Khanna & Annadhanam v. Commissioner of Incometax

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The Tax Publishers2013 TaxPub(DT) 0829 (Del-HC) : (2013) 351 ITR 0110 : (2013) 258 CTR 0072 : (2013) 213 TAXMAN 0347 : (2013) 085 DTR 0164 INCOME TAX ACT, 1961 --Income--Capital or revenue receipt Compensation on termination of services--Assessee, a firm of Chartered Accountants, was getting referred work from Chartered Accountants firm of Calcutta, which was referred to it by a firm of Chartered Accountants based in USA under an informal understanding. The informal understanding between assessee and USA firm was formalised by an agreement. Subsequently USA firm entered into a release agreement, under which assessee was no longer represent USA firm in India and in consideration of the termination of the services of assessee, a compensation was paid by USA firm to assessee. Assessing officer was of view that impugned receipt was taxable as part of the professional income of assessee. Assessee submitted that impugned receipt did not represent professional income rather it represented compensation for the sterilisation of a source of income and where an amount is received for loss of a source of income, it would represent capital receipt. *Held:* Under the arrangement with USA firm through the Calcutta firm in respect of clients based in Delhi and nearby areas. There was no evidence that the assessee had entered into similar arrangements with other international firms of Chartered Accountants. The arrangement with USA firm was in vogue for a fairly long period of time and had acquired a kind of permanency as a source of income. When that source was unexpectedly terminated, it amounted to the impairment of the profit-making structure or apparatus of the assessee. Since the compensation was substitute for the source, the amount received by assessee in terms of the release agreement represented a capital receipt, not assessable to tax. Income Tax Act, 1961 Section 4 IN the Delhi High Court Badar Durrez Ahmed & R.V. Easwar, JJ. Khanna & Annadhanam v. CIT ITA No. 1286 of 2008 A.Y. 1997-98 29 January, 2013 In favour of assessee. Appellant by : Ajay Vohra, Ms. Kavita Jha and Somnath Shukla Respondent by : Sanjeev Sabharwal and Puneet Gupta JUDGMENT *R. V. Easwar, J.* This is an appeal filed by the assessee under section 260A of the Income Tax Act, 1961. On 8-9-2010, the appeal was admitted and the following substantial question of law was framed for decision : SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0829 (Del-HC) : (2013) 351 ITR 0110 : (2013) 258 CTR 0072 : (2013) 213 TAXMAN 0347 : (2013) 085 DTR 0164

INCOME TAX ACT, 1961

--Income--Capital or revenue receipt Compensation on termination of services--Assessee, a firm of Chartered Accountants, was getting referred work from Chartered Accountants firm of Calcutta, which was referred to it by a firm of Chartered Accountants based in USA under an informal understanding. The informal understanding between assessee and USA firm was formalised by an agreement. Subsequently USA firm entered into a release agreement, under which assessee was no longer represent USA firm in India and in consideration of the termination of the services of assessee, a compensation was paid by USA firm to assessee. Assessing officer was of view that impugned receipt was taxable as part of the professional income of assessee. Assessee submitted that impugned receipt did not represent professional income rather it represented compensation for the sterilisation of a source of income and where an amount is received for loss of a source of income, it would represent capital receipt. Held: Under the arrangement with USA firm through the Calcutta firm in respect of clients based in Delhi and nearby areas. There was no evidence that the assessee had entered into similar arrangements with other international firms of Chartered Accountants. The arrangement with USA firm was in vogue for a fairly long period of time and had acquired a kind of permanency as a source of income. When that source was unexpectedly terminated, it amounted to the impairment of the profit-making structure or apparatus of the assessee. Since the compensation was substitute for the source, the amount received by assessee in terms of the release agreement represented a capital receipt, not assessable to tax.

Income Tax Act, 1961 Section 4

IN the Delhi High Court

Badar Durrez Ahmed & R.V. Easwar, JJ.

Khanna & Annadhanam v. CIT

ITA No. 1286 of 2008

A.Y. 1997-98

29 January, 2013

In favour of assessee.

Appellant by : Ajay Vohra, Ms. Kavita Jha and Somnath Shukla

Respondent by : Sanjeev Sabharwal and Puneet Gupta

JUDGMENT

R. V. Easwar, J.

This is an appeal filed by the assessee under section 260A of the Income Tax Act, 1961. On 8-9-2010, the appeal was admitted and the following substantial question of law was framed for decision :