Sharing sum received under settlement agreement with employees is contingent in nature: ITAT

Case Details: Sasken Technologies Ltd. v. JCIT - [2022] 140 taxmann.com 241 (Bangalore-Trib.)

Judiciary and Counsel Details

• • N.V. Vasudevan, Vice President & B.R. Baskaran, Accountant Member
  • Padam Chand Khincha, CA for the Appellant.
  • Sumer Singh Meena, CIT(DR)(ITAT) for the Respondent.

Facts of the Case

Assessee was in the business of rendering software development services (SWD services) and software development products (SWD products). It received a sum under a Settlement Agreement.

Assessee wanted to share the windfall it received on the Settlement Agreement with its stakeholders and employees. It made provision and claimed the said sum as a deduction in computing income from the business.

Assessing Officer (AO) and the CIT(A) held that the liability was contingent and hence could not be allowed as a deduction. Aggrieved-assessee filed the instant appeal before the Tribunal. The assessee contended that its liability was certain and not contingent and hence could be allowed as a deduction.

ITAT Held

The Tribunal held that the liability in question was not certain and was contingent. No basis for the claim being certain had been given by the assessee, especially when the payment itself is voluntary and in the nature of an incentive.

It should be noted that a part of the sum claimed as the deduction was revised in the subsequent year. It lends credence to the conclusion of the AO that the liability was contingent in nature. Hence, the ground of appeal of the assessee is held to be without any merit.

However, it is directed that the sum reversed in the subsequent year and offered to tax shall not be taxed to avoid double taxation of the same income. The Assessing Officer is directed to allow relief in the subsequent assessment year. It is held and directed accordingly.

List of Cases Referred to

• • CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1/128 ITR 294 (SC) (para 14)
  • Evans Fraser & Co. Ltd. (In Liquidation) v. CIT [1982] 8 Taxman 22/137 ITR 493 (Bom.) (para 14)
  • CIT v. Saurashtra Cement Ltd. [2010] 192 Taxman 300/325 ITR 422 (SC) (para 15)
  • CIT v. Mrs. Tara Sinha [2017] 85 taxmann.com 9 (Delhi) (para 15)
  • Aerens Developers & Engineers Ltd. v. ACIT [IT Appeal No. 5054 (Delhi) of 2011, dated 12-8-2016] (para 15)
  • Dy. CIT v. Bosch Ltd. [2017] 87 taxmann.com 351/167 ITD 650 (Bang. – Trib.) (para 16)
  • Dy. CIT v. BPL Sanyo Finance Ltd. [2009] 312 ITR 63 (Kar.) (para 18)
  • Bharat Serums & Vaccines Ltd. v. Asstt. CIT [2017] 78 taxmann.com 188 (Mum. – Trib.) (para 18)
  • Bharat Serums & Vaccines Ltd. v. Asstt. CIT [2019] 112 taxmann.com 316 (Mum. – Trib.) (para 18)
  • Jayaprakash Mady v. ITO [2001] 79 ITD 1 (Bang. – Trib.) (para 18)
  • Dy. CIT v. Chander Mohan [1999] 70 ITD 33 (Chd.) (TM) (para 18)
  • Cranes Software International Ltd. v. Dy. CIT [2014] 52 taxmann.com 19/[2015] 152 ITD 737 (bang. – Trib.) (para 18)
  • CIT v. M.J. Siwani [2014] 46 taxmann.com 170/226 Taxman 394/366 ITR 356 (Kar.) (para 18)
  • CIT v. Ralliwolf Ltd. [1983] 14 Taxman 3/143 ITR 720 (Bom.) (para 18)
  • Pro-quip Corpn. v. CIT [2002] 122 Taxman 588/255 ITR 354 (AAR – New Delhi) (para 18)
  • ITO v. Sriram Bearings Ltd. [1997] 224 ITR 724 (SC) (para 18)
  • Bharat Earth Movers v. CIT [2000] 112 Taxman 61/245 ITR 428 (SC) (para 29)
  • Arihantam Infraprojects (P.) Ltd. v. Jt. CIT [2015] 64 taxmann.com 404/[2016] 156 ITD 425 (Pune – Trib.) (para 30)
  • AMD Metplast (P.) Ltd. v. Dy. CIT [2012] 20 taxmann.com 647/341 ITR 563 (Delhi) (para 30)
  • Chryscapital Investment Advisors (India) (P.) Ltd. v. Dy. CIT [2015] 56 taxmann.com 417/232 Taxman 20/376 ITR 183 (Delhi) (para 30)
  • Dalal Broacha Stock Broking (P.) Ltd. v. Addl. CIT [2011] 11 taxmann.com 426/131 ITD 36 (Mum.) (SB) (para 34)
  • CIT v. Carborandum Universal Ltd. [2009] 177 Taxman 347 (Mad.) (para 38)
  • CIT v. Manganese Ore India Ltd. [2016] 67 taxmann.com 268/238 Taxman 315/384 ITR 413 (Bom.) (para 38)
  • ITO v. Dodsal Mfg. (P.) Ltd. [1984] 19 Taxman 27 (Ahd. – Trib.) (para 38)
  • CIT v. Priya Village Roadshows Ltd. [2009] 185 Taxman 44/[2011] 332 ITR 594 (Delhi) (para 38)
  • Wipro Ltd. v. Dy. CIT [2015] 62 taxmann.com 26/[2016] 236 Taxman 209/382 ITR 179 (Kar.) (para 41).