2014 (7) TMI 1265 - AT - Income Tax

Appellate Tribunal rules lump sum receipt as 'capital' not 'revenue income' in IT appeal

Mr. Ramkrishna Agarwal S.R. Batliboi & Co. Versus Assistant Commissioner of Income Tax, Circle-54, Kolkata

The Appellate Tribunal ITAT KOLKATA addressed an appeal against the order of the ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata for the ... Compensation for giving up right to receive pension - nature of receipt - assessee had to surrender his right to receive pension on account of the partners of the erstwhile Arther Anderson joining S.R. Batliboi & Co - Held that:- The ratio decided by the Hon’ble Delhi High Court in the case of Khanna and Annadhanam [2013 (1) TMI 681 - DELHI HIGH COURT] applies in all force, thus respectfully following it, 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 hands of the assessee. Issues:1. Appeal against the order of the ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata for the assessment year 2004-05.2. Classification of lump sum receipt as 'capital receipt' or 'revenue income' in the hands of the assessee.3. Disallowance of expenses claimed under section 14A of the Income Tax Act, 1961.Issue 1: Appeal against the order of the ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata for the assessment year 2004-05:The appeal was filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata in Appeal No. 134/CIT(A)-XXXVI/Kol/37/Cir.54/09-10 dated 24.09.2012 for the assessment year 2004-05. The representatives for the assessee and the Revenue presented their arguments before the Tribunal. The assessee raised various grounds challenging the lower authorities' orders as arbitrary, unreasoned, erroneous, and invalid.Issue 2: Classification of lump sum receipt as 'capital receipt' or 'revenue income' in the hands of the assessee:The main contention revolved around the lump sum receipt of Rs. 1,49,49,018/- received by the assessee for giving up the right to receive retirement benefits. The assessee argued that this receipt should be treated as a 'capital receipt' as it was compensation for the loss of a potential source of income. The ld. CIT(A) had classified this receipt as a 'professional receipt' and confirmed it as revenue income. The Tribunal referred to the decision of the Hon'ble Delhi High Court in the case of Khanna and Annadhanam, which established that compensation for loss of a source of income should be considered a capital receipt. The Tribunal held that the lump sum received by the assessee was indeed a capital receipt, not assessable to income tax, based on the principles laid down in the aforementioned case.Issue 3: Disallowance of expenses claimed under section 14A of the Income Tax Act, 1961:The assessee had claimed expenses totaling Rs. 4,13,000/- under section 14A of the Income Tax Act, 1961. The ld. CIT(A) confirmed the disallowance of Rs. 2,06,000/- out of the total expenses claimed, brushing aside the appellant's contention that no portion of the expenses was incurred for earning any exempt income. The Tribunal noted that the assessee did not wish to press Grounds No. 3(a) & 3(b) during the hearing, resulting in the dismissal of these grounds. However, the Tribunal did not delve further into this issue as the focus was primarily on the classification of the lump sum receipt.In conclusion, the Appellate Tribunal ITAT KOLKATA, in the cited judgment, addressed the appeal against the order of the ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata for the assessment year 2004-05. The Tribunal analyzed the classification of a lump sum receipt as a 'capital receipt' or 'revenue income' in the hands of the assessee, ultimately ruling in favor of treating it as a capital receipt based on established legal principles. The issue of the disallowance of expenses claimed under section 14A of the Income Tax Act, 1961 was briefly mentioned but not elaborated upon due to the primary focus on the main issue of the lump sum receipt classification.