TMI Blog2021 (1) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee even while following the cash system of accounting. It is also not in dispute that the assessee has duly deposited the tax deducted at source within the time prescribed under the Act. Accordingly, we are unable to concur with the findings of the Ld. CIT (A) on the issue and direct that the impugned amount of TDS be granted as a deduction in assessment year 2011-12. Thus, ground no. 2 also stands allowed in assessment year 2011-12. Disallowance of payments to Retiring Partners - HELD THAT:- The undisputed facts are that the partnership firm envisaged payment to a outgoing partner on the basis that the partner would have rendered service during his tenure as a partner of the firm but could not enjoy the fruits thereof on account of the fact that the work having remained incomplete, the concerned client had not been billed for the work already done. The Hon ble Bombay High Court held that in similar circumstances, the courts have held that payment to the partner would amount to diversion of income at source by overriding title. The Ld. senior departmental representative could not point out any judgment to the contrary on this issue as well and, therefore, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years. However, the appeals of the assessee were only partly allowed by the Ld. Commissioner of Income Tax (Appeals) {CIT (A)} and now the assessee has approached this Tribunal and has challenged the orders of the Ld. CIT (A) the by raising the following grounds of appeal: ITA No.3715/Del/2017 for Assessment Year 2011-12 The appellant objects to the order of the Commissioner of Income Tax (Appeals)-XX, New Delhi ( learned CIT (A) ) passed under section 250(6) of the Income Tax Act, 1961 ( the Act ) for the AY 2011-12, on the following among other grounds: 1. Disallowance of subscription fees ₹ 2,55,59,636 1.1 The learned CIT (A) erred in confirming the disallowance of ₹ 2,55,59,636, being subscription fees paid for membership of Deloitte Global Network ( DTT ) by considering the same as capital in nature. 1.2 The learned CIT (A) erred in not appreciating the facts of the matter in right perspective and also erred in following the Commissioner of Income Tax (Appeals) order for the AY 2010-11. 1.3 The learned CIT (A) erred in holding that such expenditure not incurred for the purpose of business of the appellant. 1.4 Without prejudice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating the fact that the amount of ₹ 1,66,80,091 is included in the income of the retired partners and offered to tax in their return of income. 3.7 Without prejudice, the learned CIT (A) ought to have allowed deduction for the amount of ₹ 1,66,80,091 as business expenditure under section 37(1) of the Act. 3.8 The learned CIT (A) erred in not considering reliance placed by the appellant on the Hon ble Bombay High court and the Mumbai Tribunal judgements passed in case of associated concerns of the appellant, where on identical facts, the issue is decided in favour of the appellant. 3.9 Without prejudice to the above, the learned CIT (A) ought to have directed the Assessing Officer to allow depreciation on such amount being considered by the Assessing Officer as payment for intangible asset. 4. Credit of Tax Deducted at Source ( TDS ) 4.1 The learned CIT (A) ought to have specifically directed the Assessing Officer to grant credit for the entire amount of TDS of ₹ 8,67,44,316 as claimed by the appellant. 4. Each one of the above grounds of appeal is without prejudice to the other. 5. That the appellant craves leave to add, alter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fees and further explained how the subscription fees is collected from the members/companies by Deloitte Haskins Sells, Mumbai. The Ld. counsel for the assessee further drew our attention to the assessment order framed u/s 144C(3) r.w.s. 143(3) of the Act in the case of Deloitte Touche Tohmatsu (DTT) and pointed out that in the case of DTT, the subscription fees received from members have been taxed as its income. The Ld. counsel for the assessee further drew our attention to the decision of the co-ordinate bench in the case of Deloitte Haskins and Sells, Mumbai in ITA No. 5096/Mum/2011 vide order dated 30.11.2016 wherein an identical issue arose for consideration before the bench where the subscription fees paid by Deloitte Haskins and Sells, Mumbai to DTT was disallowed u/s 40A (ia) of the Act. It was submitted by the Ld. counsel for the assessee that disallowance was directed to be deleted. The Ld. counsel for the assessee further relied upon the decision of the co-ordinate bench in the case of Deloitte Haskins and Sells, Kolkata in ITA Nos. 587 and 588/Kol/2016 vide order dated 11.07.2018. It was submitted by the Ld. Counsel for the assessee that similar subscription fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of payments made to the Retiring Partners, the Ld. Authorized Representative submitted that the confirmations of the retired partners are on record stating that they have offered this income to tax in their respective returns. Reliance was also placed on the order of ITAT Mumbai bench in the case of C.C. Chokshi Co. wherein an identical payment made to the retired partners was held to be allowable. It was submitted that the Hon ble Bombay High Court had dismissed the Department s appeal in this case and, therefore, the same was a binding precedent. Reliance was also placed on another judgment of the Chennai Bench pertaining to a related concern of the assessee where an identical disallowance was held to be allowable. Reliance was also placed on another order of the ITAT Mumbai Bench in the case of Mulla Mulla Craigie wherein an identical issue was decided in favour of the assessee. 3.3 With respect to ground No.4 in assessee s appeal for Assessment Year 2010-11, the Ld. Authorized Representative submitted that suitable directions may be issued for granting the credit of TDS of ₹ 8,67,44,316/- as claimed by the assessee. 4.0 Coming to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. DR submitted that this payment had been made to the Retired Partners and that this payment was in the nature of capital outgo as the payments to retired partners are made only out of the capital balances of the partners. It was submitted that the assessee firm had deducted the payment from the current income of the partnership firm which was not permissible. 5.3 With respect to assessee s ground No.4, in Assessment Year 2010-11 for credit of tax deducted at source, the Ld. Sr. DR had no objection to the same being granted after due verification. 6.0 With respect to asessee s appeal for Assessment Year 2012-13, the Ld. Sr. DR submitted that ground No.1 pertaining to disallowance of subscription fees was identical to Ground No.1 in Assessment Year 2011-12 and the same arguments would hold good in this year also. 6.1 With respect to assessee s Ground No.2 in Assessment Year 2012-13 regarding allowing deduction of TDS deducted in Financial Year 2010-11 but paid in 2011-12, the Ld. Sr. DR had no objection of the effect being given as per the directions of the Ld. CIT (A) in Assessment Year 2012-13. 6.2 Likewise, the Ld. Sr. DR had no objection to the credit of tax deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unnecessary litigation. But this has nothing to do with the subscription charges paid by the assessee to DHS Mumbai as its share of contribution. 14. In our considered opinion, the reasons given by the Assessing Officer for making disallowance are not based on sound principles. In our understanding of the facts, by becoming part of global net work of professional firms, it is easier to get work of international clients which are referred by firms of other companies from other countries. Similarly, the assessee may also refer its clients to its associated firm in other countries where the clients may require professional services. The use of the name Delotte is in itself sufficient to justify the business necessity of the subscription charges. 15. The co-ordinate bench in the case of DHS Mumbai ITA No. 5096/Mum/2011 and another has examined Article 1 of Verein in detail. The relevant part reads as under: ARTICLE 1 NAME, DOMICILE AND PURPOSES 1.1 Name and Domicile. A Verein is hereby established with domicile in Zurich, Switzer land, under the name of Deloitte Touche Tohmatsu ( Verein ). The Verein consists of members that are professional firms ( Member Firms ). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it is seen that the association constitutes of Member firms which are engaged in rendering of professional services and the purpose of Verein is to further the international cooperation and cohesion among the member firms; to assure that practices of the Members shall conform to professional standards of highest quality; to advance the international and national leadership of the Member firms in rendering professional services, etc. Each Member contributes towards the budgeted operating expenses of Verein in such proportion which has been Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. 5094/Mum/2011 allocated to them. The amount allocated to the each Member firm is based on aggregate revenues and other factors as illustrated therein. In pursuance of such allocation, invoices were issued by DTT to assessee in India allocating the DTT's operational budget. This is evident from certificate of the Chartered Accountant given at page 67. While making the said payment, the assessee had not deducted t h e TDS inter alia on the ground that, firstly, the relationship between the DTT and its Member is based on principle of mutuality , therefore, the Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai (DHS, Mumbai) for this purpose to DTT. However, as DHS Mumbai makes the payment after deducting TOS and the assessee only reimburses its share of expenses, tax was not required to be deducted again in respect of its reimbursement of share of expenses of ₹ 48,95,212/- to OHS, Mumbai. We note that it is not the case of the AO that the expenses were not genuine. It is also not the case of the AO that the expenses were not incurred Page / 6 M/s. Deloitte Haskins Sells IT Nos .587 588/ Kol/ 2 0 16 Assessment Years : 2 0 10- 11 Si 2 0 11 -1 2 wholly and exclusively for the purposes of business or profession. The assessee has claimed the expenses in accordance with its cash system of accounting and the AO has not disputed the system of accounting. The AO has concluded that the assessee had paid for the professional services rendered by OHS, Mumbai without specifying the nature and details of services rendered by OHS, Mumbai. The assessee has furnished copies of debit notes issued by OHS, Mumbai mentioning the amount debited as being your share of OTT Operational Budget (Subscription Fee) Tech, Subscription Fees paid to Deloitte Touch Tohmatsu, New York which have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t liable to deduct TDS u/s 195. Accordingly, the order of the Commissioner (Appeals) is to be confirmed. Therefore, we note that the said amount of ₹ 48,95,212/- was towards the reimbursement of the expenses, which was in fact incurred on behalf of the assessee and there was no profit element. That being so, we decline to interfere with the order of Ld. CIT (A) deleting the aforesaid addition. His order on this addition is, therefore, upheld and the Ground No.1 raised by the Revenue in ITA No.567/Kol/2016 and ground No.2 raised by Revenue in ITA No.588/Kol/2016, are dismissed. 17. Considering the facts of totality, in the light of the decision of the Co-ordinate bench (supra) we have no hesitation in setting aside the findings of the Ld. CIT(A). The Assessing Officer is directed to delete the addition of ₹ 2,16,68,412/-. Ground No.1 with its sub grounds is allowed. 7.0.1 We also note that the Ahmedabad Bench of ITAT also reached a similar conclusion by dismissing the Departmental Appeal on the issue for Assessment Years 2013-14 2014-15 in ITA No.1983/Ahd/2017 and 1984/Ahd/2017 vide order dated 01.10.2019. Respectfully following the decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2011-12. Thus, ground no. 2 also stands allowed in assessment year 2011-12. 7.2 As far as the issue of disallowance of payment to Retired partners in Assessment Year 2011-12 is concerned, it is seen that this issue is also settled in favour of the assessee by numerous judgments of the Hon ble High Courts as well as the Co-ordinate Benches of the Tribunal. We find that an identical issue had come up before the ITAT Chennai bench in the case of a related concern of the assessee in assessment year 2011 - 12 and the ITAT Chennai bench in ITA No. 2077/MDS/2016, vide order dated 25/11 /2018, after relying on an order of ITAT Mumbai Bench in the case of CC Chokshi Co. for assessment years 2000-01 and 2001-02 had held the issue in favour of the assessee. The Hon ble High Court of Bombay in the case of DCIT versus Wadia Ghandy Company, vide judgment dated 12/02/2019, also upheld an identical order of ITAT Mumbai and noted that payment to the partner would amount to diversion of income at source by overriding title. The court went on to observe that it was not necessary to refer to long line of decisions where a similar view in similar circumstances had been taken. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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