TMI Blog2016 (9) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... ption which they may or may not avail. There is also no false hope of providing employment, as the services for employment were rendered with a minimum guarantee of salary, which the students may avail or may not avail. Terms of agreement are very clear as most of the options are given to the student itself and the obligation to render services ends at the end of fourth year or accepting the placement by the student. CIT(A) in AY. 2010-11 did not even make any comment why it has to be deferred from the earlier order and why a different stand is taken on the same set of facts. Further, there is also a factual error in the finding of the CIT(A) that ‘no services were rendered and no refund was ever given by assessee’. These two findings were also not correct as assessee was rendering services from AY. 2008-09 to 2012-13 and there was refund in AY. 2013-14, since these facts even though placed before the Ld. CIT(A), were not correctly appreciated, we are not in a position to approve the order of CIT(A) in AY. 2010-11. We are of the firm opinion that assessee has correctly accounted the incomes in the third and fourth years on accrual basis and as seen from the table of amounts rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide these two additions to the file of AO to examine and decided the issue afresh. If these amounts were brought to tax by mistake, AO is directed to delete the same. With these directions, the grounds pertaining to these additions are restored to the file of AO for examination of record and deciding afresh. Grounds are allowed for statistical purposes. - ITA No. 199/Hyd/2013, 386/Hyd/2014 - - - Dated:- 1-7-2016 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI PARTHA SARTHI CHAUDHURI, JUDICIAL MEMBER For Revenue : Shri K.E. Sunil Babu, DR For Assessee : Shri Y. Ratnakar, AR ORDER Per B. Ramakotaiah, A. M. These two are appeals by Revenue and assessee for AYs. 2006-07 2010-11 respectively, which relate to the same issue. Since common issue is involved, these are heard together and disposed-off by this common order. 2. The main issue to be considered in these appeals is whether the amounts received by assessee in respective assessment years are to be assessed on receipt basis or to be assessed on accrual basis in the later years. 3. Assessee provides placements to the successful students of the MBA programme being conducted by ICFAI through a Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em of Accounting and has consistently recognised the income in the same manner. In the assessment for the AY. 2006-07, AO was of the opinion that assessee has received amount of ₹ 3,80,85,000/- and the same was not offered to tax. Holding that assessee has spent amounts during the year, he brought the entire amount to tax. In later years from AY. 2007-08 to 2010-11, the assessments have been accepted on the basis of assessee s declared incomes, may be receipts shown by assessee in the P L Account are more than the receipts through fresh registrations. In AY. 2010-11 again, assessee has received an amount of ₹ 4,47,10,000/- and as per the accounting practice being followed by assessee, it has offered an amount of ₹ 2,23,55,000/- in AY. 2012-13 alongwith 50% of the amount received in AY. 2009-10. The AO, while accepting the amounts offered by assessee pertaining to receipts in earlier years, further brought to tax the amount of ₹ 4,47,10,000/- in AY. 2010-11 on the basis of the receipts for the same reasons considered in AY. 2006-07. 4. In appeal for AY. 2006-07, on the basis of detailed submissions of assessee both on facts and on law, the Ld. CIT(A) rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 7.Registration of students de novo on expiry of validity period will be accepted as stipulated in the Regulations, which are subject to review periodically by mutual consent. 8. The second party should maintain all the placement records of the students of the first party and shall provide the record from time to time to the first party as and when required or demanded. 7.1 It is also equally important to browse through some important Clauses of Alchemist (Special Placement Scheme) Regulations, 2005, which have been extracted below: A.0503 The scheme is available only for the benefit of the registered students on optional basis. To clarify further, the eligible students are free to apply or not apply for the scheme. A.0504 The approved programs are MS (Finance), MBA and MCA offered on a distance learning basis by the University. A.0508 (1) The registered student shall make an application in the prescribed form to the service provider within thirty days from the specified date. (2) The service provider agrees to provide placement assistance to the registered students within three months from the receipt of completed application from the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation on the part of the appellant to search for a prospective employer etc., inasmuch as it is not possible for all the students to get enrolled at the start of the academic year. Moreover, uncertainty prevails in the first year itself as normally there would be more withdrawals in the initial year and consequently refund of fee. Further, the terms of the Alchemist (Special Placement Scheme) Regulations, 2005 clearly specifies that the obligation of the appellant to provide services commences upon completion of the study by the eligible student, which means after production of 'program completion certificate'. 7.3 The scheme of the Income Tax Act is to charge Income Tax on total income of the assessee in the relevant previous year . For income to be taxable, there has to be accrual of income in the first place. As has been held in the case of E.D. Sassoon Co. Ltd. v. CIT[1954] 26 ITR 27 (SC)], accrual of income takes place when the assessee acquires a right to receive the income. The income can be said to have accrued to him though it may be received later on its being ascertained. The assessee must have contributed to its accruing or arising by rendering se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples on 'accrual concept' in the light of conflicting decisions and interpreted various Supreme. Court decisions to arrive at the conclusion. 7.6 The absence of entries in the books of account, or the way in which entries are made in the books of account is not determinative of the question whether the assessee has earned any profits or suffered any loss. However, books of account cannot be disregarded where the accounts are correctly made in accordance with applicable accounting principles and the same is not in contradiction to the provisions of the Act. The Apex Court in CIT v. UP. State Industrial Development Corpn. [1997] 225 ITR 703/92 Taxman 45 (SC), held that even in the mercantile system of accounting it is only the accrual of real income which is chargeable to tax and accrual is a matter of substance to be decided on commercial principles having regard to the business character of the transactions and the realities and specialties of the situation. It was observed that where the assessee was maintaining the accounts correctly in accordance with the principles of accountancy as applicable and the revenue authorities could not show that the same was repug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the Addl. CIT during remand proceedings which indicate that there are no specific services rendered by the assessee to the students and it is only a scheme to collect money from the students and as such there is no reason to post pone the income to a later date . 6. In AY. 2010-11, however, Ld. CIT(A) deferred from the above order of the predecessor and confirmed the addition by stating as under: 7. The information on record is carefully considered. Institute of Chartered Financial Analysts of India (ICFAI), Tripura, is conducting Distance Learning Programme for the courses, namely MS(Finance), MBA and MCA. Duration of these courses is generally for two years. At the time of admission if the student desires to enroll himself with the assessee for its services in securing the employment then the student has to register with the assessee by paying certain fee which generally around 3 thousand rupees per candidate. As per the details submitted during the appellate proceedings there are 13,460 students who are enrolled for different courses during F.Y. 2009-10. The students have got option to seek' for refund before the completion or after the completion of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning the tax liability to the subsequent years on the ground that the liability to render services arises later, has no basis at all. In any case, there is absolutely no ground to offer 50% of the receipts in 3rd year and balance 50% n the 4th year. Even going by what the assessee is saying, the entire amount has to be taxed in the 3rd year itself, i.e. A.Y. 2012-13. In view of the detailed discussion made, since no services were ever rendered and no refund was ever given by the assessee, the entire amount has to be taxed in A.Y. 2010-11 itself. Therefore, the second Ground of appeal is dismissed . 7. Assessee is aggrieved in this year and raised 11 grounds which are stated to be concise grounds but mainly arguments on the issue of confirming the amount received, but not accrued in the year of receipt. There is one more issue also in AY. 2010-11 which will be adjudicated in the later part of the order. 8. Ld. Counsel referring to the Paper Books placed on record in respective years and detailed submissions made before the Ld. CIT(A) and also referring to the sequence of events in the respective assessment proceedings over the period of time, submitted that assessee is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s incomes were accepted and in AY. 2012-13, wherein order passed u/s. 143(3), assessee s incomes offered out of the receipts in accounting year 2008-09 and 2009-10. That is part of 50% of receipts received in AY. 2009-10 relevant for AY. 2010-11 were accepted. Ld. Counsel also brought to our notice that 50% of the amount was refunded to the parties in FY. 201213 relevant for AY. 2013-14, which was also accepted by the AO. It was submitted that only 50% of the amount brought to tax in AY. 2010-11 has accrued to assessee and offered in AY. 2012-13. 8.1. Coming to the argument of the AO that assessee has spent expenditure in AY. 2006-07, it was submitted that assessee has not spent any amount towards placement services and the expenditure claimed in P L A/c pertain to other HR services rendered to the corporate sector on which there was expenditure but not from SPS. He referred to the submissions made to the CIT(A) for examination of the books to support the contention that no expenditure was incurred in AY. 2006-07 for SPS purposes. It was further submitted that Ld. CIT(A) in AY. 2010-11 has passed certain adverse comments which are not warranted, on the facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration. (A502(15), A0502(3), A0513; viii. Students who were admitted in asst. year 2006-07 and who qualify the obligation to perform the service falls in asst. years 2008-09 and 2009-10 viz. after 24 months but before 48 months; 10.1. Accrual of income depends upon the application of legal principles and not on the basis of any entries made in the Books of Account. Assessee has accounted for the income on the basis of the accrual, following the guidelines issued by the ICAI on accounting principles. The agreement under the scheme of SPS including application for registrations are very clear that the services for placement scheme are to be rendered after completion of the course by the students which generally takes about 24 months. Thus, the amount collected in the first year along with admission of the students in the course for the ICFAI will be considered as an advance amount as far as assessee is concerned, because in the first two years, no services are to be rendered. The scheme itself started in the financial year relevant for AY. 2006-07 and as stated by assessee, discontinued w.e.f. 01-04-2012. The amounts received in the first year were brought to tax on receipt b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and made an addition of ₹ 4,89,397. On appeal, the Commissioner(Appeals) held that in respect of retainer fees, the same system had to be followed as for other professional receipts and the principles of res judicata would not apply to income tax proceedings. On appeal by the assessee : Held, allowing the appeal, that the income only, to the extent of the amount pertaining to services rendered vested in the assessee. The rest of the amount was taken as liability to be adjusted in subsequent years as and when the services were rendered. Applying the above to the facts of the case it is submitted that during the assessment year 2006-07 no placement of services were rendered to any of the students. They are not entitled for any services to be rendered till they complete their course which is 24 months from the date of their joining. The liability to render such services will therefore fall in the assessment years 2008-09 and 2009-10. Until that point of time these amounts do not vest in the appellant as its income. It is merely a deposit or advance and does not partake the character of income . 12.1. Assessee also relied on the decision of CIT Vs. Dinesh Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered to be income for the assessment year 1997-98. In the same batch of cases in a similar situation, in a case where the assessee carrying on beauty and slimming the entire amount was collected for beauty and slimming packages for which part of the services were not rendered, the question was where the services were not rendered could it be taken as income. The court held that the receipts were not income as the services were yet to be performed. The relevant portion of the head note at page-12 is extracted below: The assesses were in the beauty and slimming business having various centres in Delhi and outside. Clients paid the entire fee in advance for a beauty and slimming package. Part of the sales on which services remained to be rendered in the succeeding year, were shown as 'unexecuted packages' at the end of the year by the assessee treating the receipts for which services were yet to be rendered in the next year as advance and not as income exigible to tax. The question was whether receipts relating to the sale of unexecuted packages were income accrued or arising in the financial year in which they were received. Held, that the receipts were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue was analysed by the CIT(A) in AY. 2006-07 itself as early as 30-11-2012 in his order for AY. 2006-07. Ld. CIT(A) in AY. 2010-11 did not even make any comment why it has to be deferred from the earlier order and why a different stand is taken on the same set of facts. Further, there is also a factual error in the finding of the CIT(A) that no services were rendered and no refund was ever given by assessee . These two findings were also not correct as assessee was rendering services from AY. 2008-09 to 2012-13 and there was refund in AY. 2013-14, since these facts even though placed before the Ld. CIT(A), were not correctly appreciated, we are not in a position to approve the order of CIT(A) in AY. 2010-11. We are of the firm opinion that assessee has correctly accounted the incomes in the third and fourth years on accrual basis and as seen from the table of amounts received and amounts offered for tax in respective years, it is the department which is not consistent in its assessment procedure. As can be seen, Revenue has accepted higher amounts offered than the receipts (advances) in the interregnum period without disturbing in AYs 2007-08, 2008-09 and 2009-10 and also ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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