By TIOL News Service

NEW DELHI, JAN 01, 2016: THE issue is - Whether compensation received by Indian journalist from foreign publisher is liable to be treated as capital receipt where such compensation was paid not under any obligation but as ex-gratia payment upon termination of publishing contract. YES is the verdict.

The Facts of the case

The present assessee is the successor-in-interest and legal representative of the deceased Assessee. The deceased Assessee was a journalist by profession and was appointed as the Foreign Correspondent in India of a German news magazine Der Spiegel at a monthly flat rate honorarium of 0 in addition to a further payment for any published contributions whose copyright would be with the German publisher. During the concerned period, Der Speigel terminated the contract and paid compensation of DM 3,00,000 (Rs.53,82,000) for the association of the past 23 years and loss of work space. In the original return, the assessee claimed this amount as a revenue receipt but on revising the return, it was claimed to be a capital receipt. The AO negatived the plea that the aforementioned amount was a capital receipt. It was held that the termination of contract with Der Spiegel did not mean that the Assessee had lost his right of authorship in future "for all the publications in the universe". It was observed that since the Assessee was free to contribute his article/stories etc. to any other magazine, publication, the Assessee "neither had any right/ claim over the sum so received from Der Spiegel, nor it was anticipated by him."

On appeal, the CIT(A) reversed the order of AO by observing that the assessee was working exclusively for Der Spiegel in terms of the contract and the receipt of remuneration from Der Spiegel was the assessee's only source of income till the termination of the contract. Der Spiegel was under no obligation to pay any compensation to the assessee on terminated of the contract. However, compensation of Rs.53,82,000/- was paid for loss of work place and in consideration of long time association. It is therefore quite apparent that the compensation was an ex-gratia payment as a gesture of goodwill which could not be regarded as payment for past services for which the contractual remuneration had already been paid. The contract with Der Spiegel appointing the assessee as its foreign correspondent in India was a capital asset and the compensation received for the loss of asset constitutes the receipt of capital nature. The compensation of Rs.53,82,000/- was therefore directed to be excluded from the assessee's total income."

After hearing the parties, the High Court held that,

++ certain facts of the present case are not disputed by the Revenue. First, that the Assessee was a journalist by profession and was appointed as the foreign correspondent in India of a German news magazine Der Spiegel. The second is that the German publisher was paying a lumpsum amount upon termination as sign off compensation for performance of authorship/professional services for a continuous period of 23 years". Thirdly, the letter written by the publisher acknowledges that the compensation was being paid "Due to the loss of his work place and in consideration of his long time association". These factors have a bearing on the character of the receipt in the hands of the Assessee. Indeed this was compensation for loss of an income-generating asset. This Court concurs with the conclusion of the CIT(A) that the sum paid to the Assessee was "to compensate for the abrupt loss of source of income" and that the termination of contract had fatally injured the assessee's only source of income for the last 20 years." The mere fact that the Assessee was free to earn through other sources would not make a difference to this position. Therefore, no interference is required in the decision of the CIT(A).

(See 2016-TIOL-05-HC-DEL-IT)