Case Law Details
ITO Vs Avirook Sen (ITAT Delhi)
The case of ITO Vs Avirook Sen (ITAT Delhi) revolves around the taxation of voluntary ex-gratia compensation paid by an employer to an employee after termination from service. The Revenue contested the deletion of an addition of Rs. 2,13,08,444/- by the CIT(A).
The crux of the dispute lies in whether the amount received by the assessee from the employer constitutes profits in lieu of salary under section 17(3)(i) of the Income Tax Act, 1961. The AO treated the sum of Rs. 2 crore as a component of salary along with Rs. 13,08,444/- received as perquisites.
However, the assessee argued that the amount was received as a lump sum settlement out of court with the employer, INX Media, due to extreme harassment and ill treatment, thereby making it voluntary in nature. The voluntary nature of the payment is crucial in determining its taxability.
Citing precedents such as Deepak Verma case, the assessee contended that payments made voluntarily by the employer, without any legal obligation, do not fall under the purview of profits in lieu of salary. Additionally, the Gujarat High Court’s ruling in Arunbhai R. Naik case supported the stance that voluntary compensation, not mandated by service rules, is not taxable under section 17(3)(i).
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