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TMI Blog2012 (7) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... als Pvt. Ltd. for the term of five years, instead of yearly accrual, which is against the law and principle of commercial accountancy. 3. That without prejudice to Grounds No.1 and 2 above, the disallowance of expenses of Rs. 42,65,000/- @ 35% allowed by the Assessing Officer and enhanced by Ld. Commissioner of Income Tax (Appeals) is without any basis, arbitrary, unjust and bad in law. 4. Without prejudice to above grounds that in case the entire amount of consultancy fees is assessable during the year then the revenue authorities ought to have also allowed the expenses is incurred in relation thereto in the subsequent years. 5. That the assessee denies his liability to pay interest charged under section 234B and 234C of the Income Tax Act, 1961. 6. The above grounds of appeal are independent and without prejudice to one another. Your appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing." 3. Facts, in brief, are that the assessee, a doctor/ surgeon, has filed return showing income of Rs. 5,46,616/-. The assessee has shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the payment are simply not acceptable & therefore rejected. From the period mentioned on the TDS certificate i.e. 1-1-06 to 31-03-06 also it is clear that the assessee claim of advance receipt for 5 years is not correct. Also it is beyond comprehension why a business entity like M/S U.G Hospital - would advance such a huge sum to only - members of a particular family - for such a long period without any formal written agreement or contract. The assessee and the Hospital both were requested to furnish copy of agreement if any signed at any point of time, but no such agreement has been furnished & accordingly it is presumed that there is no written agreement or contract between the payer & the payees of so called -advance for hospital consultancy. The non- appearance of the assessee as well as his father in response to summons issued u/s 131 of the IT. Act, 1961 as discussed above without any valid reasons or grounds do also clearly prove that the assessee or his father do not want to disclose the full facts & therefore what has been stated in writing with regard to receipt of Rs. 121,83,494 by the assessee cannot be accepted under any circumstance. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital for undisclosed reasons under the circumstances mentioned above. However to tax the entire receipt without allowing any expenses which might have been incurred by the assessee would not be in the interest of natural justice! out of the above receipt, therefore, an amount of Rs 42,65,000 being roughly 35% of the total receipt i.e. Rs. 1,21,83,494 is allowed as possible expenditures which might have been incurred on earning the above income on estimate & only balance of Rs 79,18,494 is taken as income of the assessee not disclosed & added accordingly to the total income of the assessee ... ". 4. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) elaborately discussed the assessee's submissions. Ld. Commissioner of Income Tax (Appeals) observed that it is undisputed that fact that M/s UGH has paid substantial sums as mentioned above to four persons of the assessee group. On the basis of material available on the record, Ld. Commissioner of Income Tax (Appeals) opined that he was convinced and of the considered view that there is no direct live link between payment made by the UGH and services rendered by the assessee and thus hold that the receipts under reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. How and why have all these four persons of the appellant group taken over by the UGH at one point of time? The answer is that the agreement is not person specific but here it is group specific. iii. Why the agreement and payments made to the appellant group are irrevocable? Answer: Because it is not related with the specific services. iv. Why articles relating to the recovery of consultancy charges, in absence of services rendered by the appellant, were not brought into the agreement? Answer: Because it is not related with the specific services. v. Why agreement was entered after the lapse of four and half year? Answer: Because the payment is not related with the specific services. vi. How the UGH can enforce the services of the appellant, in case he denies/refuses to render services? In such situation, what step can be taken by the UGH? Answer: There is no such provision as the payment is not related with the specific services. The appellant is not under any obligation to refund/repay the fees. vii. How the payment is rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer in the impugned order is not justified at all. Ld. Commissioner of Income Tax (Appeals) further held that it is double allowance of the expenses against the proportionate receipt of Rs. 6,09,175/- offered out of receipt from the UGH. Ld. Commissioner of Income Tax (Appeals) further observed that it was brought to the notice of the Ld. Authorised Representative that why not the allowance of Rs. 42,65,000/- be withdrawn as it is against the accounting principle and provisions of the law. It was argued before the Ld. Commissioner of Income Tax (Appeals) that since the receipt from the UGH is not taxable in entirety in this year therefore, the question of disallowance the expenses of Rs. 42,65,000/- does not arise. Ld. Commissioner of Income Tax (Appeals) further held that in view of the finding that the entire receipt of Rs. 1,21,83,494/- is chargeable to tax in the relevant year, therefore, the allowance of expenses over and above the claimed expenses is held unjustified. Ld. Commissioner of Income Tax (Appeals) concluded that on the basis of above facts, he was enhancing the income of the assessee by Rs. 42,65,000/-. Ld. Commissioner of Income Tax (Appeals) fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly those receipts which bear the characteristic of income that can be taxed under the Act. (v) In the case of E.D. Sasoon & Co. Ltd. vs. CIT in 26 ITR 27, at page 50, the Hon'ble Supreme Court explained what is income. The Hon'ble Supreme Court stated that income means what comes in as the periodical produce of one's work. At pages 51-52, the Hon'ble Supreme Court observed as under: " .... If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in prasenti, solvendum in futuro it cannot be said that any income has accrued to him .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 301 (Del) wherein the Delhi Bench of the ITAT held that even in the case of cash system of accounting, the income has to be assessed on the basis of services rendered because the income can be said to have accrued on the rendering of the services and not otherwise. (ix) The Chennai Special Bench of the Tribunal in the case of ACIT vs. Mahendra Holidays & Resorts (India) Ltd. in 131 TTJ 1 has also held that where the services are required to be rendered in various years, the receipts have to be spread over the years for which the services are required to be rendered. The Special Bench of the ITAT further observed that recognizing entire receipt in the year of receipt can lead to a distorted picture. (x) In the case of Bta Cellcom Ltd. vs. ITO in ITA No. 133/Del/2009 for Assessment Year 2002-03 vide order dated 30th June 2011 in 2011-TIOL-706-ITAT-DEL, the Coordinate Delhi Bench of the ITAT, after following the judgment of Delhi High Court in CIT vs. Dinesh Kumar Goel (supra) and Special Bench decision in the case of Mahindra Holidays & Resorts (supra), held that where the services are required to be rendered in various years, the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um Power Generation Ltd. vs. Addl. CIT - Distinguishable on facts and law. In this case, the issue was the accrual of interest on inter-corporate deposits. The said assessee had made intercorporate deposit with another company. Such intercorporate deposits were renewed from time to time. A large part of the amount was not returned by the company and the cheques issued were dishonoured for want of funds. The said assessee initiated proceedings under the Negotiable Instruments Act, 1881 and filed a winding up petition under the Companies Act, 1956 for recovery of principal as well as interest thereof. On directions issued by the Company Court, the company made payment of the entire principal amount and the interest for the entire period which was received by the said assessee in December 2005. The case before the High Court was for the earlier years prior to the receipt of the amount from the company as per court orders. In those very years, the assessee claimed that the interest amount due for these periods was not liable to be taxed even though the assessee was maintaining a mercantile system of accounting as the debt was a sticky debt. The Hon'ble High Court found that in the abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; (g) In JCIT vs. Khanna & Annandhanam in ITA No. 3444/Del/2001 dated 18th January 2008 in 2008-TIOL-377-ITAT-DEL, the issue was totally different. In that case, the issue was whether the amount received for the sterilization of future professional earnings is taxable or not. In the instant case, no such issue is there. (h) As per DR the amount is not refundable; hence it accrued during the year of receipt on cash basis. The amount refundable or not refundable is not the criteria to tax the amount in Income Tax Act. In the Income Tax Act as per the provision of Sections 4 and 5, it is only the income which is chargeable to tax as held by Supreme Court in the case of Shoorji Vallabhdas (supra). Moreover, in the case of Career Launchers (India) Ltd. (supra) and Dinesh Kumar Goel (supra) the amounts received were also not refundable. Conclusion: The contention of DR that the payer UG Hospitals has deducted the TDS on the entire amount during the year under consideration hence it should be assessed in the year of its receipt, is not correct and are based on misconception of law. The mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd relied upon the orders of the Assessing Officer and Ld. Commissioner of Income Tax (Appeals). She further pointed out that from the financial year 2007, assessee is following cash system of accounting. She further referred to clause 2.7 of the agreement which indicated that the fixed consultancy fees paid to the assessee Sh. Aman Khera is nonrefundable even on prior determination of agreement. She pointed out that the assessee has claimed full TDS credit of Rs. 6,09,175/- on professional receipts of Rs. 12183494/- in the computation of income. Hence, as per section 199 of the Act the whole income is taxable. Ld. Departmental Representative further relied upon the catena of cases laws including the following :- (a) 230 ITR 51 (Bom), CIT vs. Shah Construction (b) 311 ITR 332 (Del), Magnum Power Generation Ltd. vs. Addl. CIT. (c) 285 ITR 501 (AP), P.L. Ganpathi Rao vs. CIT. (d) The cases of Moti Lal Chhidami Lal in 191 ITR 1 (SC) and the Dalmia Cement Ltd. vs. CIT in 191 ITR 331 (Del). (e) In Airport Authority of India vs. CIT in ITA No. 432/2008 dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in prasenti, solvendum in futuro it cannot be said that any income has accrued to him.". 8.3 Now we examine the present case on the touch-stone of the aforesaid decision. Admittedly, assessee has not served for the period of five years. Assessee has not rendered enough services to warrant emoluments of Rs. 1,21,84,494/-. It is assessee's submission that during the year under consideration he has not created a debt or a right to receive the payment equivalent to Rs. 1,21,84,494/-. Hence, it cannot be said that the income equivalent to total emolument Rs. 1,21,84,494/- has accrued to the assessee. 8.4 In this regard, assessee's reliance of AS-9 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the ITAT further observed that recognizing entire receipt in the year of receipt can lead to a distorted picture. We further find that the other case laws relied by the ld. counsel of the assessee also support the assessee's case. 8.8 From the above discussion and precedents, it is amply clear that in service contract the income has to be recognized in proportion to the services rendered in a particular year. In the present case, admittedly the assessee has not rendered services for the period of 5 years. Hence, there is no question of recognizing the entire amount as income of the assessee in the year of receipt. It cannot be said that assessee has created such a debt or right against the M/s UG Hospital that the income for the entire 5 years had accrued to the assessee. In our considered opinion, in the background of the aforesaid discussion and precedent, we find that the assessee has correctly declared professional fee from the UG Hospital in proportion to the period of services rendered during the year. Under the circumstances, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 9. In the result, the appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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