Sum Received in lieu of relinquishment of right to sue 'Coca-Cola' was capital receipt

Satyam Food Specialities (P.) Ltd. v. DCIT [2015] 57 taxmann.com 194 (Jaipur - Tribunal)

Consideration received on relinquishment of right to sue is not taxable under section 28; it is a capital receipt.

Fact: 

• The assessee-company entered into a franchisee soft drink bottling agreement with Cadbury Schweppes Beverages India (P) Ltd. (CSBIPL) to sell its soft drinks. CSBIPL transferred its soft drink brands to Coca Cola. Coca Cola refused to encourage sale of cold drink sold by assessee to avoid competition to its own products.
• Assessee suffered huge losses, thus filed a complaint under Monopolies and Restrictive Trade Practices Act (MRTP) before the MRTP Commission. Thereafter, the assessee and coca cola had entered into a settlement agreement through which the assessee had transferred its bottling business assets as well as immovable property to Coco Cola against a consideration.
• Assessee submitted that the entire compensation received was in lieu of withdrawing the right to sue against Coca Cola and was patently a capital receipt. But Assessing Officer treated the compensation as revenue in nature under section 28(ii)(c) and taxed accordingly.
• CIT (Appeals) held that provisions of section 28(va) were applicable and not section 28(ii)(c).Consequently the part of compensation indicated by Assessing Officer was held taxable under section 28(va). Aggrieved-assessee filed instant appeal before tribunal.

Tribunal held in favour of assessee as under: 

• All the clauses of the agreement between the assessee and coca colareflect that the real intent, objective and purpose of the payment of compensation as per settlement agreement was to ensure withdrawal of all the pending litigation by assessee, from various forums instituted for breach of terms or conditions.
• The dominant consideration for compensation being surrendering the right to sue; its neither in lieu of surrender of any agency or agreement for non-competition and thus, the compensation neither fell in the ambit of section 28(ii)(c) nor under section 28(va).
• Assessee had vehemently denied having anywhere admitted that part of the compensation was for non-competition. The compensation in question was meant, intended and paid for withdrawal of aforesaid litigation instituted by assessee which could have resulted in many adverse consequences for the reputation of Coca Cola besides entailing huge cost and efforts of litigation.
• Thus, the impugned amount was a capital receipt hence not liable to Income-tax.

Cash award received by editor for excellence in journalism is tax-free as it is a capital receipt

AROONPURIE V. COMMISSIONER OF INCOME-TAX [2015] 56 taxmann.com 80 (Delhi High Court)

Rs. 1 lakh received by the assessee as an award from B.D. Goenka Trust for excellence in Journalism would be a capital receipt and, hence, not taxable.

Facts:

• Appellant-assessee was editor-in-chief of a reputed English magazine and derived income from salary, interest, dividend and property.
• He claimed exemption of Rs.1 lakh received by him as an award from B.D. Goenka Trust for excellence in Journalism.
• The Assessing Officer (‘AO’) disallowed claim for exemption on the ground that it didn't satisfy conditions of section 10(17A) which exempts from tax awards instituted by Central/State Govt in public interest.
• On appeal, the CIT(A) allowed claim of assesseebut same was reversed by ITAT. Aggreived-assessee filed the instant appeal before High Court.

The High Court held in favour of assessee as under:

• The primary reason of giving award in the assessee’s case was not directly related to the carrying on of vocation as a journalist or publisher.The award for excellence in Journalism was directly linked with the personal achievements and personality of the assessee. Further, payment in the instant case was not of a periodical or repetitive nature.
• The paymenthad been made by a third person andnot made by an employer, who was not concerned with the activities or associated with the "vocation" of the appellant.
• It being a payment of a personal nature, should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo. The impugned prize money was paid to the assessee on a voluntary basis and was purely gratis. 
• Hence, cash award of one lakh received from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and would not be taxable under Income Tax Act.

Cash award received by editor for excellence in journalism is tax-free as it is a capital receipt

AROONPURIE V. COMMISSIONER OF INCOME-TAX (2015) 56 taxmann.com 80 (Delhi High Court)
 
Rs. 1 lakh received by the assessee as an award from B.D. Goenka Trust for excellence in Journalism would be a capital receipt and, hence, not taxable.

Facts:

• Appellant-assessee was editor-in-chief of a reputed English magazine and derived income from salary, interest, dividend and property. 
• He claimed exemption of Rs.1 lakh received by him as an award from B.D. Goenka Trust for excellence in Journalism. 
• The Assessing Officer ('AO') disallowed claim for exemption on the ground that it didn't satisfy conditions of section 10(17A) which exempts from tax awards instituted by Central/State Govt in public interest.
• On appeal, the CIT(A) allowed claim of assessee but same was reversed by ITAT. Aggreived-assessee filed the instant appeal before High Court.

The High Court held in favour of assessee as under:

• The primary reason of giving award in the assessee's case was not directly related to the carrying on of vocation as a journalist or publisher.The award for excellence in Journalism was directly linked with the personal achievements and personality of the assessee. Further, payment in the instant case was not of a periodical or repetitive nature. 
• The payment had been made by a third person and not made by an employer, who was not concerned with the activities or associated with the "vocation" of the appellant. 
• It being a payment of a personal nature, should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo. The impugned prize money was paid to the assessee on a voluntary basis and was purely gratis. 
• Hence, cash award of one lakh received from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and would not be taxable under Income Tax Act.