TMI Blog2017 (3) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case clearly establishes that the impugned expenditure falls within the scope of the expression “wholly and exclusively for the purpose of business or profession” within the meaning of section 37(1) of the Act. - Decided in favour of assessee Addition as Professional fee - accrual of benefit / perquisites u/s 2(24)(iv) - Held that:- Proposition made out by Revenue is entirely mis-conceived inasmuch as no such appearances and promotions have indeed been carried out. Further, as per the Revenue because of such an arrangement, assessee has earned a benefit within the meaning of Sec. 2(24)(iv) of the Act. On this aspect also, in our view, the action of lower authorities is completely misdirected and is devoid of any factual support. The Assessing Officer has not been able to establish as to what benefit has been obtained by assessee within the meaning of Sec. 2(24)(iv) of the Act in the instant year as nothing is shown to have been received by the assessee. Therefore, in a nutshell, in our opinion, the addition of ₹ 7 crores made by Assessing Officer is purely on conjectures and surmises and is untenable in law and also on facts. Therefore, on this aspect also, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Asst. CIT in this regard are incorrect, erroneous and based purely on assumptions, conjectures and surmises. 3. bringing the annual value of the Dubai Villa to tax in India. 4. levying interests u/s 234B and 234C of the Act. 3. In brief, the relevant facts are that the appellant is an individual who is a Film Actor by profession. For the assessment year 2009-10, he filed a return of income declaring a total income of ₹ 146,15,23,852/-, which was subject to scrutiny assessment whereby the total income had been assessed at ₹ 163,83,39,790/-, after making certain additions/disallowances. The assessee had carried the matter in appeal before the CIT(A), who allowed partial relief. Not being satisfied with the order of the CIT(A) assessee is in further appeal before us on the aforesaid Grounds of appeal. 3.1 In so far as the first Ground is concerned, the same arises from the action of the Assessing Officer in disallowing a claim of deduction of ₹ 10 crores while computing income from profession. Brief facts in this context can be summarized as follows. During the year under consideration, assessee being an Actor by profession, had decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Pvt. Ltd. to Knight Rider Sports Pvt. Ltd. This amount was claimed as a professional expenditure. The Assessing Officer did not accept the plea of the assessee for deduction of the aforesaid amount while computing the taxable income. Firstly, as per the Assessing Officer the assessee was under no obligation to refund any amount to Star India Pvt. Ltd. because the non-shooting of the balance 52 Episodes was not for reasons attributable to the assessee. In this context, the Assessing Officer referred to the Artist Service Agreement dated 30/03/2007 between the assessee and Star India Pvt. Ltd. to point out that the assessee was liable to refund the amount only if breach of contract was attributable to the assessee and in the present case the reason for discontinuation was not attributable to the assessee. Secondly, the Assessing Officer also observed that during the year under consideration no income of any nature had been received by the assessee from Star India Pvt. Ltd. and, therefore, the expenditure of ₹ 10 crores debited under the head Professional fees returned to Star India Pvt. Ltd. does not have any nexus or bearing on any of the professional receipts earned du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee from Star India Pvt. Ltd., assessee pointed out that he has received an amount of ₹ 60 crores in the instant year from Star India Pvt. Ltd, which constituted almost 40% of the gross receipts of the current year. In nutshell, the claim of the assessee was that the expenditure of ₹ 10 cores incurred for securing sponsorship for Star India Pvt. Ltd. was a genuine business expenditure incurred with the purpose of benefiting the assessee in maintaining his relationship with Star India Pvt. Ltd. The CIT(A) has disagreed with the assessee, as according to him, the impugned payment could not be construed as commercially expedient since the amount was neither payable nor enforceable in terms of the terms and conditions of the agreement with Star India Pvt. Ltd. As per the CIT(A), the payment was gratuitous in nature and, therefore, on this count also the said amount was not deductible as an expenditure. The CIT(A) noted that as the expenditure related to the income of ₹ 72.00 crores which was offered to tax on receipt basis in a preceding year and, thus, such expenditure was not relatable to the incomes of the current year, and was a prior period expenditure in so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from Star India Pvt. Ltd., it cannot be allowed while deducting current year s income as it is in the nature of prior period expenditure. In sum-andsubstance, the Ld. Departmental Representative has defended the action of the lower authorities by placing reliance on the respective orders. 7. We have carefully considered the rival submissions. Evidently, the dispute in this Ground revolves around the import of the provisions of section 37(1) of the Act. Section 37(1) of the Act, inter-alia, relates to deduction of an expenditure laid out or extended wholly and exclusively for the purpose of business or profession while computing the income chargeable under the head profits and gains of business or profession . Precisely put, the controversy before us is as to whether the expenditure of ₹ 10 crores incurred by the assessee by way of payment to Knight Riders Sports Pvt. Ltd. for obtaining sponsorship rights in favour of Star India Pvt. Ltd. would constitute an expenditure expended wholly and exclusively for the purpose of asessee s business or profession so as to be deductible in terms of section 37(1) of the Act. The fact-situation lies in a narrow compass and has alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that as it may, what we are trying to emphasize is that there is a subsisting professional relationship between assessee and Star India Pvt. Ltd.and the impugned arrangement has to be viewed from the prism of a Principal client relationship. In terms of the Artist Service Agreement dated 30/03/2007, assessee was to shoot for 104 Episodes but no shooting took place for 52 Episodes on account of a decision of Star India Pvt. Ltd., whereas the consideration for the entire Episodes was paid to the assessee in advance. In such a situation, intention of Star India Pvt. Ltd to obtain or recover the value of the unutilized amount from assessee for non-shooting of the balance 52 Episodes is quite plausible. As per the Revenue, the Artist Service Agreement dated 30/03/2007 did not obligate the assessee to refund the unutilized amount because the non-shooting on a decision taken by Star India Pvt. Ltd. No doubt, the point made by the Revenue may be correct in the context of the terms and conditions of the Artist Service Agreement dated 30/03/2007 but the allowability of the impugned expenditure has to be examined in the context of its commercial expediency. The assessee entered into an ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 7 crores as Professional fee. Briefly put, the relevant facts in this context can be summarized as follows. The genesis of said addition is also the mutual understanding arrived at between the assessee and M/s. Star India Pvt. Ltd. in relation to the Artist Service Agreement dated 30.3.2007. As has been noted by us earlier, in terms of the understanding with Star India Pvt. Ltd., assessee was to secure sponsorship rights of Kolkata Knight Riders Cricket team for IPL Season-II for which assessee had paid the relevant consideration to M/s. Knight Riders Sports Pvt. Ltd. on behalf of M/s. Star India Pvt. Ltd. As a part of the understanding, assessee had agreed to attend one press conference each at London and Dubai on mutually suitable dates for promotion of M/s. Star India Pvt. Ltd. as sponsorer of Kolkata Knight Riders Cricket team. The Assessing Officer required the assessee to explain as to why the assessee had not shown any professional receipt on this count since he had agreed for Appearances and Promotions , which is a part of his normal professional activity. The Assessing Officer observed that assessee was earning professional receipts from films, advertisements endors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. With regard to the observation of Assessing Officer of having acquired the shares of M/s. Knight Riders Sports Pvt. Ltd. in the subsequent year for a consideration, assessee pointed out that the consideration paid was very much above the then book value of shares and that such shares were purchased from M/s. Red Chillies Entertainment Pvt. Ltd., who was initially funded by the assessee for acquisition of such shares. In sum and substance, the assessee argued that there was no justification for such an addition. The CIT(A), however, was not impressed with the arguments of assessee and has upheld the addition made by the Assessing Officer. Against the aforesaid, assessee is in further appeal before us. 10. Before us, the learned representative for the assessee vehemently pointed out that the impugned addition reflects assessment of notional income and is therefore completely untenable. Referring to the appearances and promotions agreed to with M/s. Star India Pvt. Ltd., the learned representative explained that the same were a part of the mutually agreed terms and conditions as a consideration for non-shooting of 52 episodes of Kaun Banega Crorepati by M/s. Star India Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation by the income-tax authorities, therefore, it is abundantly clear that the impugned addition of ₹ 7 crores is merely an assessment of a notional income, which is neither supported by receipt or accrual of income. It cannot be overemphasised that what is required to be assessed to income-tax is the real income and not a hypothetical or notional income. As per the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. (supra) in case of accrual of income or receipt of income, what is of relevance is to assess an income which materialises. If an income does not result at all, obviously there cannot be taxation of such an income. In the orders of the authorities below as well as before us, the Revenue has not been able to point out as to how assessee becomes entitled to earning of the impugned Professional income. Be that as it may, the discussion in the orders of the authorities below reveals that the addition has been sought to be justified also in another manner, which we deal hereinafter. As per Revenue, the assessee, on account of his professional standing, enjoys brand equity and, therefore, the appearances and promotions has added value to the entities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Avoidance Agreement between India and UAE, no income in respect of the said property was required to be assessed. However, Assessing Officer did not accept the plea of the assessee and estimated the annual letting value at ₹ 96.00 lacs and thereafter, allowing the deduction under section 24(a) of the Act amounting to ₹ 28,80,000/-, the income from house property was assessed at ₹ 67,20,000/-. Before the CIT(A), assessee reiterated the submissions put forth before the Assessing Officer. The CIT(A) has upheld the stand of the Assessing Officer in the light of the Notification Nos.90 91 of 2008 dated 28/08/2008 issued by the CBDT. As per the CIT(A), in view of the aforesaid notifications, the annual letting value of the said property was includible in the total income of the assessee. Against such decision of the CIT(A) assessee is in further appeal before the Tribunal. 13.2 Before us, the Ld. Representative for the assessee vehemently pointed out that the assessment of notional income from Dubai Villa is not as per the provisions of the Act and Double Taxation Avoidance Act (DTAA) between India and UAE and, therefore, the orders of the authorities below be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any other country provides that any income of a resident of India may be taxed in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act, 1961 and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. This meaning assigned to the term may be taxed has changed its complexion; ii) The notification dated 28th August 2008, reflects a particular intent and objective of the Government of India, as understood during the course of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpret tation given by govt. of India through this notification will be effective from 1st April 2004, i.e., from the date when provision of section 90(3) was brought in the statute, giving a Legal frame work for clarifying the intent of one of the negotiating parties; iii) The phrase may be taxed is not appearing in the statute, but it is appearing in the agreement and therefore, the interpretation as understood and intended by the negotiating pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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