P.P.S. Janarthana Raja, J.
1. The appellant/revenue has filed the above Tax Case Appeal against the order of the Income Tax Appellate Tribunal, 'A' Bench, Chennai, dated 27.04.2007 in ITA. No. 1862/Mds/2004.
2. When the appeal came up for admission on 09.03.2010, this Court admitted the same on the following substantial questions of law:
1. Whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 22 lakhs paid by the employer to the assessee is not profits in lieu of salary?
2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 22 lakhs paid by the employer to the assessee would not fall under Section 17(3)(i) of the Income Tax Act?
3. Whether the definition of the profits in lieu of salary given under Section 17(3) is an exhaustive definition or only illustrative?
4. Whether Section 17(3)(iii) is an explanation which would have retrospective effect or not?
5. Whether any lump sum amount received from the employer by the employee on or after cessation of his employment would be profits in lieu of salary or not?
6. Whether in the facts and circumstances of the case, the Tribunal was right in holding for the assessing officer erred in making the estimation of Rs. 2 lakhs as income of the assessee per month?
7. Whether the Tribunal was right in holding that even in the absence of any books of accounts maintained by the assessee, the assessing officer erred in making estimation of income?
3. The brief facts arising out of the case are as under:
The assessee/respondent is an individual. He is highly qualified, experienced and an eminent Chartered Electrical Engineer. The assessee/respondent was employed as Chief Executive Officer with the General Electric Company of India Limited, New Delhi. The assessee retired from the above Company on 31.01.2001 on attaining the age of 70. After his retirement, he took up the profession of consultancy. The relevant assessment year is 2001-2002 and the corresponding accounting year ended on 31.03.2001. He has also admitted the income from house property, other sources and long term capital gain. The assessee filed a return of income of Rs. 32,13,540/- and also claimed exemption of Rs. 22,00,000/- being non-compete fee of a capital nature. The said return was processed under Section 143(1) of the Income Tax Act on 17.03.2003. The assessing officer has also sent intimation under Section 143(1) determining the refund of Rs. 8,98,673/- and the same was not granted. Later, the assessing officer enquired the nature of the retirement benefit and sent letter dated 25.07.2003. The appellant also sent reply on 29.07.2003, in which it was stated that the amount of Rs. 22,00,000/- received from his former employer was exempted and the same was not taxable. The explanation was not accepted and therefore, the assessing officer was of the view that there is an escape of income and has also issued a notice under Section 148 on 01.08.2003. The assessee has also filed a reply on 15.09.2003 requesting the assessing officer to treat the return filed on 28.06.2001 in response to the notice under Section 148 of the Act. The assessing officer did not accept the contention that the amount of Rs. 22,00,000/- was exempted and therefore, held that the same was assessable under Section 147 of the Act. The assessing officer completed the assessment under Sections 143(3) and 147 of the Act determining the total income at Rs. 57,28,140/-. While determining the said total income, the assessing officer assessed a sum of Rs. 22,00,000/- under the head 'salaries' and also estimated the professional income at Rs. 4,00,000/- under the head 'profession'. Aggrieved by that, the assessee has filed an appeal before the Commissioner of Income Tax (Appeals). The said commissioner has dismissed the appeal confirming the order of the assessment. Aggrieved by that, the assessee has filed an appeal before the Income Tax Appellate Tribunal questioning the re-opening as well as the merits of the case. The Tribunal accepting the contention of the assessee, allowed the appeal on merits and upheld the re-opening. The assessee has not filed an appeal challenging the re-opening of the assessment. The revenue alone has filed the present appeal.
4. The learned Counsel appearing for the Revenue submitted that the Tribunal is wrong in holding that the amount of Rs. 22,00,000/-received by the assessee is not taxable and also deleting the addition of Rs. 4,00,000/- under the head 'profession'. He further contended that the amount of Rs. 22,00,000/- was received in connection with the employment and therefore, the assessing officer is justified in assessing the income as 'profits in lieu of salary'. He also submitted that the employer had deducted the tax at source on the disputed amount and the assessee also estimated the advance tax and has paid the self assessment tax. The Tribunal ought to have considered that the payment is for the free advice, but without considering the same, the Tribunal is wrong in deleting the addition and he also relied on the decision in the case of Chemplant Engineers (P) Ltd. v. Commissioner of Income-Tax reported in : (1998) 234 ITR 23 in support of his contention. He further contended that the Tribunal is wrong in deleting the estimated professional income without basis and the assessing officer has correctly made the addition on the ground that he has not maintained the books of account and therefore, the assessing officer was justified in estimating the income under the head 'profession'. Alternatively the learned Counsel relied on the amended provision of Section 17(3)(iii) of the Act and contended that even though the said provision was inserted with effect from 01.04.2002, it is only clarificatory in nature and therefore, the assessment made under the head 'salary' is in accordance with law. Under these circumstances, the order of the Tribunal is not in accordance with law and the same has to be set aside.
5. The learned Counsel appearing for the assessee submitted that a sum of Rs. 22,00,000/- received by the assessee from the company is only a capital receipt. It is not for the payment towards any service and whatever the service rendered by the assessee, he has been paid fee and the same was also shown as professional income. Therefore, it is nothing but a capital receipt. He further contended that Section 17(3)(iii) was inserted with effect from 01.04.2002 and therefore, it is applicable only from the assessment year 2002-2003. In the present case, the assessment year is 2001-2002 and so the said provision is not applicable to the assessment year 2001-2002. Further, it was contended that the assessing officer is wrong in estimating the professional income of Rs. 4,00,000/- when the assessee has already shown all the receipts under the head 'profession'. The amounts were paid only by way of cheque. The Tribunal has considered the relevant materials and rightly held that the amount of Rs. 22,00,000/- received by the assessee is not salary and also correctly deleted the addition of Rs. 4,00,000/- under the head 'profession'. Under these circumstances, the order passed by the Tribunal is based on valid materials and the same has to be confirmed.
6. Heard the counsel on either side and perused the materials available on record.
7. The assessee was employed as Chief Executive Officer with the General Electric company India Limited, New Delhi and retired on 31.01.2001. On retirement, the assessee/respondent has received a sum of Rs. 22,00,000/-, which is a non-compete fee as per the company's letter dated 11.12.2000. The said letter reads as follows:
Please refer to our discussions on your professional activities after retirement from the company on 31.1.2001 when it was agreed that you will not take employment or join any competing organisation or part with or use your company know-how to or for them for a period of one year from 1st February, 2001, without our permission. You will be paid a lump sum of INR. 22,00,000/- for agreeing to the restraint on you freedom in the practice of your profession.
In addition you have agreed that, if requested, you would provide free advice on business matters in India to Marconi business for upto twelve months following your retirement on 31st January, 2001. If, following such advice you are engaged by any Marconi business to act on their behalf, they would be required to establish, the document, a suitable consultancy arrangement with you.
From a reading of the above letter, it is clear that the assessee agreed that 'he will not take employment or join any competing organisation and also will not use know-how of the company for a period of one year from 01.02.2001 without prior permission'. Therefore, the company has agreed to pay a sum of Rs. 22,00,000/-. So the said amount is paid to the assessee for not taking up any employment. It amounts to noncompete fee. The assessing officer was of the view that the assessee/respondent has agreed to provide free advice on business matters in India to Marconi business for a period of twelve months following his retirement. Therefore, the assessing officer was of the view that the said amount of Rs. 22,00,000/- was paid as an advance for future advice. The assessing officer brought the same under Section 17(3)(i) of the Act. But the Tribunal, after considering the above agreement and also the records, came to the conclusion that the assessee has provided consultancy service to the assessee's group companies for which he was paid consultancy fees. Whatever the services rendered by the assessee, he was adequately paid and no free service was rendered. Therefore, the Tribunal was of the view that it cannot be said to be an arrangement for payment of advance fee for future payment. A sum of Rs. 22,00,000/- is paid only to restrain the assessee from freely engaging in gainful employment. The assessing officer completely disregarded first paragraph of the letter dated 11.12.2000 and only relied on the second part of the letter and came to the conclusion that only for future service. The assessing officer is wrong in holding that the amount was paid only for free services, whereas the Tribunal, after considering the facts and circumstances of the case, held that the amount is paid only for non compete fee. The following judgments are cited by the learned Counsel appearing for the assessee/respondent and in these judgments, it was held that the amount paid towards restrictive covenant is the compensation paid for agreeing to refrain from carrying on competitive business and hence, it is not subjected to tax and further it was held that it is only a capital receipt.
1. The Commissioner of Income Tax v. Best and Co. (Pvt.) Ltd. (1966) 40 ITR 11 (SC).
2. The Commissioner of Income Tax v. K.K. Roy : (1972) 84 ITR 701 (SC).
3. The Commissioner of Income Tax v. Saraswathi Publicities : (1981) 132 ITR 207 (Mad).
4. The Commissioner of Income Tax v. T.I. and M Sales Ltd. : (2003) 259 ITR 116 (Mad).
5. The Commissioner of Income Tax v. Shyam Sundar Chhaparia : (2008) 305 ITR 181 (MP).
6. The Commissioner of Income Tax v. Ajit Kumar Bose : (1987) 165 ITR 90 (Cal).
7. The Commissioner of Income Tax v. Saroj Kumar Poddar : (2005) 279 ITR 573 (Cal).
8. B.K. Kotru v. The Commissioner of Income Tax : (2006) 282 ITR 1 (Bom.).
The learned Counsel appearing for the appellant/revenue fairly stated that he is not disputing the principles enunciated in the above judgments. So it is not necessary to consider the above case law one by one except the case of Madhya Prdesh High Court in Commissioner of Income Tax v. Shyam Sundar Chhaparia reported in : (2008) 305 ITR 181 (MP) as well as the Bombay High Court in the case of B.K. Kotru v. The Commissioner of Income Tax reported in (2006) : 282 ITR 1 (Bom.) wherein the Courts considered the similar issue as in the present case. In case of Commissioner of Income Tax v. Shyam Sundar Chhaparia reported in : (2008) 305 ITR 181 (MP) cited supra, the Madhya Pradesh High Court has held as follows:
31. In the case at hand, we have noted that the assessee retired from service on attaining the age of superannuation with effect from September 30, 2000, there was thus severance of master-servant relationship and no material is brought on record by the Revenue to suggest that there existed a service contract providing therein a restrictive covenant preventing thereby the assessee to take up any employment, activities on consultation which would be prejudicial to the business/interest of Grasim Industries. It was only on October 21, 2000, that the assessee 'surrenders his rights' by executing an agreement refraining himself from taking up any competitive employment/assignment in future which leads to grant of special compensation of Rs. 27,50,000. It cannot, as suggested by the Revenue, be termed as 'profit in lieu of salary' because it is not any compensation due to or received by an assessee from his employer or partner-employer at or in connection with the termination of his employment. In the modification of the terms and conditions relating thereof, the period of restriction in our considered opinion is of no consequence. And, as noted in Captain H.C. Dhanda (1970) : 76 ITR 404 (MP) in matters relating to revenue, the Court must regard what is called 'the substance of the matter' to bring the subject within the charge to a tax. And, therefore, the outward form of a transaction might be disregarded.
32. Having thus considered, it is held that the payment of Rs. 27,50,000 received by the assessee being solely as compensation for his agreement not to take up any competitive employment/assignment in future, the same, as rightly held by the Commissioner of Income-tax (Appeals) and the Tribunal, cannot be added for the purpose of Income tax for the year 2001-2002 and question is answered accordingly.
Further, this Court also considered the new provision of Section 17(3)(ii), which was inserted by the Finance Act, 2002 and held that the amendment is only prospective in nature and not retrospective and in paragraph 22, it has been held as follows:
In the case of CIT v. Varas International P. Ltd. (2006) 283 ITR 484 their Lordships of the Apex Court were concerned with the issue that 'for the amendment of a statute to be construed as being retrospective, should not the amended provision itself indicate either in terms or by necessary implication that it is to operate retrospectively' And having noted the issue having been conclusively determined affirmatively, refrained from resolving the issue. Which thus, leave no manner of doubt that the introduction of new provisions in the form of section 17(3)(iii) introduced with effect from April 1, 2002, will not have any bearing upon the construction/interpretation of Section 17(3)(i) and its applicability to the transactions which took place prior to April 1, 2002.
8. The Bombay High Court also considered the similar issue of restricted covenant in B.K. Kotru v. Commissioner of Income Tax : (2006) 282 ITR 1 (Bom.) and held as follows:
It appears from the statement of facts that the assessee was offered employment by competitors of M/s Sandvik Asia Ltd., like M/s Widia and Drilleco. In order to prevent the assessee from accepting such offers, it appears that M/s Sandvik Asia Ltd., had offered additional amount of Rs. 96,000 to the assessee on his agreeing not to accept similar job in any other competing organisation for a minimum period of two years from July 13, 1979, and not to disclose or part with any information/knowledge or know-how of the company products/processes which he may have acquired during his tenure with them. The assessee, on receipt of the said amount, executed a restrictive covenant and undertook not to take any employment with any other competitors in lieu of payment of Rs. 96,000. This payment of 96,000, thus, can hardly be linked up with the salary, or perquisites and profits. The receipt of this amount is after cessation of the employer and employee relationship. This receipt of amount, thus, can only be capital receipt. The Tribunal was, thus, not justified in treating it as part of the salary for the assessment year 1980-81. In view of our finding, the question is answered in the negative, i.e. in favour of the assessee and against the Revenue.
9. The learned Counsel appearing for the Revenue relied on the judgment of this Court in the case of Chemplant Engineers (P) Ltd. v. Commissioner of Income-Tax reported in : (1998) 234 ITR 23) cited supra to support his contention. But in that case, the facts involved are entirely different. There is a specific finding that the compensation was paid for loss of earning the commission for procuring orders. Therefore, it has been held that it is a revenue receipt. The said judgment is not helpful to the Revenue. After taking into consideration the principles enunciated in the above said judgments relied on by the respondent/assessee, we are of the view that the compensation received was only for not carrying on business and therefore, it is only a capital receipt and the amount is not paid for any free service rendered by the assessee. Therefore, the same cannot come under term 'profit in lieu of salary'
10. In respect of other argument the amount received is to be considered under Section 17(3)(i) of the Act does not also hold good. Chapter IV of the Income Tax Act, 1961 enumerated Heads of Income. Section 14 deals with same and they are as follows:
A Salaries
B Interest on securities-omitted from 01.04.1989
C Income from House Property
D Profit and gains of business or profession
E Capital gains
F Income from other sources
A Heading 'Salaries' consists of three provisions. They are Sections 15, 16, and 17. Section 15 deals with the income that is chargeable to Income Tax under the Head Salaries. Section 16 deals with deduction from salaries. Section 17 defines 'salary', 'perquisites' and 'Profit in lieu of salary' for the purpose of Sections 15 and 16. Section 17(1) salary includes--
(i)----
(ii)----
(iii)----
(iv) any fees, commission, perquisites or profits in lieu or in addition to any salary or wages. 'Profits in lieu of salary' is defined in Section 17(3) of the Act, which reads as follows:
'Profits in lieu of salary' includes-
i. the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
ii. any payment (other than any payment referred to in Clause (10) Clause (10A) cause (10B), Clause (11), Clause (12), Clause (13) or Clause (13A) of Section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman Insurance policy including the sum allocated by way of bonus on such policy.
iii. Explanation for the purposes of this sub-clause, the expression 'Keyman insurance policy' shall have the meaning assigned to it in Clause (10D) of Section 10.
From a reading of the above, it is clear that 'the profit in lieu of salary' includes any compensation due to or received by an assessee from his employer or former employer. It is not the case that the compensation is due to the assessee. Whatever the income received by the assessee was returned by him and also a sum of Rs. 22,00,000/- paid is not in connection with the termination of the employment or modification of the terms and conditions. Therefore, Section 17(3)(i) of the Act is not applicable and the said amount cannot be come within the purview of the definition. The Supreme Court, in the case of Commissioner of Income-Tax Bombay City-I v. E.D. Sheppard reported in : 1963 48 ITR 237, has considered the corresponding provision in Explanation 2 to Section 7(1) of the Indian Income Tax Act, 1922, wherein it has been held that when there is no employer-employee relationship between the parties, if any amount paid and not related to the relationship does not fall within the expression 'profit in lieu of salary'. It has also held as follows:
Once it is held that the payment in the present case was a payment made solely as compensation for loss of employment, there is an end of the appeal, because Explanation 2 in clear terms excepts such payment from being treated as a profit received in lieu of salary. The Tribunal held on the evidence before it that the payment was made solely as compensation for loss of employment. The High court rightly took the view that no distinction could be made between compensation for loss of employment and compensation for loss of prospects rooted in that employment. The High Court also rightly pointed out that if the object of the payment was unrelated to the relation between the employer and employee, it would not fall within the expression 'profit received in lieu of salary' in Explanation 2. We think that the High Court committed no error in answering the question referred to it.
In the present case, the Tribunal had categorically found as a fact that there was no employer-employee relationship between the assessee and the company. The Tribunal correctly followed the principle enunciated in the above judgment and held that if the object of the payment is unrelated to the relation between the employer and employee, it would not fall within the expression 'profit in lieu of salary' under Section 17(3)(i) of the Act. Further, alternative argument was advanced that the amount received by the assessee will come within the definition of Section 17(3)(iii) of the Act. The said Section was introduced by Finance Act, 2001 with effect from 01.04.2002. The amended provision reads as follows:
Any amount due to or received, whether in lump sum or otherwise, by any assessee from any person-
(A) before his joining any employment with that person; or
(B) after cessation of his employment with that person.
The said provision was brought by the Finance Act of 2001 with effect from 01.04.2002. It is applicable only to the assessment year 2002-2003 and for the subsequent assessment years. It is prospective in nature and not retrospective as contended by the revenue. Notes on clauses explaining various provisions containing the details reported in : (2001) 248 ITR 106 page 118 Statutes deals with sub Clause (b) of Clause 13, which reads as follows:
Sub Clause(b) seeks to insert a new Sub-clause (iii) in Clause (3) of the said section so as to include any amount due to or received, whether in lump sum or otherwise, by any assessee from any person before joining any employment, or after cessation of such employment as income of that person under the head 'Salaries'.
This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years.
The C.B.D.T. also issued a Circular No.14 of 2001 explaining the above notes on provision relating to Direct Taxes reported in (2001) 252 ITR (St.) 65 and paragraph 28.2, 28.3 and 28.4 reads as follows:
The definition of ' perquisite' has also been amended to include the value of any other fringe benefit or amenity as may be prescribed. The details of fringe benefits are to be calculated in the manner prescribed in the Income-tax Rules. It is further provided that 'profits in lieu of salary' shall include amounts received in lump sum or otherwise, prior to employment or after cessation of employment for the purposes of taxation.
28.3. The nature and the value of other fringe benefits have already been prescribed under the Rules. The value of different perquisites, benefits, amenities and other fringe benefits will henceforth be worked out in accordance with Rule 3 of the Income-tax Rules which has been rewritten and notified vide No. 940(E) dated 25th September, 2001.
28.4. These amendments shall come into effect from 1st April, 2002, and shall, accordingly, apply to the assessment year 2002-03 and subsequent years.
From a reading of the above provision, Notes on clause and the circular explaining the Notes on clause made it clear that the above provision come into effect only from 01.04.2002 i.e., applicable only for the assessment year 2002-03 onwards. In the present case, the assessment year involved is 2001-2002, which is prior to the amendment. So the intention of the legislature does not suggest that it is clarificatory in nature and it takes effect retrospectively.
11. The Apex Court, in the case of Virtual Soft Systems Ltd. v. Commissioner of Income-Tax reported in : (2007) 289 ITR 83, has considered the scope of interpretation of statute and held that there is no assumption as to the retrospectivity of an amendment. Retrospectivity has to be enacted specifically in the fiscal statute and it is more so in the case of penal provisions as otherwise it would be contradictory or derogatory to Article 20(1) of the Constitution of India. In paragraphs 53 to 56 it has been held as follows:
It may be noted that the amendment made to Section 271 by the Finance Act, 2002, only stated that the amended provision would come into force with effect from April 1, 2003. The statute nowhere stated that the said amendment was either clarificatory or declaratory. On the contrary, the statute stated that the said amendment would come into effect on April 1, 2003, therefore, would apply to only to future periods and not to any period prior to April 1, 2003 or to any assessment year prior to the assessment year 2003-2004. It is well-settled legal position that an amendment can be considered to be declaratory and clarificatory only if the statute itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement in the statute itself, the amendment will not be considered to be merely declaratory or clarificatory.
Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not he end of the matter. The Court will not regard itself as being bound by the said statement made in the statute but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a calrificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods. In this connection, see the following:
1. Sakru v. Tanaji : (1985) 3 SCC 590 at pages 593-594;
2. Harding v. Commissioners of Stamps for Queensland (1898) AC 769 at 775 to 776 (PC)
3. R. Rajagopal Reddy v. Padmini Chandrasekharan : (1995) 213 ITR 340 (SC) : (1995) 2 SCC 630 at 646;
4. CIT v. Patel Brothers and Co. Ltd. : (1995) 215 ITR 165 (SC); and
5. Sedco Forex International Drill Inc. v. CIT : (2005) 279 ITR 310 at page 317(SC).
In the present case, it is only in the Notes on Clauses relating to the 2002 (see (2002) 254 ITR (St.) 118) amendment that it has been stated that the said amendment is clarificatory. There is no such mention of the said amendment being clarificatory, anywhere in the statute itself. Such a statement in the Notes on Clauses cannot possibly bind the court when even a statement in the statute itself is not regarded as binding or conclusive. In the present case, the statute expressly states that the amendment would take effect only from April 1, 2003. Consequently, this amendment cannot possibly be applied to or in respect of any period prior to April 1, 2003.
Otherwise also, it has been consistently held that a provision must be read subject to the rule that in the absence of an express provision or clear implication, the legislature does not intend to attribute to the amending provision, a greater retrospectivity than is expressly mentioned. It is settled law that a taking provision imposing liability is governed by the normal presumption that is not retrospective. Reference made to the decisions in:
i S.S. Gadgil v. Lal and Co. : (1964) 53 ITR 231 (SC);
ii K.M. Sharma v. ITO : (2002) 254 ITR 772 (SC);
iii Gem Granites v. CIT : (2004) 271 ITR 322 (SC); and
iv Sedco Forex International Drill Inc. v. CIT : (2005) 279 ITR 310 (SC).
12. It is pertinent to note that the said provision 17(3)(iii) is a definition provision. It enlarge the scope of the definition. It includes the object of the new provision to expand the scope of provision of 'profit in lieu of salary' so as to include any amount due to or received, whether in lump sum or otherwise, by any assessee from any person, i.e. (a) before his joining any employment with that person; or (b) after cessation of his employment with that person. Whenever enlarging the scope of existing provision and also including the particular transaction as income, the provision always comes into effect prospectively unless specifically stated that it operates retrospectively. The Supreme Court, in the case of Commissioner of Income Tax v. Infosys Technologies Ltd. reported in : (2008) 297 ITR 167, has considered the scope of amended provision of Section 17(2)(iiia) which was inserted by the Finance Act 1999 with effect from April 1, 2000. The issue in that judgment is whether the said provision comes into effect retrospectively or prospectively. The Supreme Court, in paragraphs 13, 14 and 15, has held as follows:
13. We quote herein below Section 17(2)(iiia), which reads as under:
(iiia) the value of any specified security allotted or transferred, directly or indirectly, by any person free of cost or at concessional rate, to an individual who is or has been in employment of that person:
Provided that in a case where allotment or transfer of specified securities is made in pursuance of an option exercised by an individual, the value of the specified securities shall be taxable in the previous year in which such option is exercised by such individual. Explanation for the purposes of this clause,-
(a) 'cost' means the amount actually paid for acquiring specified securities and where no money has been paid, the cost shall be taken as nil;
(b) 'specified security' means the securities as defined in Clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and includes employees' stock option and sweat equity shares;
(c) 'sweat equity shares' means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; and
(d) 'value' means the difference between the fair market value and the cost for acquiring specified securities.
(emphasis supplied)
14. As stated above, unless a benefit/receipt is made taxable, it cannot be regarded as 'income'. This is an important principle of taxation under the 1961 Act. Applying the above principle to the insertion of Sub-clause (iiia) in Section 17(2) one finds that for the first time with effect from April 1, 2000, the word 'cost' stood explained to mean the amount actually paid for acquiring specified securities and where no money had been paid, the cost was required to be taken as nil.
15. In the case of CIT v. B.C. Srinivasa Setty : (1981) 128 ITR 294 (SC) this Court held that the charging section and the computation provision under the 1961 Act constituted an integrated code. The mechanism introduced for the first time under the Finance Act, 1999, by which 'cost' was explained in the manner stated above was not there prior to April 1, 2000. The new mechanism stood introduced with effect from April 1, 2000, only. With the above definition of the word 'cost' introduced, vide Sub-clause (iiia), the value of the option became ascertainable. There is nothing in the memorandum to the Finance Act, 1999, to say that this new mechanism would operate retrospectively. Further, a mechanism which explains 'cost' in the manner indicated above cannot be read retrospectively unless the Legislature expressly says so. It was not capable of being implemented retrospectively. Till April 1, 2000, in the absence of the definition of the word 'cost', the value of the option was not ascertainable. In our view, Sub-clause (iiia) is not clarificatory. Moreover, the meaning of the words 'specified securities' in Sub-clause (iiia) was defined or explained for the first time, vide Finance Act, 1999, with effect from April 1, 2000. Moreover, the words allotted or transferred' in Sub-clause (iiia) made things clear only after April 1, 2000. Lastly, it may be pointed out that even Sub-Clause (iiia) has been subsequently deleted with effect from April 1, 2001. For the aforestated reasons, we are of the view that Sub-clause (iiia) cannot be read as retrospective.
13. In the case of Commissioner of Income Tax v. Shyam Sundar Chhaparia cited supra, the Madhya Pradesh High Court has considered the scope of amended provision of Section 17(3)(iii) as in the present case and held that it would be applicable only prospectively and not retrospectively as contended by the revenue. After taking into consideration the principle enunciated in the above judgments, we are of the view that the amended provision viz., Section 17(3)(iii) comes into effect only prospectively and not retrospectively.
14. The learned Counsel appearing for the revenue further submitted that the employer of the assessee had deducted tax at source on the disputed amount and further the assessee/respondent had also estimated the advance tax on the amount and has also paid the self assessment tax. Relying on the above factors, the learned Counsel appearing for the revenue vehemently contended that the asessee himself treated the same as income nature. Therefore, the assessing officer is right in assessing the compensation under the head 'salary'. The argument does not hold good on the ground that the employer of the assessee had deducted the tax at source only on the advice of the tax consultant and also on abundant caution. The assesee also paid advance tax only at the instance of his counsel. Concession or consent certainly does not confer any jurisdiction on revenue to assess it. Therefore, the said factors do not help the revenue. In these circumstances, we are of the view that the amount received by the assessee is only a capital receipt and the same is not taxable and further the amended provision inserted by the Finance Act of 2002 comes into effect only for the assessment year 2002-2003 onwards and the same is not applicable prior to the earlier assessment years. Accordingly, we answer the questions 1 to 5 in favour of the assessee/respondent and against the revenue.
15. In respect of question No. 6, the assessee/respondent has filed a return admitting the professional income of Rs. 3,89,335/- for the months of February and March, 2001. The Auditor's statement also furnished to the assessing officer. The details regarding the same are as follows:
February'01 March'01 TotalRs. Rs. Rs.Retainer Fee from i) Alstom Power Ltd. 1,00,000 1,00,000 2,00,000ii) Vam Organic Ltd. 25,000 25,000 50,000Consultancy service to Marconi Pic 1,39,335Total 3,89,335
From a perusal of the above submissions, it is clear that the anomaly pointed out between the income returned and the income mentioned in Profit and Loss Account is without any basis. The Assessing officer has clearly erred in appreciating the facts of the case and this so-called anomaly cannot be a reason for estimate of assessee's income. Another point of the Revenue in this regard is that proper books of accounts have not been maintained by the assessee. In this regard, it is noted that assessee has done only business for two months at the end of the financial year and in which only a few payments have been received which have been accounted through bank. Similarly receipt of salary for the past ten months and receipt of Rs. 22,00,000/- as found exempted by us cannot also be a basis of any estimate. Hence, in our opinion, the estimated addition of Rs. 4,00,000/- is devoid of cogency and is liable to be deleted.
From a reading of the above, it is clear that the Tribunal has considered all the facts and circumstances of the case and also categorically given a finding that the estimate made by the assessing officer has no basis and correctly deleted the addition. It is a question of fact. It is not a perverse order. Therefore, the order passed by the Tribunal deleting the addition is justified and the same is in accordance with law. In view of the above, we also answer the question Nos. 6 and 7 in favour of the assessee and against the revenue.
16. Under these circumstances, we do not find any error or illegality in the order passed by the Tribunal warranting interference. Accordingly, the order passed by the Tribunal is confirmed and the above tax case appeal is devoid of merits and the same is dismissed. No costs.