Sushmita Sen not liable to pay Tax on Compensation Received from Coca Cola in a Sexual Harrassment Case: ITAT [Read Order]

Sushmita Sen - ITAT - Taxscan

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition made by the department against Sushmita Sen, Bollywood actress and former Miss India Universe in respect of the amount received by her from Coca Cola Company in connection with settlement of a sexual harassment case filed against one of the employees of the Company.

In the instant case, the assessee, a film actress, received Rs. 145 Lacs from the M/s Coca-Cola India Limited but offered only a part of the same i.e. Rs.50 Lacs to tax and claimed the balance Rs.95 Lacs to be capital receipts in nature in view of the fact that the same represented compensation received by the assessee towards damages caused to assessee’s reputation.

AO subjected the amount to tax by holding that the amount of Rs.145 Lacs received by the assessee was in lieu of settlement between the two parties for breach of terms of celebrity engagement contract.

Objecting the addition, the assessee argued that it was a commercial contract to endorse/promote the products of CCIL which was subsequently terminated prematurely. It was claimed that the amount of Rs.1.45 Crores was received as compensation in lieu of sexual harassment case filed by the assessee against an employee of CCIL.

It was further contended that the assessee considered a sum of Rs.50 Lacs which was an outstanding amount due to her under the commercial contract as her income. It was submitted that extra compensation received by the assessee was not as per the terms of the contract and therefore, the extra receipts, being capital in nature was not taxable in the hands of the assessee.

Allowing a second appeal filed by the actress, the Tribunal held that the final settlement as arrived between the parties was not a simple settlement of commercial claims of the assessee arising out of contractual terms.

The Tribunal noted that only an amount of Rs.50 Lacs was due to the assessee and as per the terms of the contract, the assessee had a right to receive only that much of amount in case of default by CCIL and nothing more. As against this, the assessee has received an amount of Rs.145 Lacs out of which Rs.50 Lacs has been offered to tax by the assessee.

“The balance amount of Rs.95 Lacs is stated to be received for loss of reputation etc. under the circumstances as discussed by us in the preceding paragraphs and therefore, being capital in nature, claimed to be not taxable. The factual matrix leads us to believe so in view of the fact that the contract did not envisage any additional payment over and above the amount of Rs.150 Lacs to the assessee. The perusal of documents leads us to believe that the said compensation did not accrue / arise out of exercise of profession by the assessee and could not be construed to be the income of the assessee or profits and gains of profession within the meaning of Section 2(24) and Section 28 of the Income Tax Act, 1961. The compensation could not be termed as any benefit, perquisites arising to the assessee out of the exercise of profession,” the Tribunal said.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader