Ex-gratia settlement payment after termination not taxable under section 17(3)(i) without employer obligation

ITAT Delhi held that lump sum payment received by assessee after termination through out-of-court settlement with employer was not taxable as "profits in lieu of salary" under section 17(3)(i). The tribunal distinguished earlier HC precedents involving existing agreements, noting no such agreement existed here. Since the ex-gratia compensation was voluntary without employer obligation under service rules, it did not constitute compensation under section 17(3)(i). The CIT(A)'s deletion of the addition was upheld. Appeal decided against revenue.

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Issues involved: Appeal against deletion of addition made by AO in the income of assessee for A.Y. 2009-10.

Issue 1: Treatment of amount received by the assessee as profits in lieu of salary
The AO added Rs. 2,00,00,000/- received by the assessee from his employer INX Media after termination and Rs. 13,08,444/- received as perquisites to the total income of the assessee. The CIT(A) deleted this addition, leading to the appeal. The Revenue argued that the payment should be treated as profits in lieu of salary u/s 17(3)(i). The assessee argued that the amount was received as a lump sum settlement voluntarily and should not be taxable as perquisite income. The Tribunal held that the payment being voluntary and without legal obligation did not fall under profits in lieu of salary, citing relevant case laws.

Issue 2: Applicability of Section 17(3)(iii) and interpretation of relevant case laws
The Revenue raised concerns regarding the applicability of Section 17(3)(iii) and cited judgments of the Delhi High Court and Madras High Court. The Tribunal noted that there was no existing agreement between the assessee and employer for the payment received, distinguishing it from the cases cited. The Tribunal emphasized that the arguments of the Revenue were confined to the grounds taken in the appeal and could not introduce new contentions. The Tribunal upheld the CIT(A)'s decision to delete the addition, stating that the voluntary nature of the payment excluded it from being considered as compensation under Section 17(3)(i).

Conclusion
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition made by the AO. The Tribunal found no error of law or fact in the CIT(A)'s order and held that the payment received by the assessee was voluntary and not taxable under profits in lieu of salary. The appeal was deemed unsustainable, and the decision was pronounced on 12/04/2024.

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