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TMI Blog2011 (4) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... investigating the matter had filed charge sheet against Dr. Kalpana D. Velaskar which was pending. Thereafter Dr. Kalpana Velaskar filed a dissolution suit before the Hon'ble High Court of Mumbai. There being provision for arbitration in the partnership deed, she later filed arbitration petition No. 259 of 2003 in the High Court. The Hon'ble High Court in the order dated 18-6-2003 in the arbitration proceedings appointed a Court Receiver to take over assets, books of account, bank account, premises, business etc. of the firm considering the special nature of business being done by the assessee. The court also directed that the receiver would call bids from the partners for the purpose of fixing royalty and the higher bidder shall be entitled to carry on the business as agent of the receiver. The assessee being the highest bidder was allowed to carry on the business after executing an agency agreement in terms of the order of the High Court. The royalty payment at the rate of Rs. 3.5 lakhs per month, totalling Rs. 42 lakhs had been debited by the assessee in the profit and loss account. 2.1 The Assessing Officer noted that the assessee had not deducted tax at source while paying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whom the said income would belong. There was also difficulty of the receiver not having PAN. It was also argued that the payment of Rs. 42 lakhs had been diverted at source by way of overriding title and therefore no income on that account had accrued to the assessee and thus there was no obligation to deduct tax at source. Reliance was placed on the following decisions of the Tribunal in support of the claim. (i) CIT v. Y.S. Desale [1982] 137 ITR 117/10 Taxman 115 (Bom.) (ii) Amitabh Bachchan v. Dy. CIT [2005] 97 TTJ 516/3 SOT 428 (Mum.) (iii) Salora International Ltd. v. Jt. CIT [2003] 129 Taxman 68 (Delhi) (Mag.) 2.3.1 Alternatively, it was also submitted that, even if payments were covered under section 40(a)(ia), the same will apply to payments made on or after 13-7-2006 as the provisions of section 194J in relation to royalty were applicable only from 13-7-2006. 2.4 The Learned DR on the other hand strongly supported the orders of authorities below. It was argued that there was no diversion of income and the payment made by the assessee which had the nature of royalty attracted the provisions of section 40(a)(ia) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame of the firm for doing the business of blood bank. Therefore, in our view, the nature of the payment is the same that of royalty as defined in the Explanation 2 to section 9(1)(vi). In fact in the order the Hon'ble High Court also, the payment by the highest bidder has been referred to as royalty. Therefore we hold the nature of payment was that of royalty. We also agree with the view taken by the lower authorities that the receiver was receiving the royalty on behalf of the firm and not in its personal capacity and therefore the assessee could have easily mentioned the PAN of the firm who was the actual owner of the royalty. Even if the matter was disputed in arbitration proceedings, there was no dispute regarding the nature of income and the fact that the same was taxable under the provisions of Act. It is immaterial in whose hands the income is taxable. Any payment of royalty which is taxable will attract the provisions of section 194J and non-deduction of TDS at source will disqualify the claim of expenditure on this account under section 40(a)(ia). The Learned AR has also argued that the payment was diversion of income by overriding title and therefore no income had accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.67 crores to KBC. The issue was whether the payment was application of income or diversion of income. Since in this case certain percentage of receipts had been paid to KBC as per the court order, it was held to be a diversion of income at source. In the present case the court had not ordered that the assessee would pay a certain percentage of receipts which could be considered as diversion of income. The assessee had to pay a fixed monthly sum to the receiver which was not linked to the business receipts. Therefore this was only a case of application of income. 2.7.2 The decision of the Tribunal in case of Salora International Ltd. v. JCIT (supra) is also distinguishable. In that case the assessee had sold its P division to another company namely MTAIC. As per the scheme of arrangement, the consideration of P division was fixed at 50.12 crores of which 17.64 crores were to be given to the shareholders by allowing each shareholder in possession of share of Rs. 10, 2 shares of equal amount by MTAIC. Thus the amount paid to the shareholders had been diverted at source under the scheme of arrangement and therefore it was held as a case of diversion of income. The case is obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X
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