$ 5 * IN HIGH COURT OF DELHI AT NEW DELHI + ITA 471/2003 COMMISSIONER OF INCOME TAX DELHI ..... Appellant Through: Mr. Rohit Madan with Mr. Zoheb Hussain, Advocate. versus SHARDA SINHA ..... Respondent Through: Mr. M.P. Rastogi and Mr. K.N. Ahuja, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 22.12.2015 Dr. S. Muralidhar, J.: 1. This appeal is directed against order dated 5th March 2003 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 5140/Del/1997 for Assessment Year ( AY ) 1994-95. 2. Respondent is successor-in-interest and legal representative of deceased Assessee. Assessee was journalist by profession and was appointed as Foreign Correspondent in India of German news magazine Der Spiegel by agreement dated 14th December 1970 at monthly flat rate honorarium of $250 in addition to further payment for any published contributions whose copyright would be with German publisher. Either party could terminate contract at end of calendar quarter by giving notice of six weeks. Der Speigel ITA 471/2003 Page 1 of 7 terminated contract with effect from 1st December 1993 and paid compensation of DM 3,00,000 (Rs.53,82,000) for association of past 23 years and loss of work space. 3. In original return assessee claimed this amount as revenue receipt but on revising return, it was claimed to be capital receipt. In course of assessment proceedings, AO by means of notice under Section 142(1) asked assessee to furnish following details: "i) Copy of Agreement with M/s. Der Spiegel. ii) Was your professional association with M/s. Der Spiegel for stipulated tenure? If so, what was agreed tenure? iii) All correspondence between you and M/s. Der Spiegel that took place one year before and after receipt of Rs.53.82000/- by you from M/s. Der Spiegel. iv) Was sum of Rs.53.82,000/- from M/s. Der Spiegel received by you due to professional services rendered by you to German Magazine. If so, basis of statement. v) Why this sum has been claimed as compensation? Was German magazine legally bound to allow you to continuously render professional services to if? If so, what forced German Magazine to discontinue your professional services?" 4. Apart from giving explanations as sought, Assessee also filed copy of letter received from German publisher with reference to amount in question. said letter reads as under: ITA 471/2003 Page 2 of 7 "Due to operational reasons and on initiative of Spiegel -Publishers, working arrangement with Mr. S.P.Sinha and with goodwill on 31st December, 1993. Due to loss of his work place and in consideration of his long time association, Der Spiegel Publishers will pay compensation of DM 3,00,000/- (in words Three Hundreds thousands) to Mr. Sinha in accordance with Clause 9.10 of K Sch C. whole amount is due on 31st Dec., 1993." 5. Reliance was also placed on letter dated 28th December 1993, from German publisher wherein it was stated as under: "We are transmitting DM 3 lacs to your bank account in New Delhi as sign off compensation for performance of authorship/professional services for continuous period of 23 years." 6. Assessing Officer (AO) by order dated 20th February, 1995 negatived plea that aforementioned amount was capital receipt. It was held that termination of contract with Der Spiegel did not mean that Assessee had lost his right of authorship in future "for all publications in universe". It was observed that since Assessee was free to contribute his article/stories etc. to any other magazine, publication, Assessee "neither had any right/ claim over sum so received from Der Spiegel, nor it was anticipated by him." 7. Assessee then filed appeal before Commissioner of Income Tax (Appeals) [CIT(A)], who by order dated 4th July, 1997 held in favour of Assessee. CIT(A) observed inter alia as under: ITA 471/2003 Page 3 of 7 3.1 appellant was working exclusively for Der Spiegel in terms of contract dated 14.12.1970 and receipt of remuneration from Der Spiegel was appellant's only source of income from January 1971 till termination of contract on 31.12.1993. Der Spiegel was under no obligation to pay any compensation to appellant on terminated of contract. However, compensation of Rs.53,82,000/- was paid for loss of work place and in consideration of long time association. It was paid to appellant to compensate for abrupt loss of source of income. It is therefore quite apparent that compensation was ex-gratia payment as gesture of goodwill which cannot be regarded as payment for past services for which contractual remuneration had already been paid. Similarly, compensation cannot also be treated to constitute future profit remuneration as remuneration which was largely dependent on published contribution was indetermined in first instance. On contrary, termination of contract had fatally injured appellant's only source of income for last 20 years. contract with Der Spiegel appointing appellant as its foreign correspondent in India was capital asset and compensation received for loss of asset constitutes receipt of capital nature. compensation of Rs.53,82,000/- is therefore directed to be excluded from appellant's total income. 8. By impugned order dated 5th March, 2003, ITAT confirmed order of CIT(A). 9. This Court has heard learned counsel for parties. While admitting appeal on 23rd February, 2004, Court framed following question for consideration: ITA 471/2003 Page 4 of 7 "Whether Income Tax Appellate Tribunal was correct in law in holding that compensation of Rs.53,82,000/- received by assessee from German publisher was capital receipt not chargeable to tax under Income Tax Act?" 10. It is urged by Mr. Rohit Madan, learned standing counsel for Revenue, that since Assessee was free to work for other magazines, contribute articles and be remunerated therefor, amount received from Der Spiegel, consequent upon termination of contract, could only be treated as revenue income. He also made reference to decision in Kettlewell Bullen and Co. Ltd. v. CIT (1964)53 ITR 261 (SC). 11. Certain facts of present case are not disputed by Revenue. First, that Assessee was journalist by profession and was appointed as foreign correspondent in India of German news magazine Der Spiegel. second is that German publisher was paying lumpsum amount upon termination as sign off compensation for performance of authorship/professional services for continuous period of 23 years". Thirdly, letter written by publisher acknowledges that compensation was being paid "Due to loss of his work place and in consideration of his long time association". These factors have bearing on character of receipt in hands of Assessee. Indeed this was compensation for loss of income-generating asset. 12. Court concurs with conclusion of CIT (A) that sum paid to Assessee was "to compensate for abrupt loss of source of ITA 471/2003 Page 5 of 7 income"" and that termination of contract had fatally injured appellant's only source of income for last 20 years." mere fact that Assessee was free to earn through other sources would not make difference to this position. Recently this court in Khanna and Annadhanam v. Commissioner of Income Tax [2013] 351 ITR 110 (Del) was considering nature of receipt in hands of Assessee, firm of Chartered Accountants for termination of arrangement by which it was receiving referral work from abroad. After discussing decisions of Supreme Court in Kettlewell Bullen and Co. Ltd. (supra) and Oberoi Hotel Pvt. Ltd. v. CIT [1999] 236 ITR 903 (SC), this court held as under: What appears to be ratio of judgment is that if receipt represents compensation for loss of source of income, it would be capital and it matters little that assessee continues to be in receipt of income from its other similar operations. 13. It was further observed in Khanna and Annadhanam (supra) as under: "The arrangement with DHS was in vogue for fairly long period of time (13 years) and had acquired kind of permanency as source of income. When that source was unexpectedly terminated, it amounted to impairment of profit-making structure or apparatus of assessee-firm. It is for that loss of source of income that compensation was calculated and paid to assessee. compensation was thus substitute for source. In our opinion, Tribunal was wrong in treating receipt as being revenue in nature." 14. In considered view of Court ratio of above decision applies to case on hand on all fours. court is satisfied that ITA 471/2003 Page 6 of 7 question framed has to be answered in affirmative i.e. in favour of Assessee and against Revenue. 15. appeal is according dismissed. S.MURALIDHAR, J VIBHU BAKHRU, J DECEMBER 22, 2015/n ITA 471/2003 Page 7 of 7 Commissioner of Income-tax, Delhi v. Sharda Sinha