Mumbai ITAT holds: compensation is mainly towards damage for breach of trust or fraud, can't be taxed under any heads of income; Bang ITAT on retro amendment in section 195 (finance act 2012) explanation 2 holds cannot be pressed to invoke tds for earlier/previous payments! (refer SC 5 judge bench latest order also)
Kapil Goel
THE INCOME TAX APPELLATE TRIBUNAL
“L” BENCH, MUMBAI
ITA no. 2551/Mum./2009
Assessment Year : 2005–06
|
Shri Vinay P. Karve |
The balance sum of ` 71,61,865, i.e., [` 1,20,00,000 crores (–) ` 33,38,135 (+) ` 15,00,000] in the present facts, can neither be taxed as capital gain nor as income from other sources for the reason that the lump sum amount which has been agreed under the terms of settlement is basically a kind of compensation on account of personal damage done by Ms. Rashmi Agarwal, on the assessee for committing fraud, misappropriation of assets and breach of trust. The settlement has been agreed only to withdraw the police complaint and criminal case filed in the Court of Chief Metropolitan Magistrate against Ms. Rashmi Agarwal. It was out of fear and to wringgle out from criminal case, Ms. Rashmi Agarwal, agreed to pay the compensation amount. In this situation, such an amount of compensation is nothing else, but a capital receipt which beyond the purview of charging section, that is it is not taxable under the Income Tax Act. Admittedly, it is not a case here, where the compensation has been paid on some kind of a breach of any agreement in the course of business or any transaction or any breach of contract between the two parties. Neither it is in the form of
any interest on some principal amount, because nowhere it has been mentioned that M/s. Rashmi Agarwal, will pay any interest on the delayed payment of shares sold by her in the year 2002. Thus, it cannot be taxed as income from other sources under section 56.. Such a compensation is mainly towards damage for breach of trust or fraud which and has no co–relation with any such business transactions and, therefore, the compensation amount received by the assessee cannot be taxed under any heads of income.
16. It is trite law that all the receipts in the hands of an assessee would not necessarily be income or deemed to be income for the purpose of income tax, because it will depend upon the nature of receipt and the true scope and effect of the relevant taxing provisions. Here the payment is towards compensation on account of personal injury caused by fraud and breach of personal trust. The amount has been paid to withdrAw the criminal complaint and suit. The nature and character of such kind of receipt cannot be brought under charging section and hence cannot be taxed under any other provision.
IN THE INCOME TAX APPELLATE TRIBUNAL
“B” BENCH : BANGALOREITA No.1146/Bang/2013
Assessment year : 2010-11
The Income Tax Officer,
Ward 11(1),
Bangalore.
Vs. M/s. Clear Water Technology
Date of Pronouncement : 12.09.2014
As far as ground No.5 by the revenue is concerned, the revenue
seeks to rely upon the Explanation inserted as Explanation 2 to section 195
by the Finance Act of 2002 w.r.e.f 1-4-1961. The aforesaid amendment
lays down that even if the payment by a resident in India to a non-residentconstitutes business income in the hands of the non-resident then
irrespective of the existence or non-existence of a permanent
establishment of the non-resident in India, tax is liable to the deducted at
source by the resident in India making payment to non-resident.
Admittedly, for the A.Y. 2010-11, such provision did not exist. At the time
when the Assessee made payments to the non-resident such a provision
did not exist. It is not possible for the Assessee to foresee an obligation to
deduct tax at source by a retrospective amendment to the law. In such
circumstances, the question that arises for consideration is as to, whether a
liability to deduct tax at source can be fastened on an assessee on the
basis of a retrospective amendment to the law. The amendment brought in
by the Finance Act with retrospective effect, which was passed in the year
subsequent to the year under consideration, should not be considered for
penalizing the assessee by way of disallowance u/s 40(a)(ia) of the Act.
16. In the case of Kerala Vision Ltd. Vs. Asstt. CIT (ITAT
Cochin), ITAT No. 794/Coch/2013, order dated 06.06.2014 question that
came up for consideration was whether the retrospective amendment to
Sec.195 can fasten obligation to deduct tax at source. The Tribunal found
that the Hon’ble Delhi High Court in the case of Asia Satellite
Telecommunications Co. Ltd Vs. DIT (332 ITR 340) had taken the
view that the transmission of television signals through Satellite /
transponders would not fall in the category of “royalty” as defined under Explanation 2 to sec. 9(1) of the Act. Subsequently Explanation 6, which
expanded the scope of the expression “process” was inserted by the
Finance Act, 2012 with retrospective effect, to nullify the decision rendered
by the Hon’ble Delhi High Court. The Assessee submitted before the
Tribunal that the view entertained by the assessee that the payment of
“Pay channel charges” will not fall in the category of royalty, was supported
by the decision of Hon’ble Delhi High Court referred above. Accordingly the
Assessee submitted that the disallowance u/s 40(a)(ia) should not be made
on the basis of subsequent amendment made with retrospective effect. In
this regard, the Assessee placed reliance on the following decisions:-
(a) Sonata Information Technology Ltd Vs. DCIT
(2012)(TaxCorp (INTL)4659 (Mumbai-Trib)
(b) Infotech Enterprises Limited Vs. Addl. CIT (2014) TaxCorp
(INTL) 6945 (ITAT – Hyderabad)
(c) Channel Guide India Limited Vs. ACIT (2013) TaxCorp
(INTL) 6702 (ITAT-Mum) The Cochin Bench of ITAT following the ruling in the decisions referred to
above held that the assessee cannot be held to be liable to deduct tax at
source relying on the subsequent amendments made in the Act with
retrospective effect. The Tribunal held that the view entertained by the
assessee that the pay channel charges cannot be considered as
royalty in fact gets support from the decision rendered by Hon’ble Delhi
High Court in the case of Asia Satellite Telecommunication Co. Ltd. (supra). Though the Explanation 6 to sec. 9(1)(vi) inserted by Finance Act,
2012 is clarificatory in nature, yet in view of the fact that the view
entertained by the assessee gets support from the decision of Delhi High
Court, the tribunal held that the assessee cannot be held to be liable to
deduct tax at source from the Pay Channel Charges. The tribunal held that
the assessing officer was not justified in disallowing the claim of pay
channel charges by invoking the provisions of sec. 40(a)(ia) of the Act.
Accordingly, the order of Ld CIT(A) on the issue was set aside and the AO
was directed to delete the impugned disallowance. Similar view has also
been expressed by the ITAT Bangalore bench in the case of TTK Prestige
Ltd. (supra). Respectfully following the decisions referred to above, we
hold that there is no merit in Gr.No.5 raised by the Revenue.