Sri Ramkrishna Agarwal, Kolkata V. A.C.I.T.Cir - 54,KOL, Kolkata

ITA 1740/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78418 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 27-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L SUNDAR
• Assessee Lawyers: RAVI TULSIYAN
• Keywords: Capital receipt
• Section: 14A

Judgement Text

I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 1 OF 19 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER), AND SHRI GEORGE MATHAN (JUDICIAL MEMBER) I.T.A. NO. 1740/KOL./ 2012 ASSESSMENT YEAR : 2004-2005 MR. RAMKRISHNA AGARWAL,....................... .....APPELLANT S.R. BATLIBOI & CO., BLOCK-C, 3 RD FLOOR, 22, CAMAC STREET, KOLKATA-700 016 [PAN :AFAPA 1343 P] -VS.- ASSISTANT COMMISSIONER OF INCOME TAX,............ ...........RESPONDENT CIRCLE-54, KOLKATA APPEARANCES BY: SHRI RAVI TULSIYAN, A.R., FOR THE ASSESSEE SHRI M.L. SUNDAR, JCIT, SR. D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : JULY 14, 2014 DATE OF PRONOUNCING THE ORDER : JULY 17, 2014 O R D E R PER GEORGE MATHAN: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXVI, KOLKATA IN APPEAL NO. 134/CIT(A)-XXXVI/KOL/37/CIR.54/09-10 DATED 24.09.20 12 FOR THE ASSESSMENT YEAR 2004-05. 2. SHRI RAVI TULSIYAN, C.A., REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI M.L. SUNDAR, LD. JCIT SR. D.R., REPRESENTED ON BEHALF OF THE REVENUE. 3. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS:- (1) THE ORDERS PASSED BY THE LOWER AUTHORITIES ARE ARBITRARY, UNREASONED, ERRONEOUS, INVALID AND BAD IN LAW. I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 2 OF 19 (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN FAILING TO APPRECIATE THAT THE LUMP SUM RECEIPT OF RS.1,49,49,018/- ON GIVING UP THE RIGHT TO RECEI PT OF RETIREMENT BENEFITS BY THE APPELLANT WAS FOR LOSS O F A POTENTIAL SOURCE OF INCOME OF THE APPELLANT AND HENCE, THE SA ME CONSTITUTED CAPITAL RECEIPT IN HIS HANDS. (2)(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN OBSERVING THAT THE RECEIPT OF RS.1, 49,49,018/- CONSTITUTED A PROFESSIONAL RECEIPT IN THE HANDS O F THE APPELLANT. (2)(C) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,49, 49,018/-AS REVENUE INCOME OF THE APPELLANT. (3)(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2 ,06,000/- OUT OF THE TOTAL EXPENSES CLAIMED AT RS.4,13,000/- U/S 14A OF THE INCOME TAX ACT, 1961, BY BRUSHING ASIDE THE CON TENTION OF THE APPELLANT THAT NO PORTION OF THE EXPENSES HAD A CTUALLY BEEN INCURRED FOR THE PURPOSE OF EARNING ANY EXEMPT INCO ME. (3)(B) WITHOUT ANY PREJUDICE TO ABOVE, THE LD. CIT( A) ERRED IN CONFIRMING THE DISALLOWANCE AS ABOVE AT THE HIGH RA TE OF 50% OF THE TOTAL EXPENSES CLAIMED WITHOUT ANY BASIS. 4. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE LD. A.R. THAT THE ASSESSEE DID NOT WISH TO PRESS GROUNDS NO. 3(A) & 3 (B). CONSEQUENTLY, GROUNDS NO. 3(A) & 3(B) OF THE ASSESSEES APPEAL ST AND DISMISSED BEING NOT PRESSED. 5. IN REGARD TO GROUNDS NO. 2(A), 2(B) & 2(C), IT W AS SUBMITTED BY THE LD. A.R. THAT AS FOLLOWS IN THE WRITTEN SUBMISSIONS :- I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 3 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 4 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 5 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 6 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 7 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 8 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 9 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 10 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 11 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 12 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 13 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 14 OF 19 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 15 OF 19 6. IT WAS THE SUBMISSION THAT THE ISSUE BEING SQUA RELY COVERED BY THE DECISION DATED 29.01.2013 OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KHANNA AND ANNADHANAM VS.- COMMISSIONER OF INCOME TAX IN ITA NO. I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 16 OF 19 1286/2008, THE LUMP SUM AMOUNT RECEIVED BY THE ASSE SSEE FOR FOREGOING HIS RIGHT TO RECEIVE PENSION WAS LIABLE TO BE TREAT ED ONLY AS CAPITAL RECEIPT. 7. IN REPLY, LD. SR. D.R. SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS LIABLE TO BE TREATED AS PROFIT IN LIEU OF SALARY. HE VEHEMENTLY RELIED UPON THE ORDER OF THE LD. CIT(APPEALS) AND T HE ASSESSING OFFICER. IT WAS THE SUBMISSION THAT THE SURRENDER OF THE RIGHT TO RECEIVE PENSION WAS VOLUNTARILY OPTED FOR BY THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERU SAL OF THE ORDER OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KHANNA AND ANNADHANAM REFERRED TO SUPRA CLEARLY SHOWS THAT THE RATIO OF T HE DECISIONS OF THE HONBLE SUPREME COURT IS THAT IF THE RECEIPT REPRES ENTS COMPENSATION FOR LOSS OF THE SOURCE OF INCOME, IT WOULD BE CAPITAL A ND IT MATTERS LITTLE THAT THE ASSESSEE CONTINUES TO BE IN RECEIPT OF INCOME F ROM ITS OTHER SIMILAR OPERATIONS. THE ASSESSEE CANNOT BE SAID TO HAVE VOL UNTARILY SURRENDERED HIS RIGHT TO RECEIVE PENSION. THE ASSESSEE HAD TO S URRENDER HIS RIGHT TO RECEIVE PENSION ON ACCOUNT OF THE PARTNERS OF THE E RSTWHILE ARTHER ANDERSON JOINING S.R. BATLIBOI & CO. THIS CLEARLY I S UNEXPECTED TERMINATION MORE SO LOSS OF THE SOURCE OF INCOME. F URTHER, A PERUSAL OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KHANNA AND ANNADHANAM SHOWS THAT THE HONBLE DELHI HIGH COURT HAS HELD AS FOLLOWS:- 5. WE THINK THAT THERE IS A GOOD DEAL OF FORCE IN THE CONTENTION OF THE ASSESSEE. IN KETTLEWELL BULLEN & CO. LTD. V. CIT: (1964) 53 ITR 261 THE SUPREME COURT DREW A DISTINCTION BETWEEN THE COMPENSATION RECEIVED FOR INJURY TO TRAD ING OPERATIONS ARISING FROM BREACH OF CONTRACT OR FROM THE EXERCISE OF SOVEREIGN RIGHTS AND COMPENSATION RECEIVED AS SOLATIUM FOR LOSS OF OFFICE. IT WAS HELD THAT THE COMPENSATION RECEIVED FOR LOSS OF AN ASSET OF ENDURING VALUE WOULD BE REGARDED AS CAPITAL. AFTER A REVIEW O F THE ENTIRE CASE LAW ON THE SUBJECT, IT WAS ULTIMATELY HELD AS FOLLOWS: - ON AN ANALYSIS OF TH ESE CASES WHICH FALL ON TWO SIDES OF THE DIVIDING LINE, A SATISFACTORY MEASURE OF CONSISTENC Y IN PRINCIPLE IS DISCLOSED. WHERE ON A CONSIDERATION OF THE CIRCUMSTANCES, PAYMENT IS MADE T O COMPENSATE A PERSON FOR CANCELLATION OF A CONTRACT WHICH DOES NOT AFFECT THE TRADING STRUCTURE OF HIS BUSINESS, NOR DEPRIVE HIM OF WHAT IN SUBSTANCE IS HIS SOURCE OF INCOM E, TERMINATION OF THE CONTRACT BEING A NORMAL INCIDENT OF THE BUSINESS, AND SUCH CANCELLAT ION LEAVES HIM FREE TO CARRY ON HIS TRADE (FREED FROM THE CONTRACT TERMINATED) THE RECE IPT IS REVENUE : WHERE BY THE I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 17 OF 19 CANCELLATION OF AN AGENCY THE TRADING STRUCTURE OF T HE ASSESSEE IS IMPAIRED, OR SUCH CANCELLATION RESULTS IN LOSS OF WHAT MAY BE REGARDED A S THE SOURCE OF THE ASSESSEES INCOME, THE PAYMENT MADE TO COMPENSATE FOR CANCELLATION OF T HE AGENCY AGREEMENT IS NORMALLY A CAPITAL RECEIPT. IN THE PRESENT CASE, ON A REVIEW OF ALL THE CIRCUMSTA NCES, WE HAVE NO DOUBT THAT WHAT THE ASSESSEE WAS PAID WAS TO COMPENSATE HIM FOR LOSS OF A CA PITAL ASSET. IT MATTERS LITTLE WHETHER THE ASSESSEE DID CONTINUE AFTER THE DETERMI NATION OF ITS AGENCY WITH THE FORT WILLIAM JUTE CO. LTD. TO CONDUCT THE REMAINING AGEN CIES. THE TRANSACTION WAS NOT IN THE NATURE OF A TRADING TRANSACTION, BUT WAS ONE IN WHICH THE ASSESSEE PARTED WITH AN ASSET OF AN ENDURING VALUE. WE ARE, THEREFORE, UNABLE TO AGR EE WITH THE HIGH COURT THAT THE AMOUNT RECEIVED BY THE APPELLANT WAS IN THE NATURE OF A REV ENUE RECEIPT. 6. THE RATIO OF THE ABOVE JUDGMENT APPLIES TO THE P RESENT CASE. THE TRIBUNAL SEEMS TO HAVE BEEN TROUBLED BY THE FACT THAT DESPITE THE TER MINATION ARRANGEMENT WITH DHS THE ASSESSEE DID NOT CEASE TO CARRY ON THE PROFESSION. TH IS ASPECT OF THE MATTER HAS ALSO BEEN ANSWERED BY THE SUPREME COURT IN THE ABOVE JUDGMENT AND IT HAS BEEN HELD THAT THE FACT THAT THE ASSESSEE CONTINUED ITS BUSINESS OR ITS USUAL O PERATIONS EVEN AFTER TERMINATION OF THE AGENCIES WAS OF NO CONSEQUENCE. WHAT APPEARS TO BE THE RATIO OF THE JUDGMENT IS THAT IF THE RECEIPT REPRESENTS COMPENSATION FOR THE LOSS OF A SOURCE OF INCOME, IT WOULD BE CAPITAL AND IT MATTERS LITTLE THAT THE ASSESSEE CONTINUES TO BE IN RECEIPT OF INCOME FROM ITS OTHER SIMILAR OPERATIONS. 7. WE MAY REFER TO ONE MORE JUDGMENT OF THE SUPREM E COURT WHICH IS REPORTED AS OBEROI HOTEL PVT. LTD. V. CIT: (1999) 236 ITR 903. THERE THE ASSESSEE WAS OPERATING, MANAGING AND ADMINISTERING SEVERAL HOTELS ACROSS THE GL OBE 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 HOT EL. THE SUPREME COURT HELD THAT THE AMOUNT WAS RECEIVED BECAUSE THE ASSESSEE HAD GIVEN UP ITS RIGHT TO PURCHASE OR OPERATE THE PROPERTY AND THUS IT WAS A LOSS OF A SOURCE OF INCO ME. THE RECEIPT WAS ACCORDINGLY HELD TO BE CAPITAL IN NATURE. IT WAS OBSERVED, AFTER A REV IEW OF THE EARLIER CASES, THAT ORDINARILY COMPENSATION FOR LOSS OF OFFICE OR AGENCY IS TO BE REG ARDED AS A CAPITAL RECEIPT AND THE ONLY EXCEPTION WHERE THE PAYMENT RECEIVED FOR TERMINATIO N OF AN AGENCY AGREEMENT COULD BE TREATED AS REVENUE WAS WHERE THE AGENCY WAS ONE OF MA NY WHICH THE ASSESSEE HELD AND ITS TERMINATION DID NOT IMPAIR THE PROFIT-MAKING STRUCTU RE OF THE ASSESSEE, BUT WAS WITHIN THE FRAMEWORK OF THE BUSINESS, IT BEING A NECESSARY INCI DENT OF THE BUSINESS THAT EXISTING AGENCIES MAY BE TERMINATED AND FRESH AGENCIES MAY BE T AKEN. IT IS SOMEWHAT DIFFICULT TO CONCEIVE OF A PROFESSIONAL FIRM OF CHARTERED ACCOUNT ANTS ENTERING INTO SUCH ARRANGEMENTS WITH INTERNATIONAL FIRMS OF CHARTERED ACCOUNTANTS, AS THE ASSESSEE IN THE PRESENT CASE HAD DONE, WITH THE SAME FREQUENCY AND REGULARITY WITH WH ICH COMPANIES CARRYING ON BUSINESS TAKE AGENCIES, SIMULTANEOUSLY RUNNING THE RISK OF SUCH AGENCIES BEING TERMINATED WITH THE STRONG POSSIBILITY OF FRESH AGENCIES BEING TAKEN. IN A FIRM OF CHARTERED ACCOUNTANTS THERE COULD BE SEPARATE SOURCES OF PROFESSIONAL INCOME SUCH AS TAX WORK, AUDIT WORK, CERTIFICATION WORK, OPINION WORK AS ALSO REFERRED WOR K. UNDER THE ARRANGEMENT WITH DHS THERE WAS A REGULAR INFLOW OF REFERRED WORK FROM DHS THROUGH THE CALCUTTA FIRM IN RESPECT OF CLIENTS BASED IN DELHI AND NEARBY AREAS. THERE IS NO EVIDENCE THAT THE ASSESSEE-FIRM HAD ENTERED INTO SIMILAR ARRANGEMENTS WITH OTHER INTERNAT IONAL FIRMS OF CHARTERED ACCOUNTANTS. THE ARRANGEMENT WITH DHS WAS IN VOGUE FO R A FAIRLY LONG PERIOD OF TIME -13 YEARS- AND HAD ACQUIRED A KIND OF PERMANENCY AS A SOU RCE OF INCOME. WHEN THAT SOURCE WAS UNEXPECTEDLY TERMINATED, IT AMOUNTED TO THE IMPA IRMENT OF THE PROFIT-MAKING STRUCTURE OR APPARATUS OF THE ASSESSEE-FIRM. IT IS FOR THAT LOSS OF THE SOURCE OF INCOME THAT I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 18 OF 19 THE COMPENSATION WAS CALCULATED AND PAID TO THE ASSESS EE. THE COMPENSATION WAS THUS A SUBSTITUTE FOR THE SOURCE. IN OUR OPINION, THE TRIBUNA L WAS WRONG IN TREATING THE RECEIPT AS BEING REVENUE IN NATURE. 8. ON BEHALF OF THE REVENUE OUR ATTENTION WAS DRAWN TO ANOTHER JUDGMENT OF THE SUPREME COURT IN CIT V. BEST & CO. (P) LTD.: (1966) 60 ITR 11. THIS JUDGMENT WAS RENDERED BY THE SAME BENCH WHICH HAD EARLIER RENDERED THE JUD GMENT IN KETTLEWELL BULLEN & CO. LTD. (SUPRA). THE DECISION WAS HOWEVER IN FAVOUR OF THE REV ENUE. THE EARLIER JUDGMENT IN KETTLEWELL BULLEN & CO. LTD. (SUPRA) WAS REFERRED TO IN THE JUDGMENT BUT THE SUPR EME COURT OBSERVED THAT THE APPLICATION OF THE PRINCIPLE LAID DOWN IN KETTLEWELL BULLEN & CO. LTD . (SUPRA) MUST DEPEND ON THE FACTS OF EACH CASE. THEIR LO RDSHIPS DISTINGUISHED THE FACTS AND HELD THAT IN THE CASE OF BEST & CO. (SUPRA) THE ASSESSEE HAD INNUMERABLE AGENCIES IN DIFFERENT LINES AND IT ONLY GAVE UP ONE OF THEM AND CONTINUED TO DO BUSINESS WITHOUT ANY APPARENT MISHAP AND THAT THE CORRESPONDENCE SHOWED TH AT THE ASSESSEE GAVE UP THE AGENCY WITHOUT ANY PROTEST PRESUMABLY BECAUSE SUCH TE RMINATION 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) LT D . (SUPRA). IN OUR VIEW THE FACTS ARE MORE AKIN TO THE CASE OF KETTLEWELL BULLEN & CO. LTD. (SUP RA) AND, THEREFORE, THE RATIO LAID DOWN IN THAT CASE IS MORE APPROPRIATE TO BE APPLIED TO THE PR ESENT CASE. 9. IN THE RESULT WE ANSWER THE SUBSTANTIAL QUESTION O F LAW BY HOLDING THAT THE AMOUNT OF `1,15,70,000/- RECEIVED BY THE ASSESSEE IN TERMS OF THE RELEASE AGREEMENT DATED 14.11.1996 REPRESENTS A CAPITAL RECEIPT, NOT ASSESSAB LE TO INCOME TAX. THE APPEAL OF THE ASSESSEE IS ALLOWED WITH NO ORDER AS TO COSTS. 9. IN THE ASSESSEES CASE ALSO, IT IS NOTICED THAT THE RATIO DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF KHANNA AND ANNADHANAM APPLIES IN ALL FORCE. IN THESE CIRCUMSTANCES, RESPE CTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF KHANNA AND ANNADHANAM REFERRED TO SUPRA, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE LUMP SUM RECEIVED BY THE ASSESSEE ON GIVING UP THE RIGHT THE RECEIPT OF RETIREMENT BENEFIT AS CAPITAL RECEIPT IN THE HAN DS OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JULY, 2014. SD/- SD/- SHAMIM YAHYA GEORGE MATHAN (ACCOUNTANT MEMBER) (JU DICIAL MEMBER) KOLKATA, THE 17 TH DAY OF JULY, 2014 I.T.A. NO. 1740/KOL. /2012 ASSESSMENT YEAR: 2004-2005 PAGE 19 OF 19 COPIES TO : (1) MR. RAMKRISHNA AGARWAL, S.R. BATLIBOI & CO., BLOCK-C, 3 RD FLOOR, 22, CAMAC STREET, KOLKATA-700 016 (2) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-54, KOLKATA (3) COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.