TaxTMI 
TaxTMI 
2010 (5) TMI 698
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....of payment made to ex-partners and their spouses. The A.O during the assessment proceedings noted that the assessee had excluded from the business income a sum of Rs.50,30,765/- in assessment year 2000-01 and Rs. 70,89,145/- in assessment year 2001-02 being the amount paid to ex-partners and spouses of deceased partners The assessee has explained that the retired partners and the spouses of deceased partners were entitled to certain payments as per Clause - 22 of the partnership deed as computed as per Clause - 23A and 23B. It was also submitted that as per Clause - 28 of the deed, these payments were a prior charge on the receipts of the firm. There was thus diversion of income to the above extent by overriding charge authorized by the partnership deed and, therefore, the actual income of the firm could be computed only after excluding the above payments. The assessee placed reliance on several judgments including the judgment of Jurisdictional High Court in the case of Nariman B. Bharucha & Sons (130 ITR 863) in support of the plea that income diverted by overriding charge could not be assed to tax. The A.O, however, pointed out that as per Clause - 22, the partners were entitled....
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....tion for payment to be made for several years as per the clause 23A of the partnership deed. The CIT(A) also agreed that case of the assessee was covered by the judgment of the Jurisdictional High Court in the case of Nariman B. Bharucha & Sons(supra) and in case of Mulla & Mulla & Craigie, Blunt Caroe (supra). The CIT(A) accordingly allowed the claim of the assessee, aggrieved by which the revenue is in appeal in both the years. 2.1.2. Before us the ld. A.R for the assessee submitted that, for the various factors mentioned in clause 22 of the partnership deed, the retired partners and spouse nominees of deceased partners were entitled for certain payments @ 20% of his share on the date of retirement/death for certain number of years depending upon the number of years for which they had rendered services. As the amounts payable were as percentage of the share of the partner on the date of retirement, the details of pending bills/pending work etc. on the date of retirement as asked for by the A.O were not required. A sheet giving detailed computation of the amount payable for different years on the basis of 20% of share on the date of retirement was filed. The ld. A.R also pointe....
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....e during his association with the Firm, in increasing the further income earning potential of the Firm, the benefits whereof are likely to be reflected in the receipts of the Firm for a reasonable number of years immediately following the retirement or death of the partner, and (iii) the restrictive covenants contained in clause 26 hereof from engaging in any gainful occupation or in the practice of the profession of accountancy in India after such retirement." 2.1.5 Thus for the various factors mentioned in clause - 22 above, a retiring partner or spouse or nominee of a deceased partner is entitled to certain payments specified in clause 23A & 23B. These clauses provide that retiring partners and spouse/nominee of deceased partners are entitled to receive payments @20% of their shares on the date of retirement in future profits of the firm for certain number of years depending upon the length of service rendered. Further the clause 28 provides that the payments mention in clause 22 shall be a prior charge on the receipts of the firm. The said clause 28 is reproduced below as a ready reference. "28. It is agreed that payments as provided in clauses 22, 23A(1)(a....
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....r. The A.O noted that the assessee had obtained term loan of Rs. 1.50 crores from bank and had transferred the same to the sister concern i.e. Deloitte Haskins & Sells,(DHS) New Delhi . The interest on the said loan amounting to Rs. 23,15,275/- had been paid by the assessee and not recovered from the sister concern. The said concern had utilized the loan for taking office premises on lease. The A.O observed that though the assessee was a partner in the sister concern but the expenditure relating to the sister concern could not be allowed as deduction in the case of the assessee. Moreover, the loan had been utilized for acquiring an office space and, therefore, the interest was not allowable as a deduction even otherwise as a revenue expenditure. The A.O accordingly disallowed the claim. 2.2.1 The assessee in appeal submitted that loan of Rs. 1.50 cores had been obtained from Bank of Baroda for providing financial assistance to DHS for obtaining office premises on lease. The assessee had paid interest of Rs. 23,15,275/- and had received interest of Rs. 24,16,075/- from DHS. It was also submitted that the assessee was a partner in DHS represented by some of its partners and invest....
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....ey borrowed for acquisition of asset for expansion of existing business from the date of borrowing to the date when the asseet is first put to use is not allowable as deduction, is applicable only from A.Y 2004-05 and has no retrospective application. It was accordingly urged that the claim of the assessee should be allowed. The ld. D.R on the other hand, supported the order of the A.O. 2.2.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of interest on borrowed funds utilized for acquisition of office space by the sister concern. There is no dispute that borrowed funds had been utilized for acquisition of office space by the sister concern in which the assessee is a partner. The assessee had shown share of profit from said sister concern as a partner. The assessee had also received interest of Rs.24,68,079/- from the sister concern and the interest paid is only Rs. 23,15,275/-. The CIT(A) has held that interest income received has to be treated as income from other sources and the claim of interest payment of Rs. 23,15,275/- has to be allowed as deduction under section 57(iii). We see no infirmity in the order o....
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....eal CIT(A) agreed with the view taken by the AO. It was also observed by him that the claim of the assessee had been allowed in the subsequent year in which the payment had been made. The ground raised by the assessee was, therefore, rejected as having become infructuous. 3.1.1 We have heard both the parties, perused the records and considered the matter carefully. The ld. A.R for the assessee did not press this ground seriously as the claim has already been allowed in subsequent years on payment basis. We therefore, do not consider it necessary to go into the merit of allowability of the claim this year and the ground is dismissed as not pressed. 3.2 The second dispute which is also relevant for all the three years is regarding addition in respect of Tax Deduced at Source (TDS), which remained unpaid at the end of the relevant year. The assessee had deducted tax from payments made to the parties and only the net amount had been credited to P&L Account. The assessee submitted that TDS was not income as it was neither collected or received by the assessee. The A.O however held that TDS was part of the trading receipt and the TDS could be allowed as deduction only in the year o....
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....r Traders for preparation of name plates. (iv) Disallowance of Rs. 78,848/- incurred on foreign travel. (v) Disallowance of Rs. 14,953/- reimbursed to an employee deputed by the assessee to the sister concern. 3.4.1 The disallowance of expenditure mention at items (i) to (iv) had been basically made on the ground that bills had been raised in the name of DHS, the sister concern of the assessee. The claim of the assessee that the assessee had published the quarterly news letter "Quarterly Flash", through which the assessee updates the clients on various development in the area of audit account and taxation etc. and expenditure has also been incurred by the assessee has not been accepted by the authorities below on the ground that the bills had been raised in the name of DHS. The expenditure on account of foreign travel of Shri Farid Gul Mohammed had been disallowed on the ground that the bill was in the name of DHS and the assessee could not produce evidence that Shri Farid had acted as consultant and rendered services to the assessee. The reimbursement of Rs. 14,953/- on account of conveyance allowance in respect of the employee Shri R.Girish deputed to DHS has....
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....ter concern. Therefore, mainly on the ground that the bill was in the name of the sister concern the claim cannot be disallowed. As regards the employee Shri Girish, there is no dispute that the he was an employee of the assessee who had been deputed to the sister concern and the amount not paid by the sister concern had been reimbursed by the assessee. The claim in our view has to be allowed on commercial expediency. In so far as the expenditure on preparation of name plate is concerned, there is common bill in relation to three parties and the assessee had paid its share of expenditure. The CIT(A) has allowed Rs.8000/- on the ground that the assessee paid Rs. 8000/- only. However, we find that the assessee had also made payment of Rs.8840/- as per voucher placed at page 97 of paper book . The entire claim is thus allowable . We therefore, set aside the order of the CIT(A) and delete the additions made in respect of all items. 3.5 The next dispute which is relevant to all the three years is regarding decision of the A.O to exclude certain items of income appearing in the P&L Account while computing book profit for the purpose of computation of remuneration allowable to partners....
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.... under the provisions of Chapter IVD. It cannot be interpreted to mean the profit computed under the head "Profit & Gains of business or profession". It was pointed out that whenever the legislature wanted the "profit" to mean as profit computed under the head "Profit & Gains of business or profession", it was mentioned in the relevant provisions. Reference was made to provisions of section 80 HHC in which computation of deduction was based on profit of business which has been clearly defined in the Explanation (baa) as profit of business computed under the head " Profit & Gains of business or profession". Similarly the deduction under section 33AB in relation to income from tea business or deduction under section 33ABA in relation to business of prospecting, exploration or production of petroleum ornatural gas is allowable as percentage of business profit, which has been clearly defined as profit computed under the head "Profit & Gains of business or profession". Therefore, had the legislature wanted the book profit to mean the profit computed under the head "Profit & Gains of business or profession" it would have been clearly so defined as done in other provisions. But Explanatio....
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....&L Account not representing business income have to be included in the computation of book profit or not has already been decided by the Rajkot Bench of the Tribunal in the case of Seth Brothers (99 TTJ 189). The Tribunal in the said case noted that the book profit u/s. 40(b)(v) is based on net profit shown in the P&L Account which meant that income from sources other than business which are assessable to income tax are also embedded in such net profit. The Tribunal also observed that the qualifying words " computed in the manner laid down in Chapter IVD in the Explanation 3 have been advisedly used only in order to ensure that inadmissible or excessive claims relating to income to be computed under the head 'business' which are embedded in the book profit are excluded while computing remuneration to partners. The Tribunal also observed that the legislature had not authorized exclusion of non business receipts included in the P&L Account. The Tribunal accordingly held that all income embedded in the net profit as appearing in the P&L Account of the assessee firm is to be taken into consideration while computing deduction of remuneration to working partners. Similar view has been ta....
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....r section 140A or otherwise, the interest upto the date of tax so paid has to becalculated as prescribed under section 234B(1) and thereafter interest if any paid under section 140A will be reduced from the tax paid , and interest thereafter shall be calculated on the amount by which tax paid under section 140A together with advance tax falls short of the assessed tax. It may also be noted that under section 140A the assessee is liable to pay tax on the returned income together with interest payable under the provisions of section 234A, 234B & 234C of the Act. Further the Explanation to section 140A provides that incase tax paid under section 140A falls short of the tax payable including the interest, then the tax paid shall be first adjusted towards interest payable under section 234A, 234B & 234C. Section 140(1B) also provides that interest under section 234B for the purpose of section 140A shall be computed on the amount by which advance tax paid falls short of assessed tax and for this purpose the assessed tax has been defined to mean the tax on total income as declared in the return as reduced by tax deducted/collected at source etc. Thus incase the payment made under section ....
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....d the assessed tax for the purpose of this sub-section has been defined in the Explanation to mean the tax on total income as declared in the return as reduced by tax deducted/collected at source etc. Therefore, we agree with the submission made by ld. A.R that the interest payable under section 234B for the purpose of adjustment against the tax paid under section 140A has to be computed with respect to assessed tax determined on the basis of total income declared in the return. But this is only for the limited purpose of adjustment of payment made u/s. 140A against interest payable under section 234B while making computation of interest payable by the assessee under section 234B,which has to be computed with respect to the total income determined in regular assessment as per the definition of assessed tax given in section 234B. The assessee has also followed the same procedure with which we agree. The order of CIT(A) confirming the method followed by the AO is therefore set aside and the claim of the assessee is allowed. 3.7. The assessee also raised a ground which is relevant only for assessment year 2003-04 in which it has been mentioned that CIT(A) has not decided the additi....