2003 (9) TMI 313 - AT - Income Tax

Tribunal Upholds Taxability of Professional Fees, Allows Deduction for Incurred Expenses

Assistant Commissioner Of Income-Tax. Versus Justice Motilal B. Naik.

Assistant Commissioner Of Income-Tax. Versus Justice Motilal B. Naik. - ITD 091, 384, TTJ 092, 749, Issues Involved:1. Taxability of professional fees received by the assessee after elevation to the position of a High Court Judge.2. Deductibility of expenses incurred to earn the professional fees.3. Adherence to CBDT instructions by the Revenue authorities.Detailed Analysis:1. Taxability of Professional Fees:The primary issue is whether the professional fees received by the assessee, who became a High Court Judge, are taxable. The assessee argued that the arrears of fees received for services rendered as a Government Pleader should not be taxable after his elevation. The Assessing Officer disagreed, bringing the professional receipts to tax, a decision upheld by the Commissioner of Income-tax (Appeals). The Tribunal noted that the assessee did not contest the taxability of the professional receipts as per the jurisdictional High Court's decision in V. Parthasarathy v. Addl. CIT [1976] 103 ITR 508 (AP), which was binding.2. Deductibility of Expenses:The assessee claimed Rs. 1,92,098 as expenses incurred to earn the professional fees, which the Assessing Officer disallowed due to lack of complete details and vouchers. The Commissioner of Income-tax (Appeals) granted relief, allowing the deduction of these expenses. The Tribunal supported the assessee's claim, referencing multiple case laws, including CIT v. Justice R.M. Datta [1989] 180 ITR 86 (Cal.) and United Construction Contractors v. CIT [1994] 208 ITR 914 (Ker.), which upheld the deductibility of expenses in similar circumstances. The Tribunal emphasized that the expenditure incurred for earning income, even from discontinued business or profession, should be deductible.3. Adherence to CBDT Instructions:The Tribunal highlighted the importance of CBDT Instruction No. 1894 dated 16-6-1992, which mandates a selective approach in filing appeals and emphasizes the acceptance of the Commissioner (Appeals)'s orders on questions of fact unless the findings are perverse. The Tribunal criticized the Revenue for not adhering to these instructions and reiterated that the instructions are binding on the Department, as supported by the jurisdictional High Court in CIT v. T.V. Ramanaiah & Sons [1986] 157 ITR 300 (A.P.) and the Supreme Court in CCE v. Usha Martin Industries Ltd [1977] 7 SCC 47.Conclusion:The Tribunal dismissed the Revenue's appeal, maintaining the Commissioner of Income-tax (Appeals)'s order. It underscored the binding nature of CBDT instructions on the Department and criticized the Assessing Officer for making adverse observations against a constitutional functionary without sufficient basis. The Tribunal concluded that the expenses claimed by the assessee were justifiable and should be allowed, reinforcing the principle that expenditure incurred to earn income is deductible, even if the business or profession has been discontinued.