TaxTMI 
TaxTMI 
2012 (12) TMI 236
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....) of the Income Tax Act, 1961 (the Act), the assessee has included the above sum of Rs. 30,00,000/- in the book profit. The assessee was asked to explain as to why the other income of Rs. 30,00,000/- be not reduced for computing the book profit. In response, the assessee stated that "the amount is received from M/s. Amarchand and Mangaldas and Suresh A Shroff and Company for use of name /license fee and use of assets. The word other income does not mean that it is income from other sources, but the same is not a receipt as professional fees. We as a auditor use the term as other income and the same is taxable under the head business and profession and it is to be considered as part of Chapter IV D income." It was further observed by the A.O. that as per agreements dated 01.04.2002 entered into between the assessee and the licensee, the assessee received compensation/license fee of Rs. 30,00,000/- for sharing the assets and as user of premises. According to the A.O. the compensation/license fees are not received for rendering any professional services, therefore, these receipts cannot be considered as professional income. The A.O. further observed that the assessee, in his letter da....
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....ee and shared assets amount had been consistently assessed under the head Business since the last 10 years and therefore ought to have been assessed as Business Income following Supreme Court judgment in case of Radhasoami Satsang v. Commissioner of Income Tax reported in 193 ITR Page 321. 5. Alternate to ground above learned CIT has not appreciated that the tax on salary allowed to the firm has been paid by the partner personally hence there is no loss of revenue either to the Assessee or to the department." 5. At the time of hearing the ld. Counsel for the assessee after referring certain clauses of agreements dated 01.04.2002, income and expenditure account appearing at page 41, chart of income appearing at page 33, copy of scrutiny assessment orders for the A.Yrs 2001-02, 2002-03 and 2003-04 passed u/s.143(3) allowing the remuneration to partners as claimed by the assessee submits that the assessee firm is regularly receiving the amount on account of compensation for use of shared assets and license fees for the use of name from M/s. Amarchand A. Shroff & Co. since 01.04.1995 i.e. AY 1996-1997. In all these years, the said income was offered for tax under the head I....
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.... the partners in their returns have also shown the equal amount of remuneration as claimed in the return of income of the firm i.e. in the hands of Shri Shardul A. Shroff Rs. 26,88,290/- and in the hands of Shri Cyril Suresh Shroff Rs. 26,88,290/- vide chart of income appearing at page 59 and 63 of the assessee's paper book respectively, therefore, there is no loss to the revenue. She, therefore, submits that the amount of remuneration claimed by the assessee firm be allowed in full. 8. On the other hand, the ld. DR while relying on the order of the A.O. and the ld. CIT(A) further submits that since the assessee itself has admitted that the amount of Rs. 30,00,000/- is not the professional income as observed by the A.O. at page 2 of the assessment order and keeping in view that in the earlier assessment years no such enquiry was made by the A.O. and also keeping in view that the principle of resjudicata does not apply to the income tax proceedings, the ld. CIT(A) was fully justified in confirming the order of the A.O. in treating the license fees of Rs. 30,00,000/- as income from other sources not eligible for remuneration to partners. Reliance was also placed on decision of....
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.... material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee firm as per agreements dated 01.04.2002 has shown an aggregate sum of Rs. 30,00,000/- as "other income" comprising of compensation for use of shared facilities of Rs. 10,00,000/- and license fees of Rs. 20,00,000/-. However, while computing the income, the assessee treated the same as part of "income from business and profession" in computing the 'book profit' and claimed partners remuneration allowable as per section 40(b)(v) Rs. 53,76,580/- which has been equally divided and shown by the partners of the firm namely Shri Shardul A. Shroff Rs. 26,88,290/- and Shri Cyril Suresh Shroff Rs. 26,88,290/- as salary income from the firm. However, the A.O. while working out the 'book profit' eligible for partners remuneration has considered the professional income of Rs. 91,19,055/- and profit on sale of premises of Rs. 40,35,453/- as 'book profit' and excluded the dividend and interest income of Rs. 14,04,182/- and other income of Rs. 30,00,000/- in computing the 'book profit' for the purpose of partners remuneration. 11. The q....
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....e of Section 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book-profit. The said section nowhere provides as rightly pointed by Mr. Khaitan, learned Senior Advocate that the net profit as shown in the profit and loss account not the profit computed under the head profit and gains of business or profession. The decision of the Supreme Court in the case of Apollo Tyres Ltd. v. Commissioner of Income Tax reported in [2002] 255 ITR 273 (SC) is an appropriate guidance of this point as to what should be done in order to ascertain the net profit in case of this nature. At page 280 in the first paragraph of the report the Supreme Court observed as follows:- "Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Ac....
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.... we are of the view that it cannot be taxed twice. This view also finds support from the decision of the Tribunal in Vikas Oil Mill v. ITO [2005] 95 TTJ (JP) 1126, wherein it has been held as under :- "We are of the view that remuneration paid to working partners will have to be allowed as per provisions of Section 40(b)(v) of the IT Act. The Expln. 3 provides the definition for the book profit, which is already discussed by the CIT(A) in his order at p. 6. Without repeating, we agree with the order of the CIT(A) in this regard. The CIT(A) has already discussed a number of case laws to support his order. So, regarding set off of the carried forward unabsorbed depreciation, the claim of the assessee is not sustainable. However, about the alternative prayer of the assessee, we are of the view that the remuneration will have to be paid to the working partners as per Section 40(b) and it will have to be provided, even in the case of loss, a minimum of Rs. 50,000. Further, it may be mentioned that the remuneration received by the partners will have to be taxed either in the hands of the firm or in the hands of the partners. It cannot be taxed twice." 15. In Piaggio Vehicles ....
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....8, could not be accepted because, in his letter there was no reference to the inconsistencies in the tax audit report and the return of income regarding the date of acquisition of the goodwill. The fact that there were mutual inconsistencies in the tax audit report and the return of income which were not noticed by the Assessing Officer at the time of assessment under section 143(3) of the Act was sufficient reason to reopen the assessment." 16. In Consolidated Photo and Finvest Ltd. (supra) it has been held as under (head note) : "Held, dismissing the petition, (i) that the proviso to section 147 envisages action in the ordinary course within a period of four years from the end of the relevant assessment year. However, that limitation does not apply to cases where income chargeable to tax has escaped assessment on account, inter alia, of the failure of the assessee to disclose fully and truly all material facts. Production of the books of account and other documentary evidence relevant for assessment did not imply a full and true disclosure in the light of Explanation 1 to section 147. Therefore, the action initiated by the Assessing Officer did not suffer from any err....