TMI Blog2016 (6) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the ITAT in its order cited supra as in the earlier years. Accordingly, this ground raised by the assessee as well as Revenue is dismissed Taxability of foreman dividend - Held that:- The assessee fairly admitted that this issue also is covered against the assessee by the above decision for the A.Y 2007-08 upholding the taxability of foreman dividend Addition towards commission on removed chits - Held that:- On a careful consideration of the issue, we find that from out of the amount that is payable to the defaulting subscriber consequent to his replacement by another person the company is entitled to deduct 5% as commission. This has nothing to do with the regular commission income of the assessee. Thus the stand of the assessee that the commission income accrues when the accounts have been finally settled to the defaulting non subscriber to our mind appears to be the correct position. Otherwise in case of a non prized subscriber the amount of 5% would be deducted from the amounts due to him much before the settlement of his account and recognised as income by way of transfer from current liabilities to profit and loss account - ITA No. 1187/Hyd/2015, ITA No. 1224/Hy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debts of ₹ 13,48,53,707 pertain to terminated chits. On a query raised by the AO, the assessee filed detailed submissions which are reproduced by the AO at Para 2 of the assessment order. The AO was however, not convinced with the assessee s submissions. He observed that for and from the A.Y 1989-90, the conditions required for alowance of a bad debt u/s 36(1)(vii) r.w.s. 36(2) are to be fulfilled. He observed that in the case of the assessee, the chit fund transactions will not partake the character of debt and as such the relationship between the chit organization and the subscriber is not the relationship of a creditor and debtor and that the debt is not part of income for previous year or any earlier previous years and that chit fund business is not money lending business. The AO, after taking note of the Hon'ble Supreme Court judgment in the case of Sriram Chits and Investments Pvt. Ltd vs. Union of India, reported in AIR 1993 (Supreme Court) 2003 and also the provisions of the Chit Funds Act, 1982, held that the bad debts to the extent of which is offered as income on accrual basis in the previous year or of any earlier previous years alone shall be eligible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honest decision for writing off the same in his books. In other words, bad debts can be allowed to the extent of the instalments defaulted by the prized subscriber, and written off as bad debt in the books by the assessee. But for the future instalments that are likely and yet to be defaulted, no claim can be allowed. The facts that the assessee has written off as bad debt when prized subscribers defaulted for four consecutive months does not to our mind affect him claim as this is based on past experience of the assessee in his business and is in tune with the current RBI norms for NFBCs as well as for Banking Companies. These decisions have become a prudential norm in the financial sector. Thus, there is nothing wrong in adopting this guideline or policy. 6.6.(xxi). We have to mention that this issue has not come up during the course of arguments of the case. If the assessee has made the claim as indicated above, no prejudice would be caused to him by setting aside the matter. Similarly no prejudice would be caused to revenue on this count as it can examine the claim afresh. To allow the claim to the extent indicated above fresh collection of facts and figures are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relatable to running chits as per the directions of the ITAT in its order cited supra as in the earlier years. Accordingly, this ground raised by the assessee as well as Revenue is dismissed. 8. In view of the above order of this Tribunal, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. Accordingly, these two grounds raised by the assessee are dismissed. 8. In view of the above order of this Tribunal, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. Accordingly, these two grounds raised by the assessee are dismissed . 5. Respectfully following the same, we do not find any infirmity in the order of the CIT (A). The assessee s ground No. 2 3 are accordingly rejected. 6. As regards grounds 4 5 against the order of the CIT (A) upholding the taxability of foreman dividend at ₹ 15,67,25,358, the learned Counsel for the assessee fairly admitted that this issue also is covered against the assessee by the above decision for the A.Y 2007-08. The relevant portion of the order is reproduced hereunder: 9. The next two ground Nos.4 5 in the assessee s appeal in ITA No.470/H/2010 is as follows: 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in Para 6.3 as follows: 6.3. Time of recognition of income from commission on cancelled chits. This issue is involved in the assessee s appeals for assessment years 1998-99 and 1999-2000. The dispute is about time of accrual of the income by way of commission in respect of cases where defaulting non prized subscribers who are removed from the chit and in whose place new subscribers are substituted. On a careful consideration of the issue, we find that from out of the amount that is payable to the defaulting subscriber consequent to his replacement by another person the company is entitled to deduct 5% as commission. This has nothing to do with the regular commission income of the assessee. Thus the stand of the assessee that the commission income accrues when the accounts have been finally settled to the defaulting non subscriber to our mind appears to be the correct position. Otherwise in case of a non prized subscriber the amount of 5% would be deducted from the amounts due to him much before the settlement of his account and recognised as income by way of transfer from current liabilities to profit and loss account. Reliance was placed by the Revenue on the Special B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of soliciting its business amongst potential investors. The conditions of the agreement provided that the assessee shall pay royalty of 0.5% on the annual auction turnover of the assessee determined on the basis of value of auctions fixed during the year. In fact, the assessee has used the logo to the best advantage of business. The assessee was to carry on the business of chit fund in the state of Karnatka and the holding company gradually stopped floating new (grounds as it did in 1984) allowing subsidiary company to expand itself. The growth of business of the assessee over the years of the order of the CIT(A) is very much relevant. The relevant portion reads: 1. Sriram Chits Investments (P) Ltd. commenced operations in Karnataka in the year 1984. The business of the company in Karnataka increased over the years upto 1990-91 when the auction turnover touched ₹ 80.39 lakhs. 2. Sriram Chits and Investments (P) Ltd. decided to expland its business in Karnataka by forming a subsidiary company Sriram Chits (Bangalore) (P) Ltd. 3. In the year 1990, Sriram Chits (Bangalore) (P) Ltd. was formed and was carrying on the business of Chit Funds in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or experience in this line. Even now, Sriram Chits (Bangalore) (P) Ltd. looks for managerial support from Sriram Chits and Investments (P) Ltd. which is being provided. In addition to this, the entire software package of Sriram Chits and Investments (P) Ltd. which was being used by it for its operations was transferred to Sriram Chits (Bangalore) (P) Ltd. for carrying out its day to day routines. The Holding company also holds periodical meetings with the executives of the subsidiary Company in order to monitor its activities. 10. The reasonability of 0.5% royal. The use of logo is enhancing the growth of Sriram Chits (Bangalore) (P) Ltd. cannot be under estimated. 30. The record also shows that holding company was providing financial assistance time and again to the assessee to help in its working capital requirements. The record further shows that when the assessee commenced its operation, alls its employees were from holding company who had prior experience in this line. It is claimed that even the assessee looks for managerial support, from its holding company which is again provided. The holding company is also stated to have conducted periodical meetings with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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