By K. B. Bhujle Advocate
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CIT vs. Pritam Das Narang; 381 ITR 416 (Del):
Under an employment agreement with a company ACEE, the assessee was to be employed as the chief executive officer of the company from July 1, 2007. The company later informed the assessee that there had been a sudden change of business plan and it would not be able to take him on board as promised under the employment contract. The assessee proposed that he be paid compensation upon which the company made a payment of Rs. 1,95,00,000/- to the assessee as “a one time payment for non-commencement of employment as proposed”. The company deducted tax of Rs. 22,09,350/- on this payment and paid him a sum of Rs. 1,70,90,650/-. The assessee did not offer this sum to tax claiming it to be capital receipt. The Assessing Officer assessed the sum as salary u/s. 17(3)(iii). The Commissioner (Appeals) and the Tribunal deleted the addition.
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
“i) Section 17(3)(iii)(A) presupposes the existence of an employment, i.e., a relationship of employee and employer between the assessee and the person who makes the payment of “any amount” in terms of s. 17(3)(iii) of the Act. Therefore, the words in section 17(3)(iii) cannot be read disjunctively to overlook the essential facet of the provision, the existence of “employment” i.e. a relationship of employer and employee between the person who makes the payment of the amount and the assessee.
ii) It was a case where there was no commencement of employment and that the offer by the company to the assessee was withdrawn even prior to the commencement of such employment. The amount received by the assessee was a capital receipt and could not be taxed as “profit in lieu of salary”.
iii) The assessee was entitled to the refund of the tax deducted at source on Rs. 1,95,00,000/-.”
