ACIT, NEW DELHI vs. SHRI SANJAY SETHI, NEW DELHI

“(i) deleting the addition of Rs '88,83,831/- rightly made by the AO on account of „ profit in lieu of salary u/s 17(3)(ii) of the IT Act, 1961; not considering the fact that (a) the Trust was established by the settler/employer company for the welfare of the employees only, (b) the objectives of the trust make it amply clear that the sum received by the assessee is nothing but a reward for employment with the employer/settler company and (c) that the connection of the assessee with the Trust was only on account of his connection with the employer company; (ii) holding that the Trust is a discretionary trust without considering the discussion made by the AO in the assessment order in point no. I of sub para 3.1 which makes it clear that the trust is a specific or determinate trust and not a discretionary trust since all the beneficiaries of the trust are specially known and determinate and the trust deed no where mentioned that the income of the trust was to be distributed on the complete discretion of the trustees; (iii) not considering the fact that the amount of Rs. 88,83,8317- is taxable in the hands of the assessee as (a) in the relevant computation of income, the trust has declared income in the Income & Expenditure account post distribution to the beneficiaries and hence this is not a case of double taxation or double assessment, (b) the assessee Page | 1

The brief facts of the case shows that assessee is an individual earning salary income. For the year, he filed his return of income on 31/7/2007 declaring total income of Rs. 4925510/-. During the course of assessment proceedings on verification of the bank account of the assessee, Ld. Assessing Officer found that Rs. 8883831/- had been deposited in the HDFC Bank account of the assessee on 16/01/2007. The assessee was asked to explain the detail of the above amount which was treated by assessee as a capital receipt. Before the Ld. Assessing Officer the assessee explained that assessee is a beneficiary of a discretionary trust of the employees welfare trust of the employer. During the year, the trustees of the trust have distributed the amount to the assessee as a beneficiary. The trust has already discharged its obligation under the Income Tax Act by paying the tax at the appropriate rate on the income earned by the trust. The assessee stated that as a beneficiary he has received the above sum being part of the distribution made by the trustees to the beneficiaries of the trust and therefore same is a capital receipt and not chargeable to tax.

The ld. Assessing Officer rejected the contention of the assessee and held that above sum received is chargeable to tax within the scope of provisions of section 17 (3) (ii) of the Act and thus of the nature of „profits‟ in lieu of salary‟. According to him the said sum of Rs. Rs. 8883831/- is chargeable to tax. Therefore, the total income of the assessee was assessed that Rs. 13809341/- against the returned income of Rs. 4925510/- wherein the addition of Rs. 8883831/- has been made vide assessment order dated 30/12/2009 passed Under Section 143(3) of the Income Tax Act, 1961. 4. Aggrieved, with the order of the Ld. AO the assessee preferred an appeal before the Ld. First appellate authority vide order dated 25/01/2011, the above addition was deleted therefore, revenue is in appeal before us. 5. The Ld. departmental representative relied upon the order Ld. AO 6. The Ld. Authorised Representative filed a paper book containing 68 pages and vehemently relied upon the order of the Ld. CIT (A). He further stated that issue is squarely covered in favour of the assessee by the decision of the coordinate bench in case of wherein the addition has been deleted following the decision of the Hon‟ble Supreme Court in the case of CIT Vs. Kamalini Khatau 209 ITR 101. 7. We have carefully considered the rival contention and perused the orders of the lower authorities. The identical issue arose in case of Mr Manu Khochar in ITA No. 1651/Del/2011 Page | 2