Compensation received by ‘Jackie Shroff’ for withdrawing criminal case was capital receipt; not taxable: Mumbai ITAT

Compensation received by ‘Jackie Shroff’ for withdrawing criminal case

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Compensation received by ‘Jackie Shroff’ for withdrawing criminal case was capital receipt; not taxable

Facts:
a) Shares held by Assessee-Jackie Shroff in a Company were sold due to forged signature by another person. Assessee had filed a criminal complaint before the Economic Offences Wing.
b) After filing of complaint, the accused came forward for amicable settlement of dispute and a settlement deed was executed in order to settle the dispute. As per the terms of settlement deed, assessee received Rs. 6,97,94,580/- as compensation in lieu of withdrawing criminal complaint.
c) Assessee treated said compensation as capital in nature and did not offer it for taxation at the time of filing of return. However, during assessment proceedings, Assessing Officer treated the compensation as income and added it to income of assessee.
d) On appeal, CIT(A) accepted assessee’s claim. Aggrieved-revenue filed the instant appeal before the Tribunal.
The Mumbai ITAT held in favour of assessee as under:
1) The compensation received by the assessee was not for his professional activities but for settlement of dispute between him and some other party resulting in filing of a criminal complaint.
2) The amount received towards compensation could not fit in to the definition of income as per section 2(24), read with section 4 of the Income-tax Act, 1961.
3) The Hon’ble High Court in the case of CIT v. Amar Dye Chem Ltd. [1994] 74 Taxman 254 (BOM) also held that the amount received towards compensation/damage for settlement of dispute was capital receipt which was not taxable.
4) Thus, compensation received by assessee for withdrawing criminal complaint was a capital receipt and couldn’t be treated as income. – [2018] 97 taxmann.com 277 (Mumbai – Trib.)

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