TMI Blog2012 (12) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal preferred by the assessee is directed against the order dated 21.04.2008 passed by the ld. CIT(A) for the A.Y. 2005-06. 2. Briefly stated the facts of the case are that the assessee firm derives income from profession as an Advocate on record of the Hon'ble Supreme Court of India. The return was filed declaring total income of ₹ 90,27,232/-. During the course of the assessment, on examination of the profit and loss account, it was observed by the A.O. that the assessee has credited a sum of ₹ 30,00,000/- as other income which comprises of (i) Compensation for use of shared facilities of ₹ 10,00,000/- and (ii) License fees of ₹ 20,00,000/-. The A.O. further observed that while computing the remuneration payable to the partners u/s.40(b) of the Income Tax Act, 1961 (the Act), the assessee has included the above sum of ₹ 30,00,000/- in the book profit. The assessee was asked to explain as to why the other income of ₹ 30,00,000/- be not reduced for computing the book profit. In response, the assessee stated that the amount is received from M/s. Amarchand and Mangaldas and Suresh A Shroff and Company for use of name /license fee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding such income for the purposes of working out the remuneration payable to working partners in terms of section 40(b) of the Act, and, hence, upheld the order passed by the A.O. 4. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us taking the following revised grounds of appeal: 1. The Learned Commissioner of Income Tax (Appeal) erred in treating amount received for name license fees of ₹ 20 Lakh as Income from Other Source instead of Income from Business. 2. The Learned Commissioner of Income Tax (Appeal) erred in treating amount of ₹ 10 Lakhs received on account of shared Assets as Income from Other sources instead of income from Business. 3. The Learned Commissioner of Income Tax (Appeal) failed to appreciate that the name license fee and shared assets amount had been consistently assessed under the head Business since the last 10 years and therefore ought to have been assessed as Business Income following Supreme Court judgment in case of Radhasoami Satsang v. Commissioner of Income Tax reported in 193 ITR Page 321. 5. Alternate to ground above learned CIT has not appreciated that the tax on salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. According to the ld. counsel for the assessee since the factual position of the case remains same, the said income has been considered as Income from Business Profession, the A.O., without understanding the nature of the transaction has treated the income as income for Other Sources, instead of income from Business and Profession. 7. She further submits that both the partners in their returns have also shown the equal amount of remuneration as claimed in the return of income of the firm i.e. in the hands of Shri Shardul A. Shroff ₹ 26,88,290/- and in the hands of Shri Cyril Suresh Shroff ₹ 26,88,290/- vide chart of income appearing at page 59 and 63 of the assessee's paper book respectively, therefore, there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. She, therefore, submits that the disallowance of partners remuneration made by the A.O. and sustained by the Ld. CIT(A) be deleted. 10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee firm as per agreements dated 01.04.2002 has shown an aggregate sum of ₹ 30,00,000/- as other income comprising of compensation for use of shared facilities of ₹ 10,00,000/- and license fees of ₹ 20,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, according to the said Explanation 'book profit' means the net profit as shown in the profit and loss account including income from other sources not the profit computed under the head profit and gains of business or profession. 13. This view also finds support from the recent decision of Hon'ble Calcutta High Court in the case of Md. Serajuddin Bros. v. CIT, wherein their lordships while considering the similar issue under the relevant provisions of section 40(b)(v) of the Act have observed and held as under :- The said chapter nowhere provides that method of accounting for the purpose of ascertaining net profit should be the only income from business alone and not from other sources. Section 29 provides how the income from profits and gains of business or profession should be computed and this has to be done as provided under Section 30 to 43D. By virtue of Section 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book-profit. The said section nowhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company is in the course of its eligible business . Therefore, in our opinion, the dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of eligible business under section 32AB of the Act. Thus it emerges as follows: Even if the income from other sources is included in the profit and loss accounts to ascertain the net profit qua book-profit for computation of the remuneration of the partners the same cannot be discarded. In view of the aforesaid discussion as above we, therefore, allow this appeal and we set aside all the orders passed by all authorities below. There will be no order as to costs. 14. As regards alternate claim of the assessee that on the remuneration received by the partners of the firm, the partners have paid tax, which was not controverted by the Revenue, we are of the view that it cannot be taxed twice. This view also finds support from the decision of the Tribunal in Vikas Oil Mill v. ITO [2005] 95 TTJ (JP) 1126, wherein it has been held as under :- We are of the view that remuneration paid to working partners will have to be allowed as per provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer date was shifted to April 30, 1998, on account of non-fulfilment of the conditions precedent set out in the agreement. In any event, in the tax audit report relating to the financial year April 1, 1998, to March 31, 1999 (assessment year 1999-2000), the goodwill at ₹ 4.30 crores was shown in the opening block of fixed assets, which obviously meant that the goodwill was acquired prior to April 1, 1998, and accordingly in the tax audit report for the assessment year 1999-2000, no depreciation was claimed on the goodwill. Thus, there were mutual contradictions in the tax audit report and the return of income filed by the petitioner regarding the date of acquisition of the goodwill. The argument that the Assessing Officer had taken a conscious decision to grant depreciation after accepting the contention of the petitioner that the goodwill was acquired after April 1, 1998, could not be accepted because, in his letter there was no reference to the inconsistencies in the tax audit report and the return of income regarding the date of acquisition of the goodwill. The fact that there were mutual inconsistencies in the tax audit report and the return of income which were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. There is no quarrel with the principles enunciated in the aforesaid decisions. However, the case before us is not under the provision of section 147/148 of the Act but under the different provisions of the Act. i.e. u/s.40(b)(v) read with Explanation 3, therefore, for the reasons as discussed hereinabove, both the decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. 18. For the reasons as discussed above we are of the view that even if the income from other sources is included in the profit and loss accounts to ascertain the net profit qua book-profit for computation of the remuneration of the partners the same cannot be discarded and the ld. CIT(A) was not justified in upholding the order of the A.O. in excluding the other income i.e. compensation for use of shared facilities of ₹ 10,00,000/- and license fees of ₹ 20,00,000/-, aggregating to ₹ 30,00,000/- from the 'book profit' for the purpose of partners remuneration and accordingly, we direct the A.O. to include the above sum of ₹ 30,00,000/- in the 'book profit' for computation of the remuneration of the partners in terms of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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