PRINCIPAL COMMISSIONER OF I TCENTRAL vs. M/S SATYAM FOOD SPECILITIES PVT LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 118 / 2015 Pr Commissioner of Income Tax-central, New Central Revenue Building , Statue Circle, Jaipur Raj. ----Appellant Versus M/s Satyam Food Specialities Pvt. Ltd. (now Known As Karmic Budiness Specialities Pvt. Ltd., 1157, Devika Towers, 6 Nehru Palace, New Delhi. ----Respondent Connected With D.B. Income Tax Appeal No. 191 / 2016 Principal Commissioner of Income Tax-Central, New Central Revenue Building, Statue Circle , Jaipur (Raj). ----Appellant Versus M/s Satyam Food Specialities (P) Ltd., (now Karmic Business Specialities), 1517-Devika Tower,Nehru Palace,New Delhi ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Sharma & Mr. Gaurav Gaur for Mr. Anil Mehta For Respondent(s) : Mr. N.L. Agarwal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

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Judgment 06/11/2017 1. In both these appeals, common questions of law and facts are involved, hence they are decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal preferred by the assessee, reversing the view taken by the CIT (A) as well as AO. 3. This Court while admitting the appeals, framed the following substantial questions of law: 3.1 Appeal No. 118/2015 admitted on 7.10.2016 "Whether on the facts and circumstances of the case and in law, the ITAT has erred in

deleting

the

addition

of Rs.8,16,22,040/- made by the Assessing Officer on account of amount received by the

assessee

towards

settlement compensation?" 3.2 Appeal No. 191/2016 admitted on 14.2.2017 "Whether onthe facts and in the circumstances of the case and in law, the ITAT was right in deleting the penalty levied u/s 271(1)(c) of the I.T. Act holding that the quantum additions on the basis of which penalty was levied has been deleted, therefore, the consequent levy of penalty does not survive, ignoring the fact that outcome of the issue of quantum addition is pending before the Hon'ble High Court."

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and

Atlantic Industries/Coco Cola India Pvt Ltd b. That the intention of the Settlement Agreement was to resolve the disputes and amicably settle all demands fully and finally. c. That in consideration of the mount received from Atlantic Industries, the Assessee-company would irrevocably and unconditionally release, acquit, waive, relinquish, withdraw all claims and complaints against Atlantic and its affiliates.

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d. That Satyam would not initiate and proceed with or prosecute any of the claims or the complaints and forever discharge Atlantic and/or its affiliates. e. That Satyam receives the consideration amount towards full and final settlement of all its outstanding differences, disputes, damages, claims or demands against Atlantic and/or its affiliates. f. That all disputes raised by Satyam shall stand fully and finally settled. g. That Satyam fully, completely, irrevocably, finally and forever releases, acquits and discharges Atlantic and/or its affiliates. h. That the amount received by Satyam would take care of any and all or present and future claims, causes of action, rights, debts, liabilities, promises, agreements, demand, damages, accountings and costs and expenses of any kind whatsoever. g. That the intent of the agreement is to completely release all claims against Atlantic. i. That on receipt of settlement amount, Satyam will be left with no other outstanding claims, demands, differences, disputes or liabilities against Atlantic. In our considered view, all the clauses of the agreement read together reflect 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 Satyam from various forums instituted for breach of terms of 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. This being so the compensation neither falls in the ambit of sec. 28 (ii) c as held by AO nor u/s 28 (va) as held by ld. CIT(A). Besides both the authorities in various paras of their orders have referred to the following facts and observations in respect of these agreements:

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a). That certain disputes arose between the assessee company and Atlantic Industries/ Coco Cola India Pvt. Ltd. b) That the intention of the Settlement Agreement was to resolve the disputes and amicably settle all demands fully and finally. c) That in consideration of the mount received from Atlantic Industries, the assessee company would irrevocably and unconditionally release, acquit, waive, relinquish, withdraw all claims and complaints against Atlantic and its affiliates. d) That Satyam would not initiate and proceed with or prosecute any of the claims or the complaints and forever discharge Atlantic and/or its affiliates. e) That Satyam received the consideration amount towards full and final settlement of all its outstanding differences, disputes, damages, claims or demands against Atlantic and/or its affiliates. f) That all disputes raised by Satyam .shall stand fully and finally settled. g) That Satyam fully, completely, irrevocably, finally and forever releases, acquits and discharges Atlantic and/or its affiliates. h) That the amount received by Satyam would take care of any and all or present and future claims, causes of action, rights, debts, liabilities, promises, agreements, demand, damages, accountings and costs and expenses of any kind whatsoever. i) That the intent of the agreement is to completely release all claims against Atlantic. j) That on receipt of settlement amount, Satyam will be left with no other outstanding claims, demands, differences, disputes or liabilities against Atlantic. 2.18 With all these observations on record, we are unable to comprehend as to how any part of the compensation can be estimated or treated as paid for any

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non compete agreement as inferred by Ld. CIT(A) in his findings at page 39 to following effect:- “It may be noted that by such settlement dated 24-11-2008 the appellant received total consideration of Rs. 18.33 crores and with such agreement the appellant surrendered all his rights of carrying out any business manufacturing / production and sale of Cadbury items in Rajasthan State.” 2.19 Assessee has vehemently denied having any where admitted that part of the compensation was for non competition. In our considered view 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/Atlantic besides entailing huge cost and efforts of litigation. Relinquishment of right to sue is neither a capital asset nor taxable u/s 28 which provides specific types of receipt to be held taxable as business income. Relinquishment of right to sue does not find any mention therein. In this eventuality we have no hesitation to hold that

the

impugned

amount

of Rs.8,16,22,040/- is a capital receipt not liable to Income Tax. The addition is deleted, assessee’s grounds in this behalf are allowed. 5. In our considered opinion, when the party has compromised and withdraw the litigation, if that compensation is received, it is always to be treated compensation. In our considered opinion, the Tribunal has not committed any error in allowing the appeal and we are in complete agreement with the view taken by the Tribunal. No case is made out for interference. The issue is answered in favour of assessee and against the Department. 6. The appeal stands dismissed.

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Appeal No. 191/2016. 7. In view of concurrent finding of facts recorded by all the authorities and for the reasons mentioned while deciding appeal No. 118/2015, this appeal also stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Bmg 52-53.