122 ITD 360 Per R.C. Sharma, Accountant Member. : These are appeals and cross-objections filed by revenue and assessee against order of CIT(A) for assessment years 2003-04 and 2004-05. 2. In these appeals, revenue is aggrieved for deleting addition m d e by Assessing Officer on account of compensation and interest received by assessee from Government of United States of America. assessee has also filed cross-objection in regard to initiation of reassessment proceedings and for not deleting addition of Rs. 76,38,650 over and above, what assessee actually received from USA towards compensation and post- judgment interest. 3. Rival contentions have been heard and record perused. Facts in brief are that assessee applied for job in Voice of America way back in January, 1982 and was informed in 1984 that she had cleared competitive test. However, she was never offered job. Separately class action, i.e., collective suit by several plaintiffs having common cause was filed in United States Courts on behalf of women who had been denied employment at United States Information Agencies because of their sex, in violation of Title VII of Civil Rights Act, 1964. litigation come to end by way of consent decree dated 28-6-2000 between plaintiffs and United States Government in terms of which US Government was to pay monetary compensation in full and final satisfaction of all claims for all relief including all claims for back pay instatement, front pay, retirement and other employee benefits and pre-judgment interest. Further there was provision for post- judgment interest on principal amount of settlement proposals from date on which consent decree was approved by order of Court up to date of payment. Under terms of Consent Decree, settlement was to become final after all appeals were received. Four women filed appeals in March, 2001 challenging denial of their inclusion in Class, which were finally settled in Supreme Court and process of payment of settlement fund was started in April, 2002, which date falls in financial year 2002-03 relevant to assessment year 2003-04. assessee received compensation of US$ 3,45,560.01 rupee equivalent of which on relevant date was Rs. 1,67,91,732. Assessing Officer did not accept assessee s contention that basic receipt being in nature of compensation was capital receipt which was not taxable, and held that nature of compensation in this case revealed that amount received by assessee compensated her for back pay, instatement, front pay, retirement and other employee benefits and pre-judgment interest, all of which, Assessing Officer felt were in nature of income. Assessing Officer held that since salary, etc., themselves constitute taxable income of assessee, compensation in lieu thereof is equally taxable receipt. interest on above receipts was also liable to tax. 4. After considering assessee s contention, Assessing Officer held that examination of nature of compensation in this case shows that amount received by assessee to compensate her, for back pay, instatement, front pay, retirement and other employee benefits and post-judgment interest, all of which themselves are clearly in nature of income. Accordingly, it was held that compensation so received was taxable under head Income from salary . On basis of documents filed by assessee, Assessing Officer held that assessee is entitled to basic compensation of $3,45,580.01 which is denoted as back pay. This amount is equivalent to Rs. 1,67,91,732 at rate of 48.59 and same was added to income of assessee. Assessing Officer further held that assessee is also entitled to interest on basic compensation (back pay) from date of approval of Consent Decree to date of payment. quantum of interest, therefore, gets crystallised only on dates of payment of compensation. interest received during financial year 2002-03, relevant to assessment year 2003-04 was $73,304.85 equivalent to Rs. 35,61,882 (sic) at rate of 48.59. Accordingly, addition of Rs. 35,61,882 was also made to income of assessee for assessment year 2003-04. 5. By impugned order, CIT(A) deleted entire addition after having following observations: having following observations: "7.1 Thus, there being no employer-employee relationship, which is so crucial and vital to tax receipt under salary head, amount received could by no stretch of imagination be taxed under provisions under that head even as Consent Decree might mention terms that are akin to salary and other receipts figuring under that head. I kly feel that these terms have perforce been used to arrive at figure of compensation that had to be arrived at to quantify liquidated damages that have been awarded to appellant for injury caused to her by denying her employment after having been declared employable, by following discriminatory gender practice, prohibited by law in United States. This is clear from impugned assessment order as well, wherein Assessing Officer has accepted that appellant received compensation and added that appellant was also entitled to interest on basic compensation of $345,580.01 from date of approval of Consent Decree to date of payment. 7.2 In suit for damages, Court awards pecuniary compensation to plaintiff for injury or damage caused to him by wrongful act of defendant. After it is proved that defendant committed wrongful act, plaintiff would be entitled to compensation though he does not prove any specific damage or injury resulting to him, in cases where tort is actionable per se. But even in these cases, when specific damage is alleged and in all other cases which are actionable per se, it becomes duty of plaintiff to allege damage resulting from wrongful act for which he claims damages, Court s inquiry resolves in deciding three questions: (1) Was damage alleged caused by defendant s wrongful act? (2) Was it remote? and (3) What is monetary compensation for damage? In instant case, all these issues have been answered to advantage of appellant as also other plaintiffs, which clearly shows that compensation has been granted for wrongful act of US Government. 7.3 next question that has to be answered is as to under which head could this receipt be taxed if it does not fall under salary head as held hereinabove. It is not business receipt; nor income from house property and perhaps not even capital gain. If receipt is taxable, it may be brought under residual head of "Income from other sources". That brings us to concept of casual receipt, limited amount of which was exempt under section 10(3) of Act until recently. In Shorter Oxford English Dictionary, word "casual" is defined as meaning: "(1) subject to or produced by chance; accidental, fortuitous, (2) coming at uncertain times; not to be calculated on, unsettled. . ." What is, therefore, essential about receipt being "casual" is that it must be production of chance accident or fortuitous and that means that it is neither calculated nor settled nor is there any likelihood of its coming at certain time. It is in this sense that word has to be understood. In some cases it has been observed that receipt which is foreseen, known, anticipated and provided for by agreement cannot be regarded as casual. This proposition is, however, too broad and sweeping. man may make bet in hope that it will bring in receipt but in that case there has to be agreement between him and bookmaker. There is also his anticipation that if that bet succeeds, it will bring in calculated sum of money. It is, however, incidental and fortuitous nature of result that will make receipt casual. Even assuming for moment, that receipt involved is casual receipt, which it very much looks like, next question to be answered is whether it is capital or revenue in character, for all casual receipts are not revenue receipts. question as to whether receipt is revenue or capital in nature has been decided in cases umpteen by Higher Courts including Apex Court. But these relate mostly to business or professional head and are clearly inapplicable in case of appellant. After going through plethora of cases on subject, closest I could come are two English cases, namely, Renfrew Town Council v. IRC 19 TC13 and Burma Steamship Co. v. IRI 16 TC 67. first relates to compensation for damages for personal injury. In that it was held that if damages relate to injury causing permanent disablement, they will amount to capital receipt. If, however, disablement is of temporary nature, receipt by way of damages will be revenue in nature. In Renfrew Town Council v. IRL 19 TC 13, it was held that if railway passenger meets with accident and receives damages for permanent disablement, damages will be capital account. But if he is disabled temporarily, during which period he incurs loss of his professional income any damage awarded to him will, however, be revenue receipt. In case of Burma Steamship Co. v. IRC 16 TC 67, it was held that if there is hole in his profits and, therefore, damages received by him to fill that hole must be shown in profit and loss account to claim receipts to be on revenue account. 7.4 Adopting aforesaid yardstick in appellant s case and believing in guidelines laid by Hon ble Apex Court in Angrej Kaur v. Union of India [2005] 4 SCC 446 to effect that "law cannot ever be combination of meaningless and purposeless combination of words. judicial system reaches its phmacle when it serves ultimate object of all laws, i.e., delivering justice to recipient who deserves it, not shackled by pitfalls and landmines of technicalities. Within four corners of legal framework, reliefs can be moulded to achieve ultimate objective, that is, to deliver justice." I am inclined to believe that appellant has been wronged through personal injury in that her dreams of better life and greater fulfilment of her aspirations was thwarted permanently for all times to come. In this view of matter, receipt in question cannot but be capital receipt and I do not have whit of hesitation in holding if so." "6. In present case also, additional compensation by way of interest h s been awarded to make up for similar loss. Therefore, pre-judgment interest compensation also takes character of pre-judgment compensation and is also consequently capital receipt in hands of appellant, and, hence, not taxable. It is worth mentioning that damages may be liquidated or unliquidated. Liquidated damages are such damages as have been agreed upon and fixed by parties in anticipation of breach. Unliquidated damages are such damages as are required to be assessed. Broadly principle underlying assessment of damages is to put aggrieved party monetarily in same position as far as possible in which it would have been if contract would have been performed. Here rule as to remoteness of damages comes into play, such loss may be compensated as parties could have contemplated at time of entering into contract. party held liable to compensation shall be obliged to compensate for such losses as directly flow from its breach. Chitty on Contracts (27th Edition Vol. 1 para 26.041) stated "Normally, no damages in contract will be awarded for injury to plaintiff s feelings, or for his mental contract will be awarded for injury to plaintiff s feelings, or for his mental distress, anguish, annoyance, loss of reputation or social discredit caused by breach of contract. . . . exception is limited to contract whose performance is "to provide piece of mind or freedom from distress". . . . . Damages may also be awarded for nervous shock of anxiety state (an actual breakdown in health) suffered by plaintiff, if that was, at time contract was made, within contemplation of parties as not unlikely consequence of breach of contract." 6. With regard to legal ground taken by assessee, challenging validity of reopening under section 147, CIT (Appeals) after discussing various decisions of Hon ble High Court and Hon ble Supreme Court reached to conclusion that in present case, there were sufficient ground for issuing notice under section 148 of Act. In this regard, CIT (Appeals) recorded finding to effect that in respect of amount received by assessee from US Government alleged to be on account of compensation, was adequate information to create ex facie belief in mind of Assessing Officer, that income chargeable to tax may have escaped assessment. As per learned CIT (Appeals), expression "reason to believe" reintroduced in section 147 by Amended Act, 1989 is well-settled through plethora of Court rulings. It is not condition precedent that Assessing Officer should confine assessee or to intimate to him nature of alleged escapement, or to give him opportunity of being heard, before he decides to operate powers conferred by section. expression "reason to believe" postulates belief and existence of reasons for that belief. belief must be held in good faith, it cannot be merely pretense. There should be facts before Assessing Officer that reasonably give rise to such belief, but they need not at that stage be irrebuttably conclusive to support his tentative conclusion. Such belief at that stage obviously, in tentative belief to be examined and scrutinized on such evidence as may be available in proceedings for assessment or reassessment. 7. After having above observations, CIT (Appeals) dismissed ground taken by assessee on account of validity of reopening, however, with respect to amount of compensation received and pre-judgment interest, CIT (Appeals) held same as capital receipt, liable to tax. Aggrieved by this order for assessment year 2003-04, both assessee and revenue are in appeal before us. revenue is aggrieved for not taxing compensation and interest on compensation which was taxed by Assessing Officer under section 17(ii). assessee is aggrieved for holding reassessment as valid. Following grounds had been taken: I.T.A. No. 4169/Del./05: (Departmental appeal for assessment year 2003- 04). "1. On facts and in circumstances of case that ld. CIT(A) erred in deleting addition of Rs. 1,67,91,732 treating compensation received from US Government as capital receipt whereas terminology used in judgment clearly mentioned that payment is on account of back pay, instatement, front pay, retirement and other employee benefits and prejudgment interest and receipt is squarely taxable in hands of assessee as salary under section 17(3)(ii) of Income-tax Act, 1961. On facts and in circumstances of case that ld. CIT(A) erred in deleting addition of Rs. 35,61,882 on account of interest on compensation treating compensation received from US Government as capital receipt whereas terminology used in judgment clearly mentioned that payment is on account of back pay, instatement, front pay, retirement and other employee benefits and pre-judgment interest and receipt of interest under consent decree with effect from date of approval would clearly be revenue receipt." 8. Grounds of revenue for assessment year 2004-05 are as under: "1. On facts and in circumstances of case, learned CIT (Appeals) erred in deleting addition of Rs. 50,94,363 treating compensation received from U.S. Government as capital receipt whereas terminology used in judgment clearly mentioned that payment is on account of back pay, instatement, front pay, retirement and other employee benefits and pre-judgment interest and receipt is squarely taxable in hands of assessee as salary under section 17(3)(ii) of Income-tax Act, 1961. 2. On facts and in circumstances of case, learned CIT (Appeals) erred in deleting addition of Rs. 48,13,048 on account of interest on compensation treating compensation received from U.S. Government s capital receipt whereas termino-logy used in judgment clearly mentioned that payment is on account of back pay, instatement, front pay, retirement and other employee benefits and pre-judgment interest and receipt of interest under consent decree with effect from date of approval would clearly be revenue receipt." 9. Grounds in cross-objection for assessment year 2003-04 read as under: "The learned CIT (Appeals) erred in rejecting my contention that notice issued under section 148/147 was illegal inasmuch as reasons recorded for issuing notice under section 148 by learned Assessing Officer were nothing but reproduction of what I had given in my Income-tax Return. So nothing new came to her notice so as to constitute reason to believe under section 147 of Income-tax Act." 10. Grounds of cross-objection in assessment year 2004-05 are as under: "1. learned CIT (Appeals) erred in not passing any order on my appeal that income-tax authorities have added Rs. 76,38,650 of their own over and above to what I actually received from USA towards compensation and post- judgment interest. 2. learned CIT (Appeals) has erred in not passing any order on my contention that income-tax authorities have overlooked provisions of Article 18(4) of Constitution of India." 11. On behalf of assessee, her husband Shri Udai Shanker Mishra argued case and on behalf of revenue CIT(DR) Shri R.K. Paliwal argued case. 12. We have considered rival contentions, carefully gone through orders of authorities below and also deliberated on judicial pronouncement cited by learned AR and DR and also relied on by lower authorities in their respective orders in context of factual matrix of instant case. From record, we found that assessee had applied for job to USA Government in year 1982 in response to advertisement in newspaper given by Voice of America. In response to application, assessee was called for written test, voice test, personal interview, etc., which were conducted in local office of Voice of America and were sent to their Washington DC Office for evaluation. In year 1984, assessee received notice of rating dated 28-11-1984 from Voice of America informing assessee that she was eligible for international radio broadcaster (option Hindi), with period of consideration up to one year of issue date, i.e., 27-11-1985. However, assessee was never given offer of appointment. 13. In 1989, assessee received Public Notice dated 4-10-1988 issued b y United States District Court for District of Columbia drawing attention of women who sought employment with Voice of America between 8-10-1974 and 16-11-1984. public notice stated that United States District Court, Columbia, in class action lawsuit, has found United States Information Agency including Voice of America liable for sex discrimination against female applicants for various positions. Those who considered themselves victims of sex discrimination were asked to obtain and fill up claim form to claim relief available to class members, which as stated in notice, "may include monetary award and/or priority consideration for current position with Agency." assessee filled up Form on 7-3-1989 clearly giving option of not wishing to be considered for position with USIA or VOA. This way assessee joined Class Action suit filed against Government of USA whose agencies violated title VII of their Civil Rights Act, 1964, of United States of America. Government of United States of America agrees to pay $508 million plus post-judgment interest to class members. process of individual hearing was taking too long period. Disposal of approximately 1,100 cases would have taken many years to complete. So, both parties agreed, subject to approval of Court, to settlement whereby Government of USA (Defendants) would establish settlement fund of $508 million to be distributed amongst class members (Plaintiffs). class members in return were to agree to extinguish all their rights that they had as class members in return of this $508 million. notice of settlement given by Court stated in its second para "it appears that you filed, or sought leave of Court to file, claim form in this case, which means that you may be entitled to share in settlement fund o f $508 million which Federal Government has agreed to establish." Fifth para of summary of settlement stated "One result of this settlement would be to end this case fully and finally. This means that if settlement is approved and goes into effect all rights that class members may have had because of this case will be extinguished forever in return for payment of $508 million. As per terms of settlement, Defendants were also to pay interest on this amount of $508 million from date on which Consent Decree is approved. Consent Decree was approved on 22-3-2000. assessee got payment out of settlement fund in July, 2002, and amount was credited into her bank account on 5-8-2002. contention of learned AR was that for purpose of distribution of settlement fund of $508 million, amount was divided in "Back Pay" and "interest" and what has been termed as back pay and interest by Claims Administrator is methodology used for disbursement of compensation. amount was received by assessee in two assessment years, i.e., 2003-04 and 2004-05. assessee treated amount of compensation and pre-judgment interest, as not liable to tax, whereas post- judgment interest and interest on refund by I.R.S. was offered by assessee in assessment year 2004-05 as income from other sources, in her tax returns. In assessment year 2003- 04, assessment was responded under section 147 and Assessing Officer called for various information/documents to find out exact nature of payment, etc. Assessing Officer stated that specific replies to questionnaire dated 14-2-2005 was not filed in spite of giving so many opportunities. It was, therefore, concluded by Assessing Officer that by one means or other assessee was evading furnishing details called for during assessment proceedings. On basis of wordings of consent decree, Assessing Officer held that amount was received by assessee for her claim of back pay instatement, front pay, retirement and other employee benefits, pre- judgment interest. Assessing Officer passed ex parte order under section 144 wherein he brought to tax net amount of basic compensation of Rs. 1,67,91,732. Assessing Officer also observed that assessee was also entitled to interest on basic compensation (back-pay). Accordingly, interest income of Rs. 35,61,732 was also brought to tax net. Assessing Officer treated amount so received as compensation in lieu of salary/employment and so-called pre-judgment interest and brought entire amount in tax net. post-judgment interest received by assessee amounting to Rs. 25,16,400 and interest paid on refund by IRS USA amounting to Rs. 50,834, was offered by assessee as taxable income in assessment year 2004-05, however, Assessing Officer has again added this amount while arriving at total income liable to tax. In assessment year 2003-04, CIT (Appeals), after recording his finding on nature of receipt and type of relationship for which amount was alleged to be received, came to conclusion that there was no employer and employee relationship, which is so crucial and vital to tax receipt under salary head and held that amount so received was liquidated damage that have been awarded to assessee for injury caused to her by denying her employment after having been declared employable by following discriminatory general practice, prohibited by law in United States. We have also carefully gone through various documents filed by assessee before lower authorities with regard to filing of suit in Court of law and receipt of compensation as awarded by Court of law, vis-a-vis finding recorded by CIT (Appeals) and found that assessee had never been in employment of US Government. Even at point of time, she agreed to participate in Class Section Law Suit, in Form filed up on 7-3-1989 clearly given option of not to be considered for position with USAI or VOA. This way assessee joined Class Action Suit filed against Government of USA whose agency violated Title VII of their Civil Right Act, 1964, all United States of America. class members were agreed to extinguish all their rights that they had as class members in return of sum of $508 million which Government of United States of America agreed to pay. settlement fund of US $508 million was defined in consent described as under: "Defendants shall, subject to terms and conditions set forth herein, pay Plaintiffs sum of Five Hundred Eight Million Dollars ($508,000,000,00) in full and final satisfaction of all claims for relief, other than Excluded Claims, pursuant to Court s class certification decision and classwide liability finding therein by class members and any other persons who would otherwise be entitled to individualized determinations of their claims through Teamsters hearings under Court s 19-1-1988 remedial opinion and order, as amended, and Order of Reference to Special Master, including without limitation all claims for back pay, instatement, front pay, retirement and other employee benefits, and pre-judgment interest and subject also to Paragraph 5 of this Consent Decree. Defendants shall also pay Plaintiffs post-judgment interest on principal amount of settlement proceeds, pursuant to 28 USC 1961, from date on which this Consent Decree is approved by order of Court following fairness hearing up to date of payment." 14. In view of above, it is crystal clear that amounts so received by assessee out of settlement fund of $508 million, was not in her capacity as employee or ex-employee, but was only compensation for injury caused to h e r by denying her employment after having been declared employable by following discriminatory general practice, prohibited by law in United States of America. Accordingly, same is capital receipt in nature not liable to tax. In assessment year 2003-04, Assessing Officer had also added sum of Rs. 35,61,882 under head interest on compensation, by framing ex parte order under section 144. Without referring to any material on record, CIT (Appeals) held that interest amount was part of settlement fund of $508 million. During course of hearing before us, ld. CIT(DR) drawn out attention to documents places at serial Nos. 14 to 17 of paper books filed by assessee for assessment year 2003-04, which were not furnished before Assessing Officer, and were furnished before CIT(A) for first time during appellate proceedings, and contended that these documents goes to root of issue for deciding nature and character of amount received by assessee, and CIT(A) in violation of rule 46A neither called for any remand report from Assessing Officer nor recorded any satisfaction/justification for accepting same. Accordingly, he prayed for setting aside order of CIT(A) and for restoring matter back to tile of Assessing Officer for considering all these documents and deciding issue afresh. 15. After considering rival contentions, we are of view that if so- called pre-judgment interest is part of $508 million settlement fund character called pre-judgment interest is part of $508 million settlement fund character of payment will remain as principal amount of compensation, which we had already held as capital receipt not liable to tax. However, in case such interest was in addition to assessee s share in settlement fund of $508 million, there is no reason for not taxing same as income from other sources. In this regard, learned CIT(DR) also relied on decision of Hon ble Supreme Court reported at Bikram Singh v. Land Acquisition Collector [1997] 224 ITR 551 and Hon ble Delhi High Court reported at Bhika Ram v. Union of India [1999] 238 ITR 113, wherein it was held that interest paid on delayed payment of compensation is exigible to tax. As facts are not clear from record and without referring to particular documents by relying on which CIT(A) held that pre-judgment interest was part of settlement fund of $508 million, in fitness of things we restore this particular issue of pre-judgment interest, to file of Assessing Officer for both years, for deciding afresh in terms of our direction contained herein below. If Assessing Officer found that pre- judgment interest is part and parcel of settlement fund of $508 million, no addition is to be made, however, if is such pre-judgment interest is found to be in addition to assessee s share in settlement fund of $508 million, same is required to be added in total income under head "Income from other sources". We direct accordingly. So far as post judgment interest and interest paid on refund by IRS, USA is concerned, same is liable to tax as income from other sources. assessee had already offered this income in return for assessment year 2004-05. 16. In assessment year 2004-05, assessee had also objected action of CIT (Appeals) for not passing any order for addition of Rs. 78.38 lakhs made by Assessing Officer over and above what has been actually received by assessee towards compensation and post-judgment interest. As CIT(A) has not dealt with this issue, in interest of justice, we restore this ground to file of CIT (Appeals) for deciding same as per law after affording reasonable opportunity of being heard to assessee. We direct accordingly. 17. Ground taken in cross-objection by assessee in assessment year 2004-05, alleging order of CIT (Appeals) for not passing any order on contention that income-tax authorities have overlooked provisions of Article 18(4) of Constitution of India, is not sustainable insofar as while passing order, Assessing Officer has considered all relevant provisions of Income-tax Act, 1961 bearing on issue, and while deciding assessee s p p e l CIT (Appeals) had given appropriate relief with regard to consideration received by assessee. 18. With regard to validity of reopening of assessment, which was upheld by CIT (Appeals) and for which assessee is in cross-objection before us. 19. As per our considered view, at time of issue of notice, it is sufficient that prima facie reasons and material should be with Assessing Officer that there is escapement of some income. At time of issue of notice, Assessing Officer is not required to conclusively establish that there is escapement of income, mere bona fide reason to believe that there is escapement of income is sufficient for issue of notice under section 148. Recently Hon ble Supreme Court in case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500, observed that expression "reason to believe" in section 147 would mean cause or justification. If Assessing Officer has caused or justified to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. expression cannot be read to mean that Assessing Officer should have finally ascertained fact by legal evidence or conclusion. What is required is "reason to believe" but not established fact of escapement of income. At stage of issue of notice, only question whether there was relevant material on which reasoned person should have formed requisite belief. Whether material would conclusively prove escapement of income is not concern at that stage. This is so because formation of belief is within realm of subjective satisfaction of Assessing Officer. In instant case, on basis of reasons so recorded, we found that there was sufficient material on basis of which reasoned person can have reasonably formed requisite belief that there was escapement of income. From record it was also transpired that after deposit of inspection fee, assessee inspected reasons for issue of notice under section 148 and took necessary extract on 4-1-2005. After going through reasons recorded for reopening, we are satisfied that ld. CIT(A) was justified in reasons recorded for reopening, we are satisfied that ld. CIT(A) was justified in upholding reopening assessment as valid. 20. In result, both appeals filed by revenue are allowed in part for statistical purposes, in terms indicated hereinabove, whereas cross- objections for assessment year 2003-04 are dismissed, and for assessment year 2004-05, cross-objections are allowed in part, in terms indicated hereinabove. *** ASSISTANT COMMISSIONER OF INCOME TAX v. SMT. RANI SHANKER MISHRA