1993 (9) TMI 8 - SC - Income Tax

Compensation for alleged job loss held taxable as salary u/s7 Explanation 2, employment letter disbelieved

SC upheld the Settlement Commission's order treating a substantial portion of the compensation received by the appellant for alleged loss of employment as ... Liability to pay tax u/s 7 of the Indian Income tax Act, 1922 on compensation for loss of employment - Settlement Commission - appointment as the officer-in-charge - validity of letter containing the alleged terms and conditions of employment - period of service and the provision for compensation in case of premature termination - Reassessment notice - Binding effect of report of the justice Vivian Bose Commission which - HELD THAT:- The Settlement Commission was of the opinion that though the appointment of the appellant was with effect from April 1, 1943, the impugned letter containing the alleged terms and conditions of employment is, strangely enough, dated October 11, 1943-nearly six months later-and further that while there is no letter informing the applicant that his services would no longer be required after November 30, 1949, there is the letter of February 14, 1950, agreeing to pay compensation. This too is somewhat strange, said the Commission. It also noticed the close relationship between the appellant and the persons controlling the company (D. C. P. M.) and opined that the appellant occupied a special position in the company. Though he was styled as an employee, he was in fact a part of the management. In short, the Commission not only relied upon the findings of justice Vivian Bose Commission, but also gave several other reasons in support of its findings. It is, therefore, not correct to say that the said finding is based on no evidence or that it Is in the nature of a pure guess. It is true that before the Tribunal, the Departmental Representative sought to challenge the genuineness of the said letter, but the said challenge was not allowed to be raised. The Tribunal held that it was not open to the Department to attack the genuineness of the said agreement/letter for the first time at the stage of the Tribunal. It is, there fore, not correct to say that the genuineness of the letter was pronounced upon by the authorities in the original assessment proceedings. In this view of the matter, it is not necessary for us to go into the question whether, if any such finding had been recorded, it would operate as a bar to reopening the said question in reassessment proceedings or before the Settlement Commission. With respect to the objection regarding the relevance and binding nature of the findings recorded by the justice Vivian Bose Commission, we must say that the findings recorded by the said Commission may not certainly be binding upon the appellant in proceedings under the Act, but it is wrong to say that they do not constitute relevant material. They undoubtedly constitute relevant material. Further, before they were relied and acted upon, the appellant was given an opportunity to meet the same. It is idle to contend that findings recorded by a Commission manned by an eminent judge are of no evidentiary value. The said findings were recorded after an exhaustive inquiry and examination of the relevant records, account books and other proceedings of the companies controlled by the Dalmia-Jain group. The order of the Settlement Commission is vitiated by the erroneous placing of the burden of proof upon the appellant. The Commission has given as many as eight specific reasons (mentioned as 'a' to 'j') in support of its finding that major portion of the said amount is taxable under section 7 of the Act. Even if it is assumed for the sake of argument that one of the said reasons is unsustainable in law that does not vitiate the order of the Commission. The other reasons given by it are perfectly adequate to support the finding of the Commission. We express no opinion thereon. No serious objection has been taken with respect to the apportionment of the compensation amount effected by the Commission. Indeed, no such objection could have been taken. Once the letter aforesaid is disbelieved, the Commission's finding in this behalf is perfectly justified. We are, therefore, of the opinion that the Commission was right in holding that a substantial portion of the said amount should be treated as taxable under and by virtue of Explanation 2 to section 7 of the Indian Income-tax Act, 1922. Appeal accordingly fails and is dismissed with costs. Issues Involved:1. Validity of the letter dated October 11, 1943.2. Taxability of the Rs. 7 lakhs received by the appellant.3. Burden of proof in reassessment proceedings.4. Relevance and binding nature of the findings of the Justice Vivian Bose Commission.5. Apportionment of the Rs. 7 lakhs by the Settlement Commission.6. Validity of reassessment proceedings initiated under section 147(a) of the Income-tax Act, 1961.7. Penalty proceedings against the appellant.Issue-Wise Detailed Analysis:1. Validity of the Letter Dated October 11, 1943:The appellant claimed that his appointment letter dated October 11, 1943, stipulated a 25-year employment period and compensation for premature termination. However, the Settlement Commission, relying on the Justice Vivian Bose Commission's findings, doubted the letter's genuineness. The Commission observed that the letter was likely forged and ante-dated to evade taxes. It noted the unusual nature of the terms and the appellant's failure to produce the original letter. The court agreed with the Commission's assessment, stating that the letter's genuineness was not conclusively determined in the original assessment proceedings.2. Taxability of the Rs. 7 Lakhs Received by the Appellant:The appellant argued that the Rs. 7 lakhs received was compensation for loss of employment and thus not taxable under section 7 of the Indian Income-tax Act, 1922. The Revenue contended that the amount could be considered remuneration for past services. The Settlement Commission apportioned the amount, deeming Rs. 2 lakhs as non-taxable compensation for loss of employment and Rs. 5 lakhs as taxable. The court upheld this apportionment, finding it justified in the absence of the disputed letter.3. Burden of Proof in Reassessment Proceedings:The appellant argued that the burden of proof lay with the Revenue to establish concealment and escapement of income in reassessment proceedings. The court noted that the Settlement Commission provided multiple reasons for its findings, which were adequate to support its decision. The court did not express an opinion on the burden of proof issue, as the Commission's other reasons were sufficient.4. Relevance and Binding Nature of the Findings of the Justice Vivian Bose Commission:The appellant contended that the findings of the Justice Vivian Bose Commission had no evidentiary value. The court disagreed, stating that the findings constituted relevant material and were recorded after an exhaustive inquiry. The appellant was given an opportunity to address these findings, which were considered relevant by the Settlement Commission.5. Apportionment of the Rs. 7 Lakhs by the Settlement Commission:The court found no serious objection to the Settlement Commission's apportionment of the Rs. 7 lakhs. The Commission's decision to treat a substantial portion of the amount as taxable was justified, especially after disbelieving the letter dated October 11, 1943.6. Validity of Reassessment Proceedings Initiated Under Section 147(a) of the Income-tax Act, 1961:The appellant challenged the validity of the reassessment proceedings initiated under section 147(a). The court referred to the Bombay High Court's decision, which upheld the notice for reassessment. The High Court had opined that the Income-tax Officer's reasonable belief that the appellant failed to disclose material facts justified the reassessment. The court found no reason to overturn this decision.7. Penalty Proceedings Against the Appellant:The appellant requested the court to direct the dropping of penalty proceedings, citing the long duration of the case and the appellant's death. The court declined to make such a direction at this stage of the appeal.Conclusion:The appeal was dismissed with costs, and the court upheld the Settlement Commission's findings and apportionment of the Rs. 7 lakhs. The court found no reason to interfere with the reassessment proceedings or the Commission's decision on the taxability of the amount received by the appellant. The respondents' costs were assessed at Rs. 7,500 consolidated.