TaxTMI 
TaxTMI 
2016 (8) TMI 329
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....te. 3. The agreement noted that the Trust was the owner of a hospital situated on a plot of approximately 1.5 acres in Pandav Nagar, Naraina Road, New Delhi with a building consisting of a basement, ground floor and four floors known as Khera Hospital. The agreement noted that the Khera Hospital had not been functioning except for an Out-Patient Department and that too on a small scale. The hospital was stated to be ill-equipped and facing financial problems. 4. The agreement noted that the Trust had approached the management of Metro Hospital, Noida to run and manage the Khera Hospital and that the Metro Hospital had agreed to the proposal. The clauses of the agreement relevant for the present purposes read as under: "1. Khera society will allow Metro Hospital to make necessary changes, alterations or additions and/or demolitions, renovations accordingly in Khera Hospital building and other places. 2. Khera Society shall facilitate and empower Metro Hospital in sorting out the legal and other disputes relating to Khera Hospital. 3. Khera Hospital shall make available all records, deeds, writings, files and documents to Metro hospital to facilitate ....
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....ou have been paid a consolidated amount of Rs. 1,21,83,494/- in advance for the above mentioned appointment. An amount of Rs. 6,83,494/- has been deducted as TDS from the above-mentioned amount. A detailed MOU with all terms and conditions shall be executed at a later date." 8. A similar letter was issued to both Dr. Raman Khera and Ms. Jyoti Khera as well. All the three were each paid a lump sum consolidated amounts of Rs. 121,83,494 after deduction of TDS of Rs. 6,83,494 in each case. 9. The three Assessees i.e. Dr. Aman Khera (Respondent in ITA No. 653/2012), Dr. Raman Khera (Respondent in ITA No. 326/2015) and Ms. Jyoti Khera (Respondent in ITA No. 19/2015) filed their respective returns of income for the AY 2006-07. While Dr. Aman Khera declared an income of Rs. 5,46,616 on 31st October 2006, Dr. Raman Khera filed a return on 31st October 2006 declaring an income of Rs. 3,82,155 and Ms. Jyoti Khera filed a return on 31st March, 2007 declaring an income of Rs. 33,950. None of them disclosed the entire amount received from UGHPL in their respective returns. Assessment orders 10. The returns of income were picked up for scrutiny and assessment orders under Section 143....
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....not be added to the income, a written submission was filed on 11th December 2008. The AO noticed that there was no further acceptable evidence to spread over the lump sum amount over five years as claimed by the Assessees. It was noticed that "there is no regular books of accounts maintained by the Assessees in any system cash or mercantile." Accordingly, the entire receipt from UGHPL by each of the Assessees was treated as their respective income for the AY in question. 14. The AO then proceeded to deal with the claim of expenditure which might have been incurred by the Assessees. Considering it not to be in the interest of justice to disallow expenses, the AO permitted "roughly 35% of the total receipt" on an estimated basis as expenses and took the balance amount as income of the Assessee which was added to the return income. Penalty proceedings under Section 271(1)(c) of the Act were also directed to be initiated. Proceedings before the CIT (A) 15. The Assessees appealed to the Commissioner of Income Tax (Appeals) ['CIT (A)']. By separate orders dated 24th November 2010, the CIT (A) partly allowed each of the appeals. Significantly, before the CIT (A) for the first tim....
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....ired. The nature of our services are advisors in corporate affairs like decisions as to which new hospital to acquire, feasibility study of new projects, planning of new projects, procurement and decision as to which equipments to buy, doing market study as to which specialty of medical service to promote etc. Please note that we are not working in the capacity of administrators or looking after day to day working of the hospitals, but working as advisors at the corporate level. 3. With whom of Metro Group/UG Hospitals negotiation has taken place? Answer: With Dr. Purshottam Lal. 4. How the sum had been working out at an odd figure - basis of receipt by the appellant. The sum demanded by me was Rs. 3 lacs per month. Then it was negotiated to Rs. 2 lacs a month if all was paid in advance. This was Rs. 1 crore and 20 lacs. This was finally settled at Rs. 1 crore and Rs. 15 lacs. Then came the issue of TDS. Since I wanted Rs. 1 crore and 15 lacs in hand, the whole amount was re-calculated so that the TDS was paid and I got Rs. 1 crore and 15 lacs. 6. Khera Hospitals, Pandav Nagar - whether it has been transferred or not. W....
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....e years of consultancy. The Metro institute shall, however, deduct any or all applicable taxes as are statutorily required." 20. Article 4 which spelt out the representations and warranties did not require the Consultant to return any amount in case he failed to perform any part of the contract. Interestingly, Article 9.2 stated as under: "9.2 In the event, that Metro Institute for any reason disclosed or otherwise chooses to seek premature termination of the Services of the consultant prior to the expiry of the fixed period of 5(five) years, the consultant shall not be liable under any circumstance to refund any amount of the consultancy fees and the same shall deemed to have been forfeited and no claim in respect thereof shall be entertainable." Order of the CIT (A) 21. An issue was raised before the CIT (A) on whether this additional evidence in the form of the above agreement which was obviously entered into nearly four years after the so-called engagement of the Assessees as Hospital Consultant could be taken on record by the CIT (A) under Rule 46A of the Income Tax Rules, 1962 ('Rules'). The CIT (A) concluded that "these evidences only enable the undersigned....
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....eated a debt or a right to receive the payment. (ii) Accounting Standard 9 ('AS 9') issued by the Institute of Chartered Accountants of India ('ICAI') which talks of recognition of revenue in the rendering of services was relevant. It specifies that in the proportionate completion method, the revenue is recognised proportionately by reference to the performance of each act. In case of service contracts the revenues are recognised on proportionate basis. (iii) Relying on the decision in Commissioner of Income Tax v. Dinesh Kumar Goel (2011) 331 ITR 10 (Del), it was held that the amount received by each of the Assessee has to be proportionately spread over five years. 26. The orders of the AO and the CIT (A) were accordingly set aside and the appeals were allowed. Question of law 27. While admitting these appeals on 23rd January 2014, this Court framed the following question of law in each of the appeals: " Did the Tribunal fall into error in accepting the assessee's contention that the sum of Rs. 1,21,83, 494/- received by him and offered in AY 2006-07 as income to be spread over a period of five years on the basis of an agreement entered into....
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....debt justifying the income received did not arise. The question of spreading over said income over five years also did not arise. (iv) The decision in Commissioner of Income Tax v. Dinesh Kumar Goel (supra) was distinguishable on facts. The decision in E.D. Sasoon & Co. Ltd. v. Commissioner of Income Tax (supra) was relevant for companies and not individual Assessees. The matching principle or AS-9 could not be pressed into service when the assessment was of individuals. (v) The Assessees failed to produce vouchers or any books of accounts and, therefore, the AO is justified in treating the entire income received by the Assessees to be taxable in the relevant AY. In the absence of books of accounts, the presumption was that the Assessees were following the cash system of accounting. The receipts were liable to be taxed in the year in which they were actually received. (vi) The CIT (A) ought not to have permitted additional evidence to be produced at the stage of appeal since none of the conditions under Rule 46A was satisfied. Reliance was placed on the decision in Commissioner of Income Tax v. Manish Buildwell (2012) 204 Taxman 106 (Delhi). Submission....
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....d computed either by the proportionate completion method or by the completed service account method. Under the proportionate completion method, revenue is recognised proportionate to the performance of each act and when services are provided by an indeterminate number of acts over a specific period of time. In such an event, the revenue is recognised on a straight line basis over the specific period. Reliance is placed on Commissioner of Income Tax v. Dinesh Kumar Goel (supra) where on facts it was held that since the services of a coaching institute had to be rendered in two years, the entire fee received had to be spread over in two years and assessed proportionately. Reliance is also placed on the decision of this Court in Commissioner of Income Tax, Delhi v. Om Prakash Khaitan 62 taxmann.com 324 (Del) where the monies received by lawyers from clients were treated as income in the hands of lawyers in the year in which the money is received since some portion of the monies were to meet out-of-pocket payment in the conduct of the case. (vi) In any event, the Assessees having offered the proportionate income in subsequent AYs, there was no justification to bring the entire....
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....to be performed by each of the Assessees for over a period of five years, the amount received from UGHPL had to be spread over a period of five years in proportion and for this purpose the ITAT referred to the decision in E.D. Sasoon & Co. Ltd. v. Commissioner of Income Tax (supra). 37. The Court finds that the decision in E.D. Sasoon & Co. Ltd. v. Commissioner of Income Tax (supra) was on an entirely different set of facts. There the Assessee company was a managing agent of other companies i.e. E.D. Sassoon United Mills Ltd., Elphinstone Spinning & Weaving Mills Company Ltd. The Assessee company agreed to transfer the managing agency of the said companies to M/s. Agarwal & Co., Chidambaram Mulraj & Co. Ltd. and Rajputana Textile (Agencies) Ltd. by separate letters. The shareholders of the respective companies also agreed for the transfer. Formal deeds of assignment and transfer were duly executed. It is in the above context that it was held that the remuneration or commission was given by the transferee company to the managing agents only on completion of a definite period of service. It was held that such remuneration constituted a debt only at the end of period of service and....
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....ting that is followed, the further question whether the sum received in one year could be spread over several years, and that too in the absence of any agreement at the time of such payment would not arise. The ITAT could not have overlooked the fact that the agreements produced before the CIT (A) regarding engaging the Assessees as hospital consultant was more than four years after the amount had been paid. Such agreements were not reliable pieces of evidence. 42. Mr. Rastogi repeatedly stressed that the proportionate income disclosed by each of the Assessees in the years subsequent to the AY in question was in fact offered to tax and therefore, there cannot be a double taxation of the same amount. 43. While it may be true that the Assessees had offered to tax in the later AYs the sum proportionate to the period of service, the fact remains that the entire sum was received upfront in the year in question and TDS was also deducted on that basis. The agreements purportedly entered into between each of the Assessees and UGHPL was a document drawn up four years after they received the entire remuneration upfront in December 2005. Consequently, the Court is of the view that the I....
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.... of the receipt. As regards the expenditure of the subsequent years, where it has actually been incurred, it should be allowed in that year. The question of allowing the expenditure of later years in the year under consideration does not arise. There is no question of any matching principle or application of AS-9 in this instance. 49. Section 240 of the Act does envisage a situation where an AO has to, while giving an appeal effect to the order of a Court, account for tax that may have been paid in the subsequent years. Nevertheless, the Court does not find any reason to interfere with the order of the CIT (A) to the extent that he has disallowed expenditure at an estimated 35% beyond what has already been allowed in relation to the business income in the returns of the Assessees. There is indeed no basis for any estimation of expenditure with the Assessees not maintaining accounts and being unable to produce any vouchers or bills as proof of any expenditure. 50. Accordingly, the questions framed in the case of quantum appeals, i.e. ITA Nos. 653 of 2012, 19 of 2015 and 326 of 2015, are answered in the affirmative, i.e., against the Assessee and in favour of the Revenue. The I....