TMI Blog2010 (5) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... gth of service rendered. Further the clause 28 provides that the payments mention in clause 22 shall be a prior charge on the receipts of the firm. The case of the assessee is that the payments made as per clause 22 are a prior and overriding charges on the receipts of the firm and, therefore, these are diversion of income by overriding title and thus are required to be excluded from the profit. We respectfully following the decision of assessee own case as relying in the case of Sheetal Das Tirathas [ 1960 (11) TMI 17 - SUPREME COURT] as held that in case, by some obligation, income is diverted before it reaches the assessee the amount is deductible . The Tribunal after considering clause 22, 23 and 28 of the partnership deed held that there was an obligation in this case and income diverted before it reached the assessee and it was not a case of application of income. The Tribunal also observed that the revenue authorities had allowed the said deduction from the year 1990 onwards and, therefore, could not make any deviation in the subsequent year the factual and legal position remaining the same. The Tribunal accordingly held that the deduction was allowable. Interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred by the assessee. Similarly the foreign travel expenditure had been incurred by the assessee.The assessee had also given the name of the client for which the foreign travel had been undertaken by Shri Farid and no material has been produced by the revenue to disprove the claim of the assessee. Therefore, mainly on the ground that the bill was in the name of the sister concern the claim cannot be disallowed. As regards the employee Shri Girish, there is no dispute that the he was an employee of the assessee who had been deputed to the sister concern and the amount not paid by the sister concern had been reimbursed by the assessee. The claim in our view has to be allowed on commercial expediency. In so far as the expenditure on preparation of name plate is concerned, there is common bill in relation to three parties and the assessee had paid its share of expenditure. The CIT(A) has allowed Rs.8000/- on the ground that the assessee paid Rs. 8000/- only. However, we find that the assessee had also made payment of Rs.8840/- as per voucher placed - The entire claim is thus allowable . We therefore, set aside the order of the CIT(A) and delete the additions made in respect of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return as reduced by tax deducted/collected at source etc. Therefore, we agree with the submission made by ld. A.R that the interest payable under section 234B for the purpose of adjustment against the tax paid under section 140A has to be computed with respect to assessed tax determined on the basis of total income declared in the return. But this is only for the limited purpose of adjustment of payment made u/s. 140A against interest payable under section 234B while making computation of interest payable by the assessee under section 234B,which has to be computed with respect to the total income determined in regular assessment as per the definition of assessed tax given in section 234B. The assessee has also followed the same procedure with which we agree Both the appeals of the revenue are dismissed, whereas those of the assessee are partly allowed. - Shri D. Manmohan And Rajendra Singh (A.M), JJ. For the Petitioner : Shri P. J. Pardiwala, Ms. Vasanti Patel For the Respondent : Shri Yes Bose, Mohd Usman ORDER Per Rajendra Singh, A.M. These cross appeals for A.Y 2000-01 and 2001-02 and the appeal of the assessee for assessment year 2003-04 are dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the amounts were added to the total income. 2.1.1 The assessee disputed the decision of the AO and reiterated the position before the CIT(A) that the amounts paid to the retired/deceased partners were authorized by Clause 22 of the partnership deed and thus payments represented diversion of income by over riding title as these were prior charges on the receipts of firms as per clause 28 of the partnership deed dated 27/11/1999. It was also pointed out that clause 14B(3) of the said partnership deed also provided that net profit or loss divisible amongst the partners could be determined only after excluding the payment made as per Clause 22 read with clauses 23A 23B. Thus the payments made were diversion of income by overriding title and had to be excluded from total income. The assessee placed reliance on several judgments including the judgment of Hon ble Jurisdictional High Court in the case of Nariman B. Bharucha son (130 ITR 863) and judgment in the case of Mulla Mulla Craigie, Blunt Caroe (190 ITR 198). The assessee also pointed out that the judgment of Hon ble Bombay High Court in the case of V.G. Bhuta (203 ITR 249) based on which CIT(A) had confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made to retired/deceased partners after death/retirement could not be said to be expenditure incurred wholly and exclusively for the purpose of business. It was submitted that the payment made was not remuneration but it was donation or ex-gratia. It was also application of income and not diversion of income. Accordingly it was urged that the order of CIT(A) should be set aside and the addition made by the AO should be confirmed. 2.1.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of claim of deduction on account of payments paid to retired partners and to spouses/nominees of deceased partners in terms of clause 22 of the partnership deed. The said clause 22 is reproduced below as a ready reference: 22. It is agreed that in addition to the amounts, if any, payable as provided in the preceding clause, namely clause 21, a retiring partner or the spouse or nominee of a deceased partner, as the case may be shall be entitled to receive the further sum specified in clauses 23A and 23B in respect of the following:- (a) (i) amounts billed, but not received, (ii) work completed, but not billed, and (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in assessee s own case in A.Y 1995-96 to 1997-98 in ITA No.492 to 495/M/03. The Tribunal in the above cases had referred to several judgments including the judgment of Hon ble Supreme Court in the case of Sheetal Das Tirathas (41 ITR 337), in which I has been held that in case, by some obligation, income is diverted before it reaches the assessee the amount is deductible . The Tribunal after considering clause 22, 23 and 28 of the partnership deed held that there was an obligation in this case and income diverted before it reached the assessee and it was not a case of application of income. The Tribunal also observed that the revenue authorities had allowed the said deduction from the year 1990 onwards and, therefore, could not make any diviation in the subsequent year the factual and legal position remaining the same. The Tribunal accordingly held that the deduction was allowable. The appeal filed by the revenue against the said decision has been dismissed by the High Court and the decision was subsequently followed in A.Y 2003-04 in ITA No.1067/Mum/07. There is no change in factual and legal position this year. Therefore, respectfully following the decision of the Co-ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n connection with acquisition of office space on lease. The assessee was a partner in DHS represented by some of its partners. He referred to profit and loss account of the assesee for A.Y 2000-01 at page 159 of the paper book to point out that the assessee had shown income of Rs.5,91,681.22 as share of profit from DHS. It was argued that the loan had been advanced to the sister concern on commercial expediency for better conduct of the profession at the new place at Delhi and, therefore, the expenditure was allowable on commercial expediency also in view of the judgment of Hon ble Supreme Court in the case of S.A. Builders,(288 ITR 01), in which the Hon ble Supreme Court have held that interest on borrowed funds advanced to sister concerns on commercial expediency is allowable as deduction. The Hon ble Supreme Court in the said case also observed that where holding company has deep interest in its subsidiary and borrowed money advanced to the subsidiary has been used for business purposes, the interest would be allowable as deduction in case of the assessee on commercial expediency. The Ld. A.R pointed out that, incase of the assessee, it had also received interest from subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and claim of deduction of interest has to be allowed under the head business . The order of CIT(A) is upheld with modification as mentioned above. 3. Now we take up the appeals of the assessee in ITA No.7450/M/04 (A.Y. 2000-01), ITA No.8267/M/04 (A.Y. 2001-02) and ITA No.523/M/07(A.Y. 2003-04). In these appeals the assessee has raised dispute on several grounds which have been dealt with in the succeeding para. 3.1 The first dispute which is relevant for all the three years is regarding addition on account of service tax shown as outstanding liability in the balance sheet. The levy of service tax on services rendered by the assessee had been challenged before the High Court who had granted interim stay against operation of notification levying service tax. The assessee had however, collected service tax but did not pay to the government during the pendency of the petition before the High Court. Subsequently, the High Court finally dismissed the petition as a result of which the assessee paid service tax of Rs. 11,61,057/-, Rs.1,55,799/- and Rs. 4,37,180/- for the assessment years 2000-01, 2001-02 and 2003-04 respectively. The service tax collected which remained unpaid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year. The ld. A.R for the assessee did not press the issue seriously as the claim has been allowed in the subsequent years. We, therefore, do not consider it necessary to go into the merit of the claim this year and the ground is dismissed as not pressed. 3.3 The third dispute which is relevant only for A.Y 2000-01 is regarding interest expenditure of Rs. 23,15,275/-. The assessee had claimed interest expenditure as business expenditure treating the interest income of Rs. 24,68,079/- received from sister concern as business income. The CIT(A) has however, treated the interest income as income from other sources and has allowed interest expenditure against income from other sources under section 57(iii) of the Income Tax Act, 1961. The case of the assessee is that interest expenditure should be allowed under the head business . 3.3.1 We have already considered this issue while dealing with the Ground No.2 of the Departmental appeal in assessment year 2000-01 and in para 3.4 of this order we have already heald that loan had been advanced to sister concern on commercial expediency and, therefore, interest income as well as interest expenditure have to be considered under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated the submissions made before the lower authorities. It was submitted that the expenditure on purchase of paper and other items in relation to the quarterly flash had been incurred by the assessee. The publication was also made by the assessee for the benefit of clients and, therefore, the expenditure could not be disallowed only on the ground that the bill was in the name of the sister concern. It was also submitted that Shri Farid Gul Mohammed was acting as consultant of the assessee and had performced journey in connection with case of one of the clients i.e.M/s. Ardee City. In relation to other items, also submissions made before lower authorities were reiterated. 3.4.3 We have perused the records and considered the matter carefully. The dispute is regarding allowability of certain items of expenditure, which have been mainly disallowed on the ground of bills being in the name of sister concern. The items of expenditure disallowed related to publication of quarterly flash, foreign travel, preparation of name plates, reimbursement of part of expenditure relating to an employee sent on deputation. There is no material produced by revenue to controvert the claim made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the profit and loss account prepared by the assessee also included interest income on FDRs, interest on advance given to sister concern , i.e. DHS, interest on capital account to partners, director fees, rent etc. The A.O held that all these items of income had no nexus with the business carried on by the assessee and, therefore, he treated such income amounting to Rs. 37,18,722/-, Rs. 20,50,737/- and Rs.10,52,600/- respectively for the three years as income from other sources and excluded the same from net profit while computing book profit as per Explanation 3. Besides the assessee had also shown share of profit from other firms amounting to Rs. 43,34,868/- and Rs. 1,30,13,535/- for the assessment years 2000-01 and 2001-02 respectively. As the share of profit from the firm was exempt from tax under section 10(2A) in the hands of the assessee, the AO excluded such income also while computing the book profit as remuneration in relation to such income was not allowable under section 14A of the I.T. Act. 3.5.2 In appeal CIT(A) agreed with the view taken by the AO that only the items of income in the profit and loss account representing profit and gain of business have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand, placed reliance on the finding given in the orders of the authorities below. 3.5.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding computation of remuneration to working partners allowable as deduction under section 40(b)(v). The said section prescribes the method for computation of remuneration allowable which is based on book profit which has been defined in the Explanation-3 as the net profit as shown in the P L account computed in the manner laid down in Chapter IV-D. In the P L Account of the relevant year, in addition to business receipts the assessee had also included income from interest on FD, interest on loans to sister concern, rental income, directors fees etc. All these items of income had been assessed by AO as income from other sources. The A.O also held that while computing remuneration allowable under section 40(b)(v), only items of income of the nature of business appearing in the P L Account will be considered and accordingly he excluded the aforesaid items of income which had been assessed by him as income from other sources. The case of the assessee is that, firstly,these items of income whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee under section 10(2A). There is no dispute that such income is exempt in the hands of the assessee u/s. 10(2A). Therefore, remuneration allowable proportionate to such income which is exempt has to be disallowed under section 14A. Such income has either to be excluded from the book, profit or incase it is included in the book profit then remuneration allowable as computed in the section 40(b)(v) in relation to such exempt income has to be disallowed. In this case the A.O has excluded the share of profit from other firm from the book profit which had the effect of disallowing the remuneration allowable proportionate to such exempt income. We therefore, do not find any infirmity in such approach as expenditure relatable to exempt income has to be disallowed. The order of CIT(A) on this point is confirmed. 3 6 The next dispute which is relevant to only A.Y 2000-01 and 2001-02 is regarding computation of interest chargeable under section 234B of the Act. In this case, regular assessments had been made by the AO under section 143(3) and in such cases, in case, the advance tax paid by the assessee is less than 90% of the assessed tax the assessee is required to pay interest at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest from the date on which tax was paid under section 140A was calculated on the outstanding tax after adjusting the advance paid and the tax paid under section 140A. The assessee on the other hand contended that the interest under section 234B against which the tax paid under section 140A has to be adjusted first is required to be computed with respect to the returned income as the assessed tax for the purpose of section 140A has been defined to mean tax on the total income declared in the return as reduced by an amount of tax deducted/collected at source tc. The CIT(A) has confirmed the approach adopted by the AO against which the present appeal has been filed by the assessee before the Tribunal. 3.6.2 We have heard both parties perused the records and considered the matter carefully. The factual and legal background relating to the issue has already been discussed in the preceding paras . The section 140A provides that in case payment made under the said section falls short of the tax payable including interest under the said section then the tax so paid shall be first attributed towards the interest and the balance amount shall be adjusted against the tax payable. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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