TaxTMI 
TaxTMI 
2014 (6) TMI 436
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....aged in rendering Financial and Corporate Consultancy Services. As per the assessment order, on a verification of the details of Consultancy charges received by the appellant and the details of TDS made on such receipts, the Assessing Officer found that the total gross receipts received by the appellant were of Rs. 4,61,74,058/- (Rs. 5,11,97,767 - Rs. 49,61,401 + 62,308), whereas the appellant had offered the total gross receipts in the P & L account at Rs. 3,56,79,866/ - only. Thus, the Assessing Officer noticed that there was a difference in gross receipts to the tune of Rs. 1,04,94,192/ -. On being required to explain, the appellant filed a reconciliation statement before the Assessing Officer, contending that the difference had been treated as advance for the F.Y.s 2008-09 to 2010-11 of Rs. 36,45,308/- for each year. 2.1 However, on the going through the details furnished by the assessee as well as the letter dated 23.10.2007 of Country Club (India) R and A corporate Consultants India P Ltd A.Y. 2008-09 Ltd., who had appointed the appellant as consultant for the next three financial years, the Assessing Officer found that it had been no where mentioned that the income will b....
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.... aggregating to Rs. 1,50,18,184/- towards raising of funds, and (b) advance retainer fee of Rs. 1,09,35,925/- + applicable service tax of Rs. 13,51,680/-, aggregating to Rs.1,22,87,605/-. 3.2 The representative submitted that the appellant had claimed TDS credit only to the extent of Rs 20,24,394/-, consistent with its submission that the TDS credit on advance retainer fee of Rs. 10,69,352/- in respect of (b) above is allowable in the year in which the income was taxable. She submitted that the Assessing Officer made the addition on the only ground that the letter dated 23.10.2007 did not specify the deferral of income. She explained that the appellant company is engaged in rendering "soft skills" to its clients and income accrues only on performance of the services and not before that. She maintained that the appellant is duty bound to incur expenditure in the subsequent years and the advances are demanded and received from the clients against future expenditure. She maintained that till such time the services are not rendered, the amount would remain as an advance, which is required to be refunded to the clients. Therefore, the income accrues only when the same arises to the a....
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....it was mentioned in the letter that the appellant company was to act as a retainer for the next 3 financial years i.e. 2008-09, 2009-10 and 2010-11 and was to be paid 0.225% of the gross amount raised as 'Retainer fees'. The letter mentions that the 'retainer fees' were to be paid in advance after the receipt of the funds. The services to be provided by the appellant during the retainer ship have also been specified therein and were to include the fees for the consultants / agents that the appellant might appoint either in India or Abroad. The letter further clarifies that the fees paid at each stage would be non refundable. 4.1 The CIT(A) noted that from the copies of the bills, it can be seen that as against the projected funds of Rs. 250 crores, the appellant helped the Country Club India Ltd. raised Rs. 486.041 crores. It is seen that in terms of the above appointment letter, the appellant raised a bill for professional charges for raising Rs. 486.041 crores @ 0.275%, which came to Rs. 1,50,18,184/ -. The appellant was also entitled to receive the retainer ship fees in advance soon after the receipt of the funds. Accordingly, a bill for retainer ship fees @ 0....
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....red in the financial years 2008-09,2009-10 and 2010-11. He submitted that No income accrued in the asst year 2008-09 on account of non rendering of service and the learned Commissioner(appeals) failed to appreciate the fact that there is no provision in the TDS certificate for reflection of nature of payment so as to state whether it is advance or reimbursement of expenditure. 6.1 It is submitted that in normal business practices, no appointment letter will specify the accounting treatment of the contracted and it is not the prerogative of the client to decide the accounting treatment and tax liabilities of the other. Hence the non mentioning of deferral income clause in the appointment letter should not be the concluding factor for determination of advance as income of the year. It is submitted that the appellant's income accrues only on the performance of services and not at the time of appointment or receipt of any amount as advance or otherwise. He contended that there is no evidence brought on record by the Assessing officer to show that the advance bill amount is in the character of income against services performed in the asst year 2008-09 itself. 6.2 The learned A....
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....ect to the condition that the amounts are realizable. Realization condition comes into picture only after the first two conditions are satisfied. Recognizing revenue on receipt basis is contrary to Accounting Standards and neither prescribed anywhere in the Income Tax Act nor in the draft Tax Accounting Standards. 6.6 It is submitted that the advance retainer fees of Rs 1,09,35,925/- is offered to tax in the subsequent years and confirming the addition made by the assessing officer in the asst year 2008-09 will amount to double taxation. The appellant submits that the advance fee is only against future services to be rendered and could not be treated as income of the appellant pending the completion of the work. The copies of audited financials, IT acks, notes to accounts and 3 CDs for the asst years 2009-10 to 2011-12 are placed at pages 16 to 52 of the paper book as proof that the advance retainer fee is recognized as income in the subsequent years. 6.7 On the issue of absence of non refundable clause it is submitted that it will be incorporated only to safeguard the interest of the appellant in an extreme situation. It cannot be said that the advance fees is non refundable....
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.... by assessee in future - The assessing officer added same as income of assessee - On appeal, Commissioner (Appeals) confirmed order of assessing officer though said amount was shown as creditor in balance sheet--Not justified--No part of advance accrued as income to assessee because no service was rendered by assessee to film producer--Addition to returned income of assessee is unsustainable under law. 6. Kerala State Drugs & Pharmaceuticals Limited 192 ITR 1 (Kerala HC), The Court had observed that even under the mercantile system of accounting, only accrual of real income (and not hypothetical income) was chargeable to tax 7. DCIT Vs Velti India Pvt Ltd (ITA No .1 030/Mds/2013): The Chennai bench of ITAT held that service charges received in advance for the services to be rendered in future are not liable to tax in the year of receipt. 8. DDIT (IntI) Vs Sepco Electro Power Construction Corpn Ltd 126 TT J 539 Bilaspur Mobilization advance received by assessee was merely in nature of advance till rendering of services. 9. Comp-u-Learn Tech (I) Ltd Vs DCIT ITA No.672/H/01 dt.04.04.2002: The assessee's method of crediting the Profit & Loss account with fee actually....
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.... assessee's income in that particular year. Unless the assessee can exercise his entire rights over a particular receipt, it cannot be said that income has accrued in his favour. No other person should have any charge over that receipt. The dominion over the amount should be of assessee. 8.1 Now let us consider the facts of the present case. The assessee entered into a consultancy contract with Country Club (India) Ltd., for raising of funds for the latter. The contract is documented vide letter dated 23/10/2007 issued by Country Club. The fee is payable for two different set of services. While fee of 0.275% is payable for raising of funds, a further 0.225% is entitled to be paid to the assessee towards retainer fee for services to be rendered over a period of 3 years beginning 1st April, 2008. Fee relating to raising of funds is credited in the P&L A/c as income earned. Since the retainer fee is payable in advance soon after the receipt of funds, the assessee raised an advance bill on 17/01/2008 for Rs. 1,09,35,925/- exclusive of service tax. As the bill raised on Country Club, is an advance bill, the assessee prorated the retainer fee over the subsequent 3 relevant years as Rs....
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.... 2010-11. No part of the retainer income can accrue in the present assessment year as the assessee is yet to render the services in this behalf. The amount is received with a view to incur expenditure in the future. Since the amount is in respect of a future liability in the form of incurring costs for rendering the professional services, the amount cannot partake the character of income until it is earned. The amount can be said to be earned only when the assessee renders professional service which is on a future date. The receipt came coupled with a liability for rendering services in the future. This fact, that the assessee is under an obligation to render services in the future has not been disputed by the AO. 8.5 Considering the fact that the amount of advance is received towards future services for which costs are required to be incurred in the future, and following the matching principle so well laid out under accounting convention, the assessee has postponed the recognition of the income into the subsequent three years, namely, 2008-09, 2009-10 and 2010-11. 8.6 As seen from the facts of the case, the assessee received the fee in advance as stipulated in the MoU entere....