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O R D E R. PER I. C. SUDHIR, J. M. :
The Revenue has questioned first appellate order on the following grounds :- “ 1. On the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting the addition of Rs.1,70,00,000/- made by the 2 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07.
Assessing Officer on account of salary income being amount received as profit in lieu of salary;
2. The order of the Commissioner of Income Tax (Appeals) is erroneous and is not tenable on facts and in law. ”
Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
The relevant facts are that search and seizure operation under section 132 of the Act was conducted in the premises of Gopal Zarda Group of cases on 15.01.2009 and the assessee was also covered under search. Notice under section 153A was issued to the assessee requiring him to file return of income. In response thereto the assessee filed his return of income at Rs.31,28,196/-. Subsequently, notices under section 142(2) and 142(1) along with questionnaire were issued. The assessee submitted that during the year he derived income from salary from Dharampal Satyapal Ltd., short term capital gain and income from other sources being interest on bonds and SB accounts. During the year wife of the assessee had received an amount of Rs.1,70,00,000/- from Surya Kiran Finance Corporation. The assessee as well as his wife during the 3 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07.
course of assessment proceedings in her case was asked to explain the nature of receipts. The Assessing Officer was not satisfied with the explanation of the assessee and added Rs.1,70,00,000/- in the hands of the assessee by treating the amount received from M/s. Surya Kiran Finance corporation as profit in lieu of salary as per provisions of section 17(3) of the Act. The ld. CIT (Appeals) has deleted the same, which has been questioned by the Revenue before the Tribunal.
In support of the ground, the ld. CIT [DR] has basically placed reliance on the assessment order. The ld. AR, on the other hand, tried to justify the first appellate order and referred the decision dated 26.04.2017 of Hon’ble jurisdictional High Court of Delhi in Civil Suit (OS) No. 151 of 2007 in the case of M/s. Surya Kiran Finance Corporation Vs. Smt. Shashi Aggarwal & Others, a copy whereof has been made available on record along with settlement report on the basis of which the said decision of Hon’ble High Court has been pronounced.
Having gone through the orders of the authorities below, we find that the ld. CIT (Appeals) has passed very detailed order after considering the submission of the assessee wherein the assessee has 4 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07.
met out each of the objection raised by the Assessing Officer while making the addition. For a ready reference, para No. 8 of the first appellate order is being reproduced hereunder :-
“ 1. Coming to the merits of the case the appellant has contested that the amount of Rs. 1.70 Crores which has been received during the year by his wife from M/s Surya Kiran Finance Corporation, (which is a sister concern of M/s Dharampal Satyapal, and from where the assessee derives income from salary during the year) cannot be treated as salary income of the appellant as the same is not profit in lieu of salary within the meaning of section 17(3) of the IT Act. Elaborating further on this ground the appellant has argued in his various submissions that the assessee was the President and Director of M/s Dharampal Satyapal Ltd during the impugned FY 2005-06 and he was never employed in any capacity with M/s Surya Kiran Finance Corporation, a partnership firm of the Dharampal Satyapal Group. That as the assessee was not having an employer -employee relationship with Surya Kiran Finance Corporation, which is pre condition for treating the amount of Rs. 1.70 Crores as profit in lieu of salary u/s 17(3) of the I T Act, this amount cannot be taxed as part of the salary during the year in case of the appellant . It has further been argued by the appellant that the nature of this receipt itself is pending adjudication in Civil suit No. CS (OS) 151 of 2007 which has been filed
5 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07. against the assessee and his wife by Surya Kiran Finance Corporation and therefore uptill the time the nature of receipt is finally determined by the Hon’ble Court the appellant cannot be treated as the rightful owner of the money received from Surya Kiran Finance Corporation. To put it differently the point being made by the assessee is that the legal right over the amount of Rs. 1.70 Crores received from Surya Kiran Finance Corporation by his wife Smt. Shashi Aggarwal has not got crystallized and accordingly it would be premature at this stage to fasten tax liability on the appellant by holding that this amount is “profit in lieu of salary”, received by the appellant, though in the name of his wife. The appellant has also highlighted the fact that a contrary interpretation would result in anomalous situation in as much as if the impugned amount is taxed now and later the Hon’ble High court of Delhi adjudicating on the matter in the pending Civil Suit holds that the Deponent is not the rightful owner of the money then the tax paid now will not be refundable to the assessee as there is no provision in the law to reverse the charge levied in such a situation. This would result in taxability of a sum which is not taxable and would contravene Article 265 of the Constitution of India.
On a perusal of provisions of under Section 15 & 17 of the IT Act and the Various case laws in this regard (some of them which have been cited by the appellant) it is established position under the law that for charging any income under 6 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07. the head “salaries” it is a necessary precondition that the employer- employee relationship must exist between the two parties. In the facts of the case it is observed that the amount of Rs. 1.70 Crores has been given by Surya Kiran Finance Corporation to Smt. Shashi Aggarwal, the wife of the appellant through account payee cheque and that the assessee Sh. Ashok K. Aggarwal was never any employee of Surya Kiran Finance Corporation. Therefore as no employer - employee relationship existed between Surya Kiran Finance Corporation and the assessee therefore the amount of Rs.1.70 Crores cannot be treated as part of salary in case of the appellant within the meaning of section 15 read with section 17(3) of the Act. There is yet another reason as to why the said amount of Rs.1.70 Crores cannot be taxed under the head “salaries” at this stage. From the submission and paper book made by the appellant it is seen that Surya Kiran Finance Corporation has filed a Civil suit against the assessee and his wife to reclaim the amount of Rs. 1.70 Crores with interest as the same was given as loan by Surya Kiran Finance Corporation to Smt. Shashi at behest of Sh. Ashok K. Aggarwal, the then Director of Dharampal Satyapal Ltd. This matter is pending adjudication before the Hon’ble Delhi High Court and uptill the time the same is decided, it is the very nature of the receipt in hands of the assessee or his wife which remains uncertain in as much as whether it is a loan on which not 7 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07. only the principal but even interest has to be returned back to Surya Kiran Finance Corporation or whether the entire amount or part thereof is to be treated as part of salary/ compensation settlement between the assessee and Surya Kiran Finance Corporation is yet to be judicially decided. Thus this amount of Rs.1.70 Crores cannot be treated as any salary due from an employer at this stage within the meaning of section 15(a) of the IT Act., as there is nothing on record as of now which clearly shows/reflects the amount due to the appellant, as part of salary. For this reason too the addition of Rs.1.70 Crores made by the Assessing Officer cannot be treated as income of the appellant much less income from “salaries” at this stage. Accordingly, Ground of Appeal No. 5, 6 & 7 is allowed and the Assessing Officer is directed to delete the addition. ”
5.1 The ld. CIT (Appeals) has given relief to the assessee on the basis that M/s. Surya Kiran Finance Corporation has filed a Civil Suit against the assessee and his wife to reclaim the amount of Rs.1.70 crores with interest as the same was given as loan by Surya Kiran Finance Corporation to Smt. Shashi at the behest of Shri Ashok K. Aggarwal (the assessee), the then Director of Dharampal Satyapal Ltd., a sister concern of M/s. Surya Kiran Finance Corporation. During the first appellate proceedings the above Suit was pending adjudication before Hon’ble
8 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07. jurisdictional High Court of Delhi and thus the ld. CIT (Appeals) held that uptil the time the same is decided, it is the very nature of the receipt in the hands of the assessee or his wife which remain uncertain inasmuch as whether it is a loan on which not only the principle but even interest has to be returned back to Surya Kiran Finance Corporation whether the whole amount or part thereof is to be treated as part of salary / compensation settlement between the assessee and Surya Kiran Finance Corporation is yet to be decided. The ld. CIT (Appeals) accordingly held that the amount of Rs.1,70,00,000/- cannot be treated as any salary due from an employer at that stage within the meaning of section 15(a) of the I. T. Act as nothing was there on record to show that the amount due to the assessee was as a part of salary. Now the decision in the Suit of M/s. Surya Kiran Finance Corporation Vs. Smt. Shashi Aggarwal and Others (which includes the assessee as well) (supra) has been pronounced on 26.04.2017, as per which a decree has been passed in favour of the Plaintiff, M/s. Surya Kiran Finance Corporation and against the assessee (the Defendant No.2) in terms of the Settlement Report that the assessee being the beneficiary of the transaction has to return the loan of Rs.1,70,00,000/- granted on 12.04.2005 by M/s. Surya Kiran Finance Corporation in 70 equal instalments of Rs.10,00,000/- as per
9 I. T. Appeal No. 4673/Del/2012 Assessment Year : 2006-07. the tabulated agreed date schedule starting from 21.04.2017 to 10.09.2018. As per the settlement Surya Kiran Finance Corporation agree to forego recovery of interest and cost on the aforesaid loan as part of the settlement and waive the same. The assessee accordingly handed over to Surya Kiran Finance Corporation post dated cheques drawn by him from his SB account. In view of this decision now made available before us, we do not find reason to interfere with the finding of the ld. CIT (Appeals) that Rs.1,70,00,000/- cannot be taxed under the head “Salaries” in the hands of the assessee. The first appellate order to that extent is upheld. The ground No. 1 is accordingly rejected. The other grounds are general in nature, which do not need independent adjudication.
In result, appeal is dismissed.
The order is pronounced in the Open Court on : 28th July, 2017.