreement is purported to be terminated are false and without any basis. The allegations of gross negligence and willful conduct ascribed to Ms.Sen, are malicious, and irresponsible and are clearly defamatory and are made with the intent to willfully cause injury to her reputation and her calling as an artist knowing full well that the allegations are false. ***** 10. The above mentioned facts only go to establish what is stated at the outset of this letter that the only motive and purpose for the extreme step of purported termination, which otherwise is totally baseless and of no effect, is to drive Ms. Sen to go to the delinquent employee and fall a victim to his unwelcome sexually determined behavior and demands. 11. Whilst reserving her right to claim damages including those arising out of her being Sexually Harassed , for having disparaged her well established professional reputation by false, malicious and defamatory allegations of gross negligence and willful conduct and for the repudiatory breach of contract by the Company we on behalf of our client demand of Coca Cola Company the payment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 Lacs has been offered to tax by the assessee. The balance amount of ₹ 95 Lacs is stated to be received for loss of reputation etc. under the circumstances as discussed by us in the preceding paragraphs and therefore, being capital in nature, claimed to be not taxable. The factual matrix leads us to believe so in view of the fact that the contract did not envisage any additional payment over and above the amount of ₹ 150 Lacs to the assessee. The perusal of documents leads us to believe that the said compensation did not accrue / arise out of exercise of profession by the assessee and could not be construed to be the income of the assessee or profits and gains of profession within the meaning of Section 2(24) and Section 28 of the Income Tax Act, 1961. The compensation could not be termed as any benefit, perquisites arising to the assessee out of exercise of profession. The Ld. first appellate authority, in our opinion, fell in error to adjudicate the same on the threshold of impact of the compensation on profit making apparatus without understating the true nature of the receipts. This being so, we have no hesitation in deleting the impugned addition of ₹ 95 La ..... X X X X Extracts X X X X X X X X Extracts X X X X
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