TaxTMI 
TaxTMI 
2016 (9) TMI 807
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....perience of its professional team. The MBA programmes are not conducted by assessee, but are conducted by another institute ICFAI. As part of MBA programme, ICFAI offers placement services after the course is completed for which assessee provides services. The fees for the services Rs. 3,300/- per person is collected by ICFAI and was remitted to assessee at the beginning of the course itself. Thus, assessee in AY. 2006-07 had received a sum of Rs. 3,80,85,000/- towards placement fee from the students pursuing long distance training programme courses conducted by ICFAI such as MS Finance, MBA and MCA. These are not campus programmes and were under taken by persons who are in employment. Since the course is for a period of two years, the services according to the brochure given by the assessee-company starts at the end of second year, after the persons complete the course successfully. The registration under SPS is optional and valid for a period of four years from the date of registration. In practice in the first two years, there are no services as the candidates undergo MBA programme and assessee undertakes to provide placements to the successful students of programmes within thre....
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....y stating as under: "7. I have gone through the facts of the case, remand report and the submissions of the appellant. In the present appeal, the only issue for consideration is whether or not the special placement fee of Rs. 3,80,85,000/- received by the appellant from ICFAI constitutes income for the assessment year 2006-07. In this context, some of the Clauses of the Memorandum of Understanding entered on 1-4-2005 by the appellant with ICFAI are extracted below for the sake of clarity: "2. A student enrolling for a long distance course with ICFAI or its sponsored university is given the option to avail the placement support rendered by the Second Party, subject to terms of Registration framed by both parties by mutual consent. The charges for such placement support are collected by ICFAI at time of enrolment to the course. Thereafter the application forms for registration and the placement support charges are passed on by ICFAI to the second party to the terms of the regulations. 3. The second party agrees to provide placement anywhere in India or abroad to the registered students within three months from the date on which the program completion Certif....
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....nder any placement service in respect of such student within the time specified in Regulation A. 0508(2). The obligation to render the service on the part of the service provider shall commence only upon the completion of the study by the student in accordance with the rules of the university and within the validity period." 7.2 It is a fact that the Special Placement Fee is applicable to approved programs offered through distance learning mode, which are of two to three years duration. Normally, the academic session starts after enrolment process for a course is completed. Hence, it is incumbent to go through the enrolment process involved in courses offered by ICFAI University. For this purpose, the information has been gathered from the websites of ICFAI University icfai.in, icfai.org, iutripura.edu. On verification, it is observed that the enrolment of students to the courses offered by ICFAI University takes place throughout the year four times and according to one's own convenience, the students can enrol into any of the above programs throughout the year i.e., June 30th, September 30th, December 3pt and March, 3pt. Thus, as per their enrolment, the students are ....
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....effective in bringing into existence a debt or a right to receive the payment, for income to 'accrue', the mere expression 'earned' in the sense of rendering the services, etc., by itself is of no avail. In order that income may said to have accrued at a particular point of time, it must have ripened into a debt at that moment, i.e., the assessee should have acquired a right to receive payment at that moment, though the receipt itself may take place later. The date of accrual, on the other hand, depends upon the nature and terms of the statute or agreement which gives rise to the right income is said to be received when it reaches the assessee, whereas when the right to receive income becomes vested in the assessee it is said to 'accrue or arise'. Therefore, the basic concept is that the assessee must have acquired the "right to receive the income". Accordingly, it follows that, where the assessee has no right to income, the same cannot be said to have accrued. In the present case, the appellant has no right to receive the income till its obligation to perform the services commences. 7.4 Advance is not income. The High Court in the case of Punjab Tr....
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....s case, though the Special Placement Fee was received in full, yet the appellant had not become richer as there was a corresponding liability on the appellant to service the members for the contracted period. Thus, the Special Placement Fee represents only an advance in the hands of the appellant and it becomes owner of the entire sum only when the service obligation is fully discharged. As per the Accounting Standard (AS) on recognition of the revenue from service transactions, when services are provided by an indeterminate number of acts over a specific period of time, the revenue is recognized on a straight line basis over the specific period, unless there is evidence that some other method better represents the pattern of performance. The tax authority had no right to tinker with the accounts of the taxpayer if the method of accounting was systematically followed and was in accordance with the AS and the method followed by the taxpayer was not irrational, but was sanctified by usage. In the present case, the Assessing Officer could not rebut the claim of the appellant by verifying the books of account and show that any portion of the amount of Rs. 3,80,85,000/- was utilised dur....
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....rse. For the last several years the assessee has been receiving the fees from the students and was offering 50% in the 3rd year and 50% in the 4th year of receipt. The assessee was asked to produce the names and addresses of the students enrolled, type of services rendered, names and addresses of at least few students who were employed through him, did any of the student sought for refund, number of students placed for employment during the last 2-3 years, their names and addresses. Out of more than 13,000 students from whom the fee was collected, he could not give names and addresses of half a dozen students to whom the assessee rendered placement services/secured employment. It is surprising to note that though he has not provided any services to anybody, none of them sought for any refund. Taking into account the overall facts and circumstances of the case, the inevitable conclusion one can arrive at is, it is only a mechanism to collect fee from the gullible students at the time of admission itself by giving a false hope of providing employment to them in future. Since the amounts collected from each one of them was only of few thousand rupees, none of them seem to have lodged ....
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....pecial placement Fee received and offered for tax Financial Year Asst. Year Amount received Amount offered for tax and taxed 1-4-2005 to 31-3-2006 2006-07 3,80,85,000 -- 1-4-2006 to 31-3-2007 2007-08 1,97,54,079 -- 1-4-2007 to 31-3-2008 2008-09 75,57,450 1,90,42,500 1-4-2008 to 31-3-2009 2009-10 1,62,00,000 1,90,42,500 98,77,040 2,89,19,540 1-4-2009 to 31-3-2010 2010-11 4,47,10,000 98,77,040 37,78,725 1,36,55,765 1-4-2010 to 31-3-2011 2011-12 -- 37,78,725 81,00,000 1,18,78,725 1-4-2011 to 31-3-2012 2012-13 -- 81,00,000 2,23,55,000 3,04,55,000 1-4-2012 to 31-3-2013 2013-14 -- NIL Because the entire sum of of Rs. 2,23,55,000 refunded as services were discontinued Referring to the above chart, it was submitted that in the first year i.e., AY. 2006-07, assessee received Rs. 3.80 Crores which was offered to Income tax in AYs. 2008-09 and 2009-10 as the services were rendered during those years. Like-wise, the receipt in AY. 2007-08 were ....
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....tantial sums in the first year and these should have been offered to tax on receipt basis. He supported the order of CIT(A) in AY. 2010-11 and deferred from the order of CIT(A) in AY. 2006-07, on which Revenue is aggrieved. 10. We have considered the rival contentions and perused the entire record of assessee and Paper Books placed on record. As seen from the scheme of SPS, the basic facts which are necessary for consideration of the issue and are not in dispute are as under: i. The duration of the Long Distance Training Programme conducted by ICFAI is 24 months or 2 years; ii. The students who joined the course in asst. year 2006-07 will be qualifying the completion of the course after 24 months; iii. Assessee has agreed to provide placement services for students only after their completion of the course and not before. A student has no right to demand placement service before completion of the course as per the contract. A508(1); iv. A student is entitled to claim refund of the prescribed fee so long as the assessee does not render any placement service (A0512); v. After completion of the course, the student shall make an applicatio....
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....e taxability of income is concerned, one has to examine the determination of accrual of income. For this, the terms and conditions of the contract as stated above clearly indicates that assessee has not rendering any services in the first two years and liability to provide service will arise only in third year i.e., after the end of the course by the candidate. 12. Assessee relied on the decision of the Delhi Bench in the case of K.K. Khullar Vs. DCIT [304 ITR (AT) 295]. In this case, the assessee received certain amounts for services to be rendered over a period of time. The entire amount of Rs. 4,89,397/- received was taxed as income although some of the services have not been performed during the year. The matter was carried on in appeal and the Tribunal held that to the extent to which the services are not performed, the amounts received cannot be taxed as income. Following portion of the head note at pages 295 and 296 are extracted below: "The assessee, an advocate, received certain amounts for services to be performed over a period of time. The amount received from the client in respect of the services rendered in the year under consideration was shown as in....
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....th reference to point of time when the services have to be rendered. Relevant portion of the head note at pages 10 and 12 is extracted below: "U/s. 5(1)(b) of the Income tax Act, 1961 when the income accrues or arises or is deemed to accrue or arise to the assessee in India during the previous year, it is to be taxed in that year. It is important, therefore, that receipt of a particular amount in the relevant year should be an 'income' under the provision. The relevant yardstock is the time of accrual or arisal for the purpose of taxation viz. in order to be chargeable, the income should accrue or arise to the assessee during the previous year. There must be a 'right to receive the income on a particular date, so as to bring about a creditor and debtor relationship on the relevant date'. A right to receive a particular sum under agreement would not be sufficient unless the right accrued by rendering of services and not by a promise for services: where the right to receive is anterior to the rendering of services, the income would accrue on the rendering of services." "Held, dismissing the appeals, that though at the time of admission, the students ....
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....actually provided to the students". 13. Thus it was very clear that the amount can not be brought to tax on receipt basis unless the same has accrued to assessee as income. In view of the facts of the case as well as law on the subject, we are in agreement with the order of the CIT(A) in AY. 2006-07, wherein he has correctly analysed the legal and factual position and deleted the amount in that year. 14. Further, as seen from the order of the CIT(A) in AY. 2010-11, it is very clear that Ld. CIT(A) misunderstood the entire scheme. First of all, the fee was not collected from 'gullible' students by assessee, as the admission was taken in the ICFAI in the distinct learning programme. As a part of the curriculum services of placement were also offered, which is optional. Therefore, there is no compulsion on the part of the student to avail the placement services. Secondly, the mechanism to collect fee from 'gullible' students at the time of admission does not arise, as the student were given an option which they may or may not avail. There is also no false hope of providing employment, as the services for employment were rendered with a minimum guarantee of salary, which t....