KHANNA AND ANNADHANAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is an appeal filed by the assessee under section 260A of the Income Tax Act, 1961. On 08.09.2010, the appeal was admitted and the following substantial question of law was framed for decision: -

(2.) The assessee is a firm of chartered accountants. From the year 1983, under an informal understanding it was getting referred work from M/s Gupta Chaudhary & Ghose, Chartered Accounts of Calcutta who were doing the work in Calcutta which was referred to them by Deliotte Haskins & Sells ("DHS?), a firm of chartered accounts based outside India. The understanding between the assessee-firm and the chartered accountants firm in Calcutta was limited to the work in Delhi and surrounding areas only. It may also be added that DHS was part of the chartered accountants firm by name "Deliotte Touche Tohmatsu International", based in USA. The informal understanding between the assessee and DHS was formalised on 14.08.1992 by an agreement between them. In 1996, it transpired that DHS wanted another firm of chartered accountants by name C.C. Chokshi & Co., of Bombay to represent its work in India. Accordingly an agreement was entered into on 14.11.1996 which was called a release agreement, under which the assessee firm was to no longer represent DHS in India; thereafter DHS would not refer any work to the assessee-firm. In consideration of the termination of the services of the assessee-firm, a compensation of US$ 325000 amounting to Indian Rs. 1,15,70,000/- was paid by DHS to the assessee-firm. This amount was received in the previous year relevant to the assessment year 1997-98 and the short question before us is whether the receipt was capital in nature or was professional income.

(3.) The assessing officer took the view that the receipt was taxable as part of the professional income of the assessee-firm; his decision was reversed by the CIT (Appeals) and on further appeal by the revenue, the Tribunal agreed with the assessing officer. Hence, the present appeal by the assessee.