Freelance journalist's compensation for non-renewal of contract not taxable under Section 28(ii)(e) or 56(xi)

ITAT Delhi held that compensation received by a freelance journalist upon non-renewal of contract with a publisher was not taxable under Section 28(ii)(e) or Section 56(xi). The Tribunal distinguished between contract termination and non-renewal, ruling that non-renewal does not constitute termination. Since the journalist was not an employee but worked under a freelance agreement that naturally expired, and compensation was received through mutual settlement, the provisions requiring taxation of compensation on contract termination were inapplicable. The addition was deleted.

---

---

Issues Involved:
1. Applicability of Section 28(ii)(e) of the Income Tax Act.
2. Applicability of Section 56(2)(xi) of the Income Tax Act.
3. Nature of the compensation received by the assessee.

Summary:

1. Applicability of Section 28(ii)(e) of the Income Tax Act:
The primary issue was whether the compensation of Rs. 3 crores received by the assessee from M/s Spiegel Verlag is taxable under Section 28(ii)(e) of the Income Tax Act. The Assessing Officer believed that the compensation is taxable under this section, which applies to any compensation received in connection with the termination or modification of the terms and conditions of any contract relating to business. The Tribunal, however, clarified that the term "business" does not include "profession" unless explicitly stated by the legislature. The Tribunal referred to the Supreme Court's decision in G.K. Choksi & Co., which held that "business" and "profession" are distinct terms and cannot be used interchangeably. Therefore, Section 28(ii)(e) does not apply to the compensation received by the assessee, who is a freelance journalist.

2. Applicability of Section 56(2)(xi) of the Income Tax Act:
The second issue was whether the compensation is taxable under Section 56(2)(xi), which pertains to any compensation received in connection with the termination of employment or modification of terms and conditions relating thereto. The Tribunal noted that the compensation was received due to non-renewal of the contract, which does not equate to termination. The Tribunal further stated that non-renewal of the contract does not amount to retrenchment as per Section 2(zh) of the Industrial Relations Code, 2020. Thus, Section 56(2)(xi) is also not applicable.

3. Nature of the Compensation Received:
The assessee contended that the compensation received is a capital receipt and not taxable. The Tribunal observed that the compensation was received as part of an amicable settlement between the parties and not due to termination of employment. The Tribunal concluded that the compensation is not taxable under the provisions of the Income Tax Act.

Conclusion:
The Tribunal directed the Assessing Officer to delete the addition of Rs. 3 crores, as the compensation received by the assessee is not taxable under either Section 28(ii)(e) or Section 56(2)(xi) of the Income Tax Act. The appeal of the assessee was allowed.

---