TMI Blog2018 (6) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... ncelled chits and royalty payment - Held that:- Getting directions of ITAT in assessee’s own case as above, we uphold the order of the CIT(A) in allowing the claim of assessee with regard to commission on cancelled chits and claim on royalty payment - thus ground of revenue is dismissed. - ITA Nos. 1992 & 1993/Hyd/2017 And ITA Nos. 1947 And 1948/Hyd/2017 - - - Dated:- 8-6-2018 - SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri K.C. Devdas For The Revenue : Shri C. Srinivas Reddy ORDER PER S. RIFAUR RAHMAN, AM: These are cross appeals by the assessee as well as revenue directed against the orders of CIT(A) 3-, Hyderabad, all dated 11/09/2017 for the AYs. 2013-14 and 2014-15. As identical issues are involved in these appeals, they were clubbed and heard together and therefore a common order is passed for the sake of convenience. 2. First we will take up the appeals of the assessee, in which, the assessee has raised a common ground regarding upholding the taxability of foreman dividend at ₹ 16,78,75,363/- for AY 2013-14 and ₹ 18,60,80,501/- in AY 2014-15. 3. The facts relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two grounds taken by the assessee 7 . Respectfully following the same, we dismiss these two grounds of appeal. 6.1 In the above decision, the bench has relied on the decision of assessee s own case which was reported in 83 ITD 792, for the sake of clarity, we reproduce the same: Admittedly, the assessee is a commercial entity formed to derive profits and gains from the business of chits. It is a settled proposition of law that the principles of mutuality is not applicable to commercial organisations formed with an object of earning profit of a commercial nature. It is pertinent to note that this is a case of a company, which carries on the business of chit funds and not that of an assessee who joins as a subscriber to chits for personal savings or otherwise. Assesseecompany joined the chit groups promoted by it either as a foreman in fulfilment of the requirement of law i.e., Chit Funds Act, 1982 or it entered into the shoes of defaulting subscribers or in some cases to fill up vacant chits as a matter of necessity or expediency of its business and not by choice. It is not the case of the assessee-company that it participates in chits promoted by other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of bad debts are, the assessee had debited an amount of ₹ 47,68,54,048.44 on account of bad debts written off during the previous year relevant for the AY 2013- 14. Out of this, bad debts amounting to ₹ 28,92,09,685.57 pertain to the running chits and balance bad debts of ₹ 18,76,44,362.87 pertain to the terminated chits. The assessee s submissions were extracted by the AO in his order at pages 2 to 6. After considering the submissions of the assessee, the AO exhaustively discussed the issue at length by referring to the provisions of section 36(1)(vii), section 22 of the Chit Funds Act, 1982, referring to case law and restricted the bad debts claim of ₹ 47,68,54,048.44 to ₹ 2,38,42,702.42 and the balance amount of ₹ 45,30,11,346.02 was disallowed by holding that it is not an allowable expenditure either as bad debt u/s 36(1)(vii), or residuary deduction u/s 37(1) or business loss u/s 28(1). 12. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) allowed the assessee s claim of bad debts following the decision of the ITAT in assessee s own case for earlier AYs. 13. Aggrieved by the order of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's own case dated 26.7.2004 wherein the Tribunal remitted the issue back tothe file of the Assessing Officer to see whether the assessee made a claim of bad debt and written' off in the books of account. Thus on similar direction we remit the issue back to the file of the Assessing Officer to re-examine the issue in the light of the order of earlier years i.e., 1995-96, 1997-98, 1998-99 and 1999-2000 (supra). This ground of the assessee is allowed for statistical purposes. 8. The above decision rendered for assessment year 200910 has been subsequently followed by the Tribunal to decide similar issue in assessment year 2010-11, vide consolidated order dated 6.12.29013 passed in ITA No.1142/Hyd/2013 of the Revenue and. ITA NO.1049/Hyd/2013 of the assessee. Respectfully following the orders of the Tribunal for assessment year 2009-10 and2010-11 in assessee's own case on similar issue, we uphold the impugned order of the learned C!T(A) allowing the claim of the assessee for deduction on account of bad debts relating to running chits and terminated groups. Ground No.2 of the Revenue's appeal is accordingly dismissed. 9. As regards the issue raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own case in earlier orders for the assessment years 1998-99, 1999-2000 in ITA Nos.471/H/2002 1049/H/2002 respectively wherein the Tribunal 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 theITA Nos 1224 and 1187 of 2015 Sriram Chit Funds P Ltd Hydera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Registrar of Copyrights bearing registration No.A/49890/88 dated 7.7.1988. The assessee entered into an agreement with the holding company for exclusive use of the logo of the holding company 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 ITA Nos 1224 and 1187 of 2015 Sriram Chit Funds P Ltd Hyderabad 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ram Chit Funds P Ltd Hyderabad Sriram Chits and Investments (P) Ltd. has provided financial assistance time and again to Sriram Chits (Bangalore) (P) Ltd. to help its working capital requirements. 9. When Sriram Chits (Bangalore) (P) Ltd. commenced operations, all its employees were from Sriram Chits Investments (P) Ltd. who had prior 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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