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TMI Blog2013 (6) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,48,761/- pertained to mobile phone expenses and Rs. 1,41,621/- pertained to telephones installed at the partner's residence. The AO disallowed 20% of the aggregate of Rs. 3,90,382/- (Rs.2,48,761/- and Rs. 1,41,621/-), i.e. Rs. 78,076/-. 5. In appeal, the CIT(A) reduced the disallowance to 15%, i.e. in money terms, the disallowance of Rs. 78,076/- made by AO was reduced to Rs. 58,557/- by the CIT(A). 6. Before the ITAT, the assessee agitates, that even this disallowance is excessive. To demonstrate, the AR, placed before us a chart showing the total expenses claimed and the disallowance made suo moto by the assessee and the disallowance made by the AO. According to the chart, the AR has tried to show that only in the impugned assessment year, there is a disallowance made by the AO. He pointed out that in assessment years 2001-02, 2006-07 and 2007- 08, even in scrutiny assessments, no disallowance has been made by the AO and has accepted the suo moto disallowance of Rs. 2,000/- made by the assessee. The assessee submitted that mobile phones and phones installed at residences of the parties are used for professional purposes as well, as, the assessee being the oldest CA firm, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany to its partners. This fact, as well as the fact that the disallowance has been made only in the impugned year has not been denied by the DR. 16. In any case, following the rule of consistency, we are of the opinion that no further disallowance is called for. 17. We, therefore, set aside the orders of both the revenue authorities and direct the AO to delete the disallowance made. In the result, the ground no.2 is allowed. 18. Ground no. 3 is allowance of Rs. 30,000/- out of business development expenses claimed at Rs. 3,30,271/-. 19. The AR has prayed for a reasonable relief, whereas, the DR relied on the orders of the revenue authorities. 20. We have gone through the chart and find that there is no disallowance made even in the subsequent years. Since the AR has pleaded for a reasonable and suitable reduction, we feel that in the circumstance, an ad-hoc disallowance of Rs. 15,000/- would meet the ends of justice. We, set aside the orders of the revenue authorities and direct the AO to make an ad-hoc disallowance of Rs. 15,000/-. In the result, the ground is partly allowed. 21. Ground no. 4 pertains to the disallowance of Rs. 1,09,037/- out of foreign travel expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayed that the disallowance be deleted. 27. The DR relied upon the orders of the revenue authorities. 28. We have heard the arguments from either side and have also referred to the detail and its breakup. From the above breakup, along with the bills with regard to foreign travel, which do have a positive presumption of carrying professional/business connection, because, durations are small, which can only be presumed to be professional/business oriented. But expenses shown under "others" and "Visa fee", cannot be allowed, because, visa once given can be used by the person for any number of times, including for personal requirements and there are no details of others (Rs. 20,728/-). We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to restrict the disallowance to Rs. 20,728/- and allow the balance, i.e. Rs. 1,02,539; Rs. 71,990/- & Rs. 32,328/-; Rs. 1,85,258/-, aggregating to Rs. 3,92,115/-. In the result, ground no. 4 is partly allowed. 29. Ground no. 5 pertains to disallowance of Rs. 2,17,594/- u/s 40(a)(i) for non deduction of TDS, as per the provisions of section 195. 30. The facts, as reproduced in the assessment order are that the assessee pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remittances of membership fees paid by the assessee to BTI is subject to the TDS provisions u/s. 195 of the I.T. Act, 1961. A similar and identical issue had arisen in the case of Arthur Anderson & Co., Mumbai in which payment was made by Arthur Anderson & Co., Mumbai to M/s. Arthur Anderson & Co. society Corporative Company [Anderson SC] it was claimed that the amount was membership fees and reimbursement of its share of establish expenses incurred by Anderson SC which operates on a no profit basis". 32. The AO, referring to a host of decisions, finally concluded, "Therefore, respectfully following the decision of the Mumbai Tribunal in the case of Author Anderson & Co., the assessee's contention that the membership fees paid to BTI is allowable expenditure, the remittances made to BTI are not subject to TDS and the remittances received by BTI is not taxable in the hand of BTI is hereby rejected. Further the Chennai ITAT order dated 28.2.2007 has clearly held that it is not the duty of the assessee to decide the tax liability of non-resident and remittances are subject to TDS provisions u/s.195 to 197 of the I.T. Act. If the assessee failed to deduct TDS from the remittances, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is case of payment made only as a subscription, there is no element of income, hence the provisions 195 would not get attracted. The AR referred to the important clauses of the agreement between BTI and the assessee, which reads as follows: Company means Baker Tilly International Limited, a company incorporated in England with registered no. 434879 whose registered office is at 2, Bloomsbury Street, London WC1B 3ST, United Kingdom. "The objectives of the Company are as follows: (a) to operate a worldwide association of independent, high quality accounting firms; (b) to promote the continuing professional development of Members through exchanges of information on subjects of professional interest; (i) the maintenance and continuing development of an intranet and an extranet for use by the Members; and (j) the organization and administration of conferences for the Members. 3.4 The company is not organized for profit and no part of the net income of the Company shall inure to the benefit of any Member, Director or individual. For the avoidance of doubt, in calculating the net income of the Company, reasonable compensation paid by the Company in respect of services rendered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller and Auditor General have agreed to drop the objection referred to above". 39. The AR, pleaded that since no part of the payment made by the assessee to BTI, generated any income to the recipient, i.e. BTI, which is a non resident and payment having made to a non resident, out side of Indian tax regime, there was no liability on the assessee to deduct tax at source and, therefore, the assessee did not contravene the provisions of section 195 of the Income Tax Act, 1961. 40. The DR, on the other hand supported the orders of the revenue authorities and submitted that the issue should be restored to the file of the AO, who should examine the element of income, if at all, in the hands of the recipient, in the light of the decision of GE India Technology Centre P Ltd. vs CIT, reported in 327 ITR 456 (SC). 41. We have heard the arguments of both the sides and have also perused the material placed before us and the case laws cited by both the parties. We find that both the parties, i.e. revenue authorities and the assessee have treaded simply on the path of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad payment to the legal heir of deceased party, partner Mrs. Laxmi M. Iyer. The assessee's representative vide this office order-sheet dated 24.8.2007 was requested to furnish details, nature of allowability of such expenditure claimed. The assessee vide letter dated 8.9.2007 has quoted the extract from deed of partnership of 1992- para 5(a), 5(b) which reads as under: 1. "The amount is claimed as a normal business expense of earning business income. The various extracts from the Deed above show the details. 2. And the same wordings appear in the current deed wherein all previous liabilities from earlier deeds continue. 3. Under AS-15, all retirement benefits need to be provided for in the accounts. The standard is mandatory and is applied by all Assessee and the Firm is not exception. However, since cash basis is followed, the payments whether to employees (gratuity etc.) or to past partners are allowed only on cash basis. 4. The same treatment has been followed consistently from the last 60 years when such a clause was first introduced. And every assessment has allowed the said expense as a deduction without question or exception over the last so many years. 5. It is agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils or basis on which such amount payable to the legal heir of the deceased partners. Such payment out of profit and conditional on profit cannot be treated as incurred for earning profit. The profits earned by the firm which came into existence attract tax at that point and the Revenue is not concerned with the subsequent application of the profits. Therefore, payment made to the legal heir of the deceased partner is not allowable as Revenue expenditure and added back to the total income of the assessee. The similar issue i.e. payment made to partner or to the legal heir of the partners was considered by the revenue. However, the relief allowed by the appellate authority on this account was not accepted by the Department and the issue is being further contested. The Mumbai High court decision in CIT vs Mullah and Mullah reported in 190 ITR 198 was in favour of the assessee. However, the departmental SLP is still pending with Apex Court. Considering this fact that the issue has not reached its finality, the necessary addition has been made accordingly". 46. The AO, therefore, disallowed the sums paid the legal heir of the deceased partners, though no disallowance was made prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made in accordance with the relevant clauses of the partnership deed. The AR has referred to the following decisions:- Sr. No. Particulars Page No. 13 Order of the Hon'ble Tribunal in the case of M/s K S Aiyar & Co. for AY 1980-81 in ITA no. 6159 (Bom) of 1983 dated 11.07.1986 277 - 283 14 Judgment of the Hon'ble Bombay High Court in the case of CIT vs Crawford Bayley & Co. (106 ITR 884) 284 - 290 15 Judgment of the Hon'ble Bombay High Court in the case of CIT vs Nariman B. Bharucha & Ors. (130 ITR 863) 291 - 296 16 Judgment of the Hon'ble Bombay High Court in the case of CIT vs Mulla & Mulla and Craigie Blunt and Caroe (190 ITR 198) 297 - 303 17 Order of the Hon'ble Tribunal in the case of M/s RSM & Co. vs Addl. CIT {125 ITD 243(Mum)} 304 - 313 18 Order of the Hon'ble Tribunal in the case of M/s ACIT vs C.C. Chokhi & Co. [2010-TIOL-328-ITATMUM] 314 - 327 19 Order of the Hon'ble Tribunal in the case of M/s A.F. Ferguson & Co. vs JCIT [2010-TIOL-445-ITAT-MUM] 328 - 338 50. The AR pointed out that in all the cases as referred to in the decision cited, the case of Sital Das Tirath Das, reported in 41 ITR 367 (SC) has been referred and have allowed the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the payment is taxable in India. 56. The grounds, as raised are identical to the grounds no. 6(1) and (2) and 5 raised in assessment year 2005-06, in ITA No. 384/Mum/2009. 57. We have taken the view on the impugned issues in appropriate paras in ITA No. 384/Mum/2009, following the same, the appeal is accordingly disposed. In the result, the appeal is treated is allowed. 58. The assessee has taken the following grounds: "1. The Commissioner Of Income Tax (Appeals)-- 3 [hereinafter referred to as CIT(A)] erred in confirming disallowance of Rs 28,84,923/- being payment made to legal heir of the deceased partner on the ground that these payment are not deductible business expenditure u/s 37(1). The Appellant submits that payment made to legal heir of the deceased partner is not taxable as income of the Appellant in view of diversion of the same by an overriding title. 2. The CIT(A) erred in confirming disallowance of payment made to Baker Tilly International (BTI) of Rs 82,649/- u/s 40(a)(ia) of the I.T. Act on the ground that no tax has been deducted at source. The Appellant submits that on the facts and circumstances of the case no tax is deductible from the payments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was no deductibility u/s. 194J. The other case law cited was Parasrampuria Synthetics Ltd. (2008) 020 SOT 0248, H-Bench, Delhi. That company had made payment to contractor in respect of maintenance support agreement. fabrication of chilled water line, work order for thermal insulation etc. Hon'ble ITATI Delhi held that there may have been use of services of technically qualified persons to render services but that would not bring it u/s. 194J as the use of such services was for delivering the contract 2.2.3 Appellant further responded that as per Section 194J, Clause (a) to the Explanation postulates that the person rendering professional services must have received the fees In the course of carrying on any of the professions mentioned therein. The appellant submits that It cannot e claimed that persons nave rendered services In the course of carrying on the profession of accountancy. These individuals are not professionals. They do not carry on the professional of accountancy or audit. They are merely juniors who are assigned petty routine checking, tracing, posting etc. jobs. Appellant argued that section 194J was also not applicable. 2.2.4 Facts and material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees to engage such persons, who would come, do the basic work of a paid employee, prepare some details/reports and go in 3-4 months time. On going through the submissions as reproduced by both the revenue authorities, we find that assessee has made payments to such students or small time accountants, who take up office job work at certain period of times. 65. In these circumstances, we feel that these payments shall not attract deduction of tax at source and hence would not be hit by section 40(a)(ia). 66. We, therefore, set aside the orders of the revenue authorities and direct the AO to allow Rs. 5,33,992/-. 67. Ground no. 4 is addition of Rs. 24,050/-, being unreconciled entries of AIR. 68. The AR submits that the addition is not pressed on account of smallness of the amount, i.e. Rs. 24,050/-. 69. Since the issue is not pressed, it is dismissed with the above prayer of the AR. In the result, the appeal filed by the assessee is treated as partly allowed. To sum up results: Appeal of the assessee for assessment year 2005-06 is partly allowed Appeal of the assessee for assessment year 2006-07 is allowed and Appeal of the assessee for assessment year 2007-08 is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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