TMI Blog2013 (6) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15,000/- would meet the ends of justice. Partly in favour of assessee. Disallowance of foreign travel expenses - Held that:- From the breakup reproduced 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/-). Therefore, set aside the order of the CIT(A) and direct the AO to restrict the disallowance to Rs. 20,728/- and allow the balance aggregating to Rs. 3,92,115/-. Partly in favour of assessee. Disallowance u/s 40(a)(i) for non deduction of TDS - assessee paid membership fee to Baker Tilly International (BTI), located in England - Held that:- No part of the payment made as subscription to BTI has resulted in income in its hands. Clause 3.5 of the agreement specifies that the company shall not constitute any partnership, joint venture or agency relationship with its members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon, therefore, for the sake of convenience and brevity, we are passing common and consolidated order covering the three impugned appeals with the captioned ITAs number. ITA No. 384/Mum/2009 : Assessment year 2005-06: 3. Ground no. 1 : The assessee agitates the excessive disallowance of telephone expenses, as against the reasonable suo moto disallowance. 4. In the computation, the assessee had made a suo moto disallowance of Rs. 2,000/- against the total expense claimed at Rs. 8,02,101/-. Of the total claim of Rs. 8,02,101/-, 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed conveyance allowance and therefore nothing further could be charged/disallowed in so far as the assessee was concerned. In any case, the disallowance, as per the chart submitted by the AR is only in the impugned year. No disallowance has been made even in the subsequent years. In these circumstances, the disallowance was uncalled for. 14. The DR placed reliance of the orders of the revenue authorities. 15. We have heard the arguments and have gone through the relevant material placed in APB 222. The conveyance allowance are fixed by the company 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 revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit 01.06.04- 01.06.04 22,923 22,923 UK, Saudi 5 K.S. Aiyar Co. Public Co. **A/cing oversight Board (PCAOB) 10,865 US$250 10,865 UK, Saudi 6 Raghuviar M Aiyar (Partner) Asia Pacific Conf 03.03.04- 06.03.04 32,328 32,325 Hong Kong 7 Kunal Kulkarni (Representative) Asia Pacific Conf. 03.03.04- 06.03.04 32,328 32,339 Hong Kong NB: * Conf.-Conference. ** A/cing Accounting 26. The AR submitted that no disallowance was made by the revenue authorities in the preceding years or in the subsequent years and in any case, as per the detail, per se the expenses cannot be held to be of personal nature to be disallowed. He, therefore, prayed 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. The AO, taking into consideration, the above submissions, held, "First of all it is claimed that the BTI is not involved in any business or professional activities then the question arises as to how the assessee is paying remittances in the form of membership fees. In this connection, in respect of disallowance u/s 40(a)(i) of the I.T. Act, the Chennai I.T.A.T. vide order no. ITA 2037/MDS/2006 dated 28.02.2007 held that the assessee cannot decide the tax liability of the non-resident assessee's. The Hon'ble Channai ITAT observed that they are at a loss to understand how the assessee sitting in his office can take a decision that the payment they are making to the non-resident would not ultimately be taxable in the hands of non-resident who never filed any I.T. Return in India. Therefore, the assessee's contention that the remittances are not taxable in the hands of BTI is rejected. Further, the 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 An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in this case. The Tribunal had extensively dealt with the principle of abundant caution in the context of tax deduction at source. THE AO in my opinion, was justified in holding that in terms of the said decision of the Tribunal, the appellant had to make the said TDS. Consequently, Ground No. ... deserves to be rejected". 35. He, therefore, sustained the disallowance of Rs. 2,17,594/- made by the AO. 36. The assessee is now before the ITAT. 37. Before us, the AR reiterated the submissions made before the revenue authorities and submitted that the CIT(A), placed reliance on the decision Arthur Anderson Co. in ITA No. 9125/Mum/1995, wherein the coordinate Bench had extensively dealt with the principles of abundant caution in the context of TDS. The AR, submitted that liability of TDS arises when the payment made by an assessee, involves an element of income in the hands of the recipient. Since, this 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 Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23 dated 23rd July, 1969 is drawn where the taxability of 'Foreign Agents of Indian Exporters' was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of expression "The expression "chargeable under the provisions of the Act" in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted". In the present context, we find that none of the conditions gets fulfilled herein, in which case, the case, as cited, is in effect, in favour of the assessee. 43. In these circumstances, we set aside the orders of both the revenue authorities and direct the AO to delete the disallowance of Rs. 2,17,594/- made to BTI. The ground is, therefore, allowed. 44. Ground no. 6(a) (b) are on the issue of disallowance of payment of Rs. 20,26,244/- made to the legal heirs of the deceased partner. 45. The facts as reproduced by the AO are as follows, "The assessee has claimed and debited Rs. 20,26,444/- as revenue expenditure under the head 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above submission. The assessee's claim of Rs. 20,26,444/- being the amount paid to the legal heir deceased partner is not allowable u/s 37(1) of the I.T. Act. The income earned by the firms is allocated amongst the partners. However in the case of deceased partner no such activities are being carried out and therefore the partner or legal heir are not entitled for any shares from the profit earned by the firm. The payment to legal heir of the deceased partner is not allowable expenditure u/s 37(1) of the I.T. Act, the assessee could not establish that the expenditure so incurred is really incidental to the business of the firm. Because it is not enough that the expenditure is merely connected with the Trade; it must be incurred and incidental to the business itself. The payments to legal heir of deceased partner represents in a mere division of profit and not ascertained by reference to the profits. The assessee has not furnished any details 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion of one's own income, which has been received and is since applied. The first is case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." In the instant case, it is an application of fund in as much as a deed of partnership can be changed from time to time and will not have the same force as that of a court decree for example. I am of the opinion that on the facts and circumstances of the case, the payment does not constitute diversion of funds by an overriding title. This ground is, therefore, rejected". The CIT(A), thus, sustained the disallowance, primarily relying on the decision of Sital Das Tirath Das (supra) and sustained disallowance, as made by the AO. 48. The assessee, now before ITAT. 49. Before us, the AR referred to the relevant clauses of the partnership deed and submitted that the payment has been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue authorities on this issue direct the AO to allow Rs. 20,26,244/- paid to the legal heir of the deceased partners. The grounds no. 6(1) (2) are allowed. In the result, the appeal filed by the assessee is treated as partly allowed. ITA No. 1271/Mum/2010 : Assessment year 2006-07: 55. The assessee has raised the following grounds: 2. The Commissioner of Income Tax (Appeals) -3 [hereinafter referred to as CIT(A)] erred in confirming disallowance of Rs. 25,45,440/- 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. 3. The CIT(A) erred in confirming disallowance of payment made to Baker Tilly International (BTI) of Rs. 1,19,601/- u/s 40(a)(i) 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 to BTI as no part of the payment is taxable in India. 56. The grounds, as rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertains to disallowance of Rs. 5,33,992/- (Rs. 5,96,375/- less Rs. 62,383/-) u/s 40a(ia) of the income-tax Act. 62. In the submissions before the CIT(A), it reiterated its submissions made before the AO. On consideration of the same, the CIT(A) held, "During the appellate proceedings, it was submitted that the payments were rnade to non professionals like B.Com., Graduates, non CA's, person pursuing their CA course. They were assigned routine work i.e. preparing schedules, totaling, cross check, checking bank accounts, bank reconcillations, petty cash vouchtnig etc. Their findings and queries while performing audit work was of an insignificant level and does not have major impact on audit work. Their work was monitored by Manager/Senior staff as the payment was to non-professionals. This was without deduction of tax which was actually Rs. 5,96,375/- as per the details in the assessment order. Appellant also relied on 2 decisions one in United Hotels Ltd. vs. ITO (2005) 002 SOT 0267 of E-Bench, Delhi on salary vis-a-vis 194J. In the facts of that case when an employee or employer relationship was established, Hon'ble ITAT held that there was no deductibility u/s. 194J. The other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including service contract. Without prejudice, even if Appellant's argument i.e. there not being profession services is accepted, the payments made by Appellant would be considered as in pursuance of service contract necessitating deductibility u/s.194C. For this reason as well, the disallowance u/s. 40(a)(ia) would be sustainable". 63. The DR relied on the decision of the revenue authorities. 64. We have heard the arguments and have perused the relevant provision, which prescribed TDS on payments made to professionals. In its submissions, all along, the assessee has been praying that the payments had been made to non professional who are contracted for 3-4 months to do and learn the basic concepts of profession of accountancy. The persons are students who are perusing their accountancy degree/diploma or even as interns. The concept of internship during college days has caught the fancy of students and employees alike, because, the students perusing their formative degree/diplomas are in a lookout of internship to get the knowledge of the field and they are paid, which is good enough for their pocket money. It is economical for the employees to engage such persons, who would c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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