TaxTMI 
TaxTMI 
2010 (12) TMI 746
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.... the franchisees on the ground that tax thereon has not been deducted at source u/s 194C of the Act. It is mentioned that the ld. CIT(Appeals) erred in holding the joint venture agreement between the assessee and the franchisees as a service agreement. 2.1 Before us, the ld. counsel for the assessee submitted that the assessee had about 150 franchisees with whom it was sharing tuition fees received from the students. For this purpose, a separate account was maintained in which the fees were credited. Thereafter, the receipts were divided between the assessee and the franchisees. There was no payment either by the assessee to the franchisees or by the franchisees to the assessee. 2.2 Our attention was drawn towards page nos. 1 to 27 of the paper book, which contains a sample agreement made on 01.10.2007 between the assessee-company and M/s Sphere Academy of Ahmedabad. This agreement does not pertain to the relevant year, however, the ld. counsel made a statement at the bar that all agreements with the franchisees, including the agreements pertaining to this year, are identically worded. Paragraph no. 1 of the agreement, the assessee is to provide all technical kn....
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....spectus, rule books, identity cards, stationery, folders, course material and transparencies, guides and manuals, for which the assessee will issue the price list. 2.5 The franchisee, as a consideration, shall pay to the assessee the franchisee fees @ 25% of the net value earned from the operations, as per paragraph no. 5.6. 2.6 The case of the ld. counsel on the basis of the terms of the license agreement is that it is in the nature of a joint venture, in which certain rights are granted to the franchisee in lieu of which the franchisee is required to pay 25% of the earnings from the operations of the centre. Therefore, it is not a case of an agreement for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the assessee and the franchisee. Therefore, the provision contained in section 194C of the Act is not applicable to it. 2.7 In order to support his contentions, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. NIIT Ltd. (2009) 318 ITR 289 and the "G" Bench of Delhi Tribunal in Assistant CIT vs. NIIT Ltd. (2007) 112 TTJ 800. 3. In reply, the ld.....
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....anchisees is in the nature of a contract for work and, therefore, the provisions contained in sections 194C and 40(a)(ia) are applicable. 4. We have considered the facts of the case and submissions made before us. The facts are that the assessee is carrying on the business of running coaching classes for admission of the students to professional courses. In the course of this business, it has also entered into agreements with various persons desirous of running similar coaching classes on the basis of standardized agreement. The agreement allows the franchisees to use the trade name, trade mark and course material belonging to the assessee. However, other arrangements such as finding suitable premises, enrolling students, collecting fees etc. are made by the franchisees. The fees collected by the franchisees from the students is credited to a bank account. In lieu of the user of trade mark, trade name and course material, the assessee receives an amount equal to 25% of net value earned from the operations. Apart from this, the assessee supplies stationery etc. to the franchisees at the rates fixed in this behalf by it. In the year under consideration, the assessee has cre....
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....main provision in sub-section (1). It is their case that the franchisees have carried out the work of coaching students on behalf of the assessee, the principal, for which they have been paid a sum of Rs.6,38,64,018/- in this year. Therefore, the assessee was liable to deduct tax at source from these payments. Since this has not been done, the amount paid to the franchisees does not constitute deductible expenditure by dint of the provision contained in section 40(a)(ia). 4.3 The AO has relied on the decision of Hon'ble Supreme Court in the case of Associated Cement Co. Ltd. vs. CIT and Another (1993) 210 ITR 435. The facts of that case are that the assessee company issued a letter to Mr. S.P. Nag, the contractor, containing the terms and conditions of a contract for loading packed cement bags into wagons or trucks. The contractor was to be paid a sum for his work @ 41 paise for each tonne of cement handled in plant no. 1 and 30 paise for each tonne of cement handled in plant no. 2. The recital to the agreement mentioned that the rate of loading has been worked out on the basis of daily basic wages of Rs.2.35, D.A. of Rs.1.21 and house rent allowance of 0.50 paise per day....
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.... covers the case of the assessee. 4.4 We may now examine the salient features of the agreement with a view to decide its nature and intent. The assessee has been termed as "Licensor" and the operator of the study center has been termed as "Licensee". Although the assessee has placed emphasis on these terms, we are of the view that this is not material for deciding the issue at hand. What is material is the content of the agreement. According to the agreement, the assessee is to provide entire study material, up-gradation thereof, technical know-how and product details. The licensee is entitled to use trade mark and trade name of the assessee. The licensee is to set up the premises, equipments and infrastructure at its cost as per specifications provided by the assessee. The whole of the material, trade name etc. can be used by the licensee only for the purpose of running the study center. The licensee is to collect various fees from the students. The taxes or duties leviable in presenti or in future are to be borne by the licensee. He is also liable to pay fees @ 25% of the net value earned from the operations. This means that 75% of the profit from the operation of the c....
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....ade to the licensee for any work done on behalf of the assessee. Rather it is a case of sharing of fees for carrying out respective obligations under the contract. 4.6 The assessee has also relied on the decision of Special Bench of the Tribunal in the case of Mahindra Holidays and Resorts (India) Ltd. (2001) 39 SOT 438 (Chennai). We however find that the issues in that case were different relating to treatment of membership fees given by the assessee i.e., 40% as income and 60% as deferred income for obligations to be carried out under the time sharing agreement. 4.7 As mentioned earlier, while the agreement speaks of payment by the franchisees to the assessee, the accounts have been maintained in a manner where payment it shown by the assessee to the franchisees. However, the mode and manner of keeping accounts is also not of great significance for deciding the issue as the same is to be decided as per law. On the fact, it is clear that it is not a case of any payment made by the assessee to the licensee for the work done. Therefore, the provision contained in section 194-C is not applicable. 4.8 In the result, ground nos. 1 and 1.1 are allowed. &nbs....
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....ing to Rs.33,22,000/- by holding that the same is otherwise payable as profits or dividends, by invoking the provision contained in section 36(1)(ii) of the Act. 6.1 In this connection, it is mentioned in the assessment order that the assessee has shown profits of Rs.6,56,19,376/-. No dividend has been proposed or distributed to the shareholders, who also include the directors of the assessee-company. The directors have been paid bonus as under:- Name of Directors Shareholding in coy. Bonus paid (Rs.) Mr. Satyanarayanan R 40.93% 7,02,231/- Mr. Gautam Puri 40.93% 7,02,231/- Mr. Shiva Kumar 7.22% 4,75,038/- Mr. Srinivasan R. 7.22% 5,16,346/- Mr. Nikhil Mahajan 2.60% 4,13,077/- Mr. Sujit Bhattacharya 1.09% 4,13,077/- Total: 33,22,000/- 6.2 It was submitted that the bonus paid would not have been payable as such to the directors. It has been paid for services rendered to the assessee. However, the AO came to the conclusion that the bonus has been paid to the directors to avoid the payment of Dividend Distribution Tax. Therefore, the provision contained in section 36(1)(ii) is applicable a....
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.... 7,02,231/- 27.46% 40.93% Mr. Gautam Puri Managing Director 25,56,840/- 7,02,231/- 27.46% 40.93% Mr. Shiva Kumar R. Director 17,21,484/- 4,75,038/- 27.59% 7.22% Mr. Sreenivasan R Director 26,46,016/- 5,16,346/- 19.51% 7.22% Mr. Nikhil Mahajan Director 15,14,280/- 4,13,077/- 27.27% 2.60% b Mr. Sujit Bhattacharya Director 15,14,280/- 4,13,077/- 27.27% 1.09% 7.1 It is submitted that the percentage of bonus to salary paid to the directors is not the same as percentage of their shareholdings to the total shareholding. For example, the ratio of bonus to salary in case of Mr. R. Satya Narayanan is 27.4%, while his shareholding constitute 40.93% of the total shareholding. The ratio of bonus to salary in case of Mr. Sujit Bhattacharya is 27.27% while percentage of his shareholding is only 1.09%. Similar position is obtained in respect of other directors. Therefore, if bonus had not been paid to the directors, they would not have received the same or proportionate amount by way of dividends because of vast variation in the percentage of shareholding. Thus, it is argued that the provision cont....
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....of the assessee by the order of "B" Bench of Delhi Tribunal in the case of the assessee in ITA No.1047(Del)/2008 for assessment year 2004-05 dated 29.06.2009, a copy of which is placed in the paper book on page nos. 36 to 48. The relevant paragraph nos. 10 to 16 are reproduced below for ready reference:- "10. Coming to ground No.2 the assessee contends that the ld. CIT(A) has erred in confirming the disallowance of interest payment to Noida Authority of Rs.22,07,188/-. The assessee had claimed an amount of Rs.22,07,188/- as interest paid to the Noida Authority for purchase of land. This amount was capitalized in the books of the assessee. In the computation sheet filed, however, it was detected from the profits of the assessee company. On query, the assessee submitted that it had been allotted 20,000 sq.mtrs. of institutional plot by the Greater Noida authority; that the payment with regard to that was paid in two installments along with interest; that a copy of the lease deed evidencing the payment of interest was being enclosed; that interest paid on borrowed capital for the purpose of business or profession was allowable u/s 36(1)(iii) of the I.T. Act, as per the provi....
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....iance has been placed on "Bombay Steam Navigation v. CIT", 56 ITR 52(SC) with regard to the issue of determination as to whether the expenditure in question is a capital expenditure or a revenue expenditure. Further, it has been pointed out that the CBDT has, in pursuance of "Bombay Steam Navigation" (supra), withdrawn its circular/instructions dated 30.9.1964, whereby it had been instructed that interest liability incurred in respect of plant and machinery from abroad as deferred payments was not an administrative deduction u/s 36(1)(iii) of the I.T.Act, since such payment did not constitute payment on borrowed capital. 14. Supporting the impugned order, on the other hand, the ld. DR has relied on Special Bench (Mumbai) decision of the Tribunal in the case of JCIT v. Mukund Ltd. [2007] 291 ITR (AT)249(Mumbai)[SB]. The ld. DR contends that the asset was purchased and the amount in question is a part of that asset. Reliance has also placed on JCT v. DCIT and Another, 276 ITR 115(Cal). 15. In this regard, in "Bombay Steam Navigation" (supra), it has been held, inter alia, that whether a particular expenditure is a revenue expenditure incurred for the purpose of bu....
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....y the decision of coordinate bench of the Tribunal as discussed below:- In the case of ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Kol.), ITAT Bench "B" has taken a view that the printer and scanner are integral part of the computer system and are to be treated as computer for the purpose of allowing higher rate of depreciation i.e. 60%. 3.2 The ITAT, Delhi "F" Bench in the case of Expeditors International (India) (P) Ltd. vs. CIT (2008) 118 TTJ 652 has held that peripherals such as printer, scanners, NT Server etc. form integral part of the computer and the same, therefore, are eligible for depreciation at the rate of 60% as applicable to a computer. 4. Respectfully following the aforesaid decisions of the Coordinate Bench, we uphold the order of ld. CIT(A) in allowing the depreciation at 60% on computer peripherals and accessories and, thus, the ground raised by the revenue is rejected. 5. In the result, the appeal filed by the revenue is dismissed." 4. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system....
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....ed to furnish the details of the amounts written off with reference to the purpose thereof. The same may be verified by the AO. Thereafter, he is directed to allow advances in the revenue field and disallow advances in capital field, if any. Thus, this ground is treated as partly allowed for statistical purposes. ITA No. 4925(Del)/2009 -A.Y. 2006-07-Appeal of the assessee 11. Ground nos. 1 to 3 are similar to ground nos. 1 to 3 in ITA No.4924(Del)/2009 (supra). It is the common case that decision on these grounds in that appeal shall be equally applicable in this appeal. Following that order, ground no. 1 is allowed; ground no. 2 is restored to the file of the AO, and ground no. 3 is allowed. 12. Ground no. 4 is that the ld. CIT(A) erred in treating non-refundable deposit of Rs.12,01,00,000/- as income. It is mentioned that the income accrued in assessment year 2007-08, when the services were rendered. 12.1 In this connection, it is mentioned in the assessment order that the assessee received non-refundable advances from the students amounting to about Rs.12.01 crore. The assessee was requested to state as to why this amount should not be tre....
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....f Sanjeev Woollen Mills vs. CIT, 279 ITR 434, in which it has been held that the material purpose of section 145 is to ensure that real profit can be determined on the basis of system of accounting followed by the assessee. As the amount has come into the coffers of the assessee irrevocably, the same constitute income taxable in this year. 13. Before us, the ld. counsel referred to page no. 44 of the paper book, being a part of submissions made before the ld. CIT(Appeals). It is interalia mentioned that the assessee received most of the money from the students in the month of March, 2006 and enrolled them for a course which was spread over for more than one year. A part of the services were rendered in financial year 2005-06 and a part was rendered in financial year 2006-07. The amount of Rs.12.01 crore related to financial year 2006-07, relevant to assessment year 2007-08. Therefore, it was accounted for in assessment year 2007-08. Reference was also made to page no. 75 of the paper book, being notes to the financial statements. Under "revenue recognition", it is mentioned that revenue in respect of educational and training fees received from the students is recognized o....
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....d non-refundable fees in this year. The coaching was to be given in this year as well as in the subsequent year. This means that the attendant obligation was to be discharged in two accounting years. The assessee booked a part of the fees in this year and a part thereof in the subsequent year. As held in the case of K.K. Khullar (supra), a distinction has to be made between the terms "receipt" and "income". What is liable to be taxed is income and not the receipt. Therefore, only that amount which is received as income can be brought to tax. For the sake of ready reference, discussion at placitum nos. 8 and 9 are reproduced below, which cover the matter regarding accrual of income and application of principle of consistency:- "5. We have considered the facts of the case and rival submissions. We may refer to the charging section 4 of the Act to the effect that income-tax shall be charged for any assessment year at the rate or rates provided in any central Act in respect of the total income of the previous year of every person. Section 5 deals with the "scope of total income", which is defined in respect of any previous year in terms of accrual, deemed accrual, receipt and....
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....of such amount no debt came into existence in favour of the assessee. Therefore, this amount did not become the income. Accordingly, we are of the view that the learned CIT(A) erred in finding that the assessee was following hybrid system of accounting on the ground that the whole of the amount received from the clients as retainership fees was not declared as income in the year of receipt of the amount. 5.1 Coming to the issue of consistency of assessments, it may be mentioned that the Hon'ble Supreme Court itself mentioned in the case of Radhasoami Satsang (supra) that their findings should not be taken as a general proposition of law to be followed in every case as it was confined to the facts of that case. We may add that if a manifestly wrong decision has been taken by the Assessing Officer in one year or in a number of years, it will not bind the Assessing Officer in assessment of a subsequent year because there cannot be any estoppel against the law. However, in this case, we find the earlier and subsequent assessments were made on correct appreciation of the principle of cash system of accounting. Since the assessee succeeds on merits on this aspect, there is no n....