I-T - Compensation received by actor for damage to reputation is not deemed payment for contractual obligation where it entails no benefit arising from profession: ITAT
By TIOL News Service
MUMBAI, NOV 15, 2018: THE issue at hand before the bench is whether compensation received by an actor for damage to reputation, can be deemed to be payment towards contractual obligation & be treated as income, where such compensation entails no benefit or perquisite arising from the assessee's profession. NO is the verdict.
The Tribunal also quashed the penalty imposed on the assessee, on grounds that disallowance of any claims did not automatically invite penalty, more so when there is no concealment of income or furnishing of inaccurate particulars.
Facts of the case
The assessee is a renowned actress by profession, who derives her income from films, stage shows & product endorsements. During the relevant AY, he income was assessed at about Rs 258.91 lakhs after making additions of certain amount received by her from M/s Coca Cola. While the AO noted the assessee to have received about Rs 145 lakhs, only Rs 50 lakhs had been offered for taxation while the balance amount of Rs 95 lakhs was claimed to be capital receipt. The assessee explained such amount as being compensation received for damage to her reputation. However, the AO added such amount to her income, for want of evidence. Later the Tribunal remanded the matter back to the CIT(A), on grounds that additional evidences were considered by the CIT(A) in violation of mandate of Rule 46A. The additional evidences were remanded to the AO, who opined that the sum of Rs145 lakhs had been received as settlement for breach of celebrity engagement contract and so, was taxable. In her defence, the assessee claimed that such amount was in fact compensation for a sexual harassment complaint that she had filed against an employee of M/s Coca Cola Ltd. She further claimed that the Rs 50 lakhs offered for taxation were outstanding to her under the commercial contract & that the Rs 95 lakhs were not consideration for services provided & did not arise from contractual terms. However, the AO added such amount to the assessee's income & the CIT(A) sustained such findings. Penalty of Rs 31.35 lakhs was also imposed.
On appeal, the Tribunal held that,
++ careful consideration of the factual matrix and chain of events reveal that the final settlement as arrived between the parties was not a simple settlement of commercial claims of the assessee arising out of contractual terms. Only an amount of Rs 50 Lacs was due to the assessee and as per the terms of the contract, the assessee had a right to receive only that much of amount in case of default by CCIL and nothing more. As against this, the assessee has received an amount of Rs 145 Lacs out of which Rs 50 Lacs has been offered to tax by the assessee. The balance amount of Rs 95 Lacs is stated to be received for loss of reputation and therefore, being capital in nature, claimed to be not taxable. The factual matrix leads the court to believe so in view of the fact that the contract did not envisage any additional payment over and above the amount of Rs 150 Lacs to the assessee. The perusal of documents leads to the conclusion that such compensation did not accrue or arise out of exercise of profession by the assessee and could not be construed to be the income of the assessee or profits and gains of profession within the meaning of Section 2(24) and Section 28 of the Income Tax Act, 1961. The compensation could not be termed as any benefit, perquisites arising to the assessee out of exercise of profession. The CIT(A) fell in error to adjudicate the same on the threshold of impact of the compensation on profit making apparatus without understating the true nature of the receipts. This being so, the addition of Rs 95 Lacs is deleted;
++ apart from the addition of Rs 95 Lacs, the assessee has been saddled with penalty of Rs 31.35 Lacs u/s 271(1)(c). Since the court has allowed the assessee's appeal against quantum addition, the consequential penalty do not survive. Even otherwise, considering the factual matrix, there was no concealment of income or furnishing of inaccurate particulars on the part of the assessee. It was the case where the assessee made certain claim which has not been accepted by the Revenue. Viewed from any angle, the penalty could not survive.
(See 2018-TIOL-2137-ITAT-MUM)
