TaxTMI 
TaxTMI 
2017 (3) TMI 957
X X X X Extracts X X X X
X X X X Extracts X X X X
....als) was not justified in confirming the action of the learned Asst. CIT in: 1. disallowing an amount of Rs. 10,00,00,000/- being professional fees returned to Star India P Ltd. The said amount had been incurred by the appellant for the purposes of his profession and on grounds of commercial expediency. The reasons given by both the learned CIT(Appeals) and the learned Asst. CIT in this regard, particularly their reading of the agreement dated 30-3-2007, are incorrect, erroneous and invalid. 2. adding an amount of Rs. 7,00,00,000/- as alleged professional fees. The reasons given by both the learned CIT(Appeals) and the learned Asst. CIT in this regard are incorrect, erroneous and based purely on assumptions, conjectures and surmises. 3. bringing the annual value of the Dubai Villa to tax in India. 4. levying interests u/s 234B and 234C of the Act." 3. In brief, the relevant facts are that the appellant is an individual who is a Film Actor by profession. For the assessment year 2009-10, he filed a return of income declaring a total income of Rs. 146,15,23,852/-, which was subject to scrutiny assessment whereby the total income had been assessed at Rs. 163,83,39,790/-, afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... placed in the Paper Book. Such accompanying deliverables, inter-alia, included certain 'Appearances and Promotions' by the assessee in press conferences in London and Dubai. Notably, the arrangement did not envisage any liability of Star India Pvt. Ltd. in respect of any fee or costs, etc. to be incurred by the assessee or Knight Rider Sports Pvt. Ltd. in relation to the deliverables mentioned and the sponsorship rights. It was explained that for procuring the sponsorship rights of Knight Rider Sports Pvt. Ltd. for IPL Season -2, assessee paid Rs. 10 crores on behalf of the Star India Pvt. Ltd. to Knight Rider Sports Pvt. Ltd. This amount was claimed as a professional expenditure. The Assessing Officer did not accept the plea of the assessee for deduction of the aforesaid amount while computing the taxable income. Firstly, as per the Assessing Officer the assessee was under no obligation to refund any amount to Star India Pvt. Ltd. because the non-shooting of the balance 52 Episodes was not for reasons attributable to the assessee. In this context, the Assessing Officer referred to the Artist Service Agreement dated 30/03/2007 between the assessee and Star India Pvt. Ltd. to point....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess strategy of maintaining his goodwill in business. It was also brought out by the assessee that both parties had come to a mutually acceptable compromise formula in order to maintain cordial relationship with each other on account of professional/commercial expediency. That under these circumstances the plea of the Assessing Officer that the impugned sum was not legally payable by the assessee is irrelevant. With regard to the observation of the Assessing Officer that during the year under consideration, no income of any nature has been received by the assessee from Star India Pvt. Ltd., assessee pointed out that he has received an amount of Rs. 60 crores in the instant year from Star India Pvt. Ltd, which constituted almost 40% of the gross receipts of the current year. In nutshell, the claim of the assessee was that the expenditure of Rs. 10 cores incurred for securing sponsorship for Star India Pvt. Ltd. was a genuine business expenditure incurred with the purpose of benefiting the assessee in maintaining his relationship with Star India Pvt. Ltd. The CIT(A) has disagreed with the assessee, as according to him, the impugned payment could not be construed as 'commercially expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the fees for the non-produced Episodes or spend the amount of Rs. 10 crores for grant of sponsorship of Kolkata Knight Riders Cricket Team to Star India Pvt. Ltd. It was therefore, argued that the expenditure in question was not borne out of any business necessity and was, rather, gratuitous in nature. It was also pointed out that the entire fee was received by the assessee upfront and offered for tax in earlier assessment year on receipt basis and therefore, even if the impugned expenditure is in relation to the income from Star India Pvt. Ltd., it cannot be allowed while deducting current year's income as it is in the nature of prior period expenditure. In sum-andsubstance, the Ld. Departmental Representative has defended the action of the lower authorities by placing reliance on the respective orders. 7. We have carefully considered the rival submissions. Evidently, the dispute in this Ground revolves around the import of the provisions of section 37(1) of the Act. Section 37(1) of the Act, inter-alia, relates to deduction of an expenditure laid out or extended wholly and exclusively for the purpose of business or profession while computing the income chargeable under the head ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed any professional receipt from the said concern in the instant assessment year. On the contrary, the details on record reveal that assessee has earned a sum of Rs. 60 crores from Star India Pvt. Ltd., which is a part of the total professional receipts for the year under consideration. In fact, the Ld. Representative for the assessee submitted that the amount of Rs. 60 crores received from Star India Pvt. Ltd. during the year under consideration constituted almost 40% of the total receipts. Be that as it may, what we are trying to emphasize is that there is a subsisting professional relationship between assessee and Star India Pvt. Ltd.and the impugned arrangement has to be viewed from the prism of a Principal - client relationship. In terms of the Artist Service Agreement dated 30/03/2007, assessee was to shoot for 104 Episodes but no shooting took place for 52 Episodes on account of a decision of Star India Pvt. Ltd., whereas the consideration for the entire Episodes was paid to the assessee in advance. In such a situation, intention of Star India Pvt. Ltd to obtain or recover the value of the unutilized amount from assessee for non-shooting of the balance 52 Episodes is quite p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learly establishes that the impugned expenditure falls within the scope of the expression "wholly and exclusively for the purpose of business or profession" within the meaning of section 37(1) of the Act. Therefore, on this aspect, assessee has to succeed. Accordingly, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of Rs. 10 crores. Thus, assessee succeeds on this Ground. 8. The second Ground of appeal relates to an addition of Rs. 7 crores as Professional fee. Briefly put, the relevant facts in this context can be summarized as follows. The genesis of said addition is also the mutual understanding arrived at between the assessee and M/s. Star India Pvt. Ltd. in relation to the Artist Service Agreement dated 30.3.2007. As has been noted by us earlier, in terms of the understanding with Star India Pvt. Ltd., assessee was to secure sponsorship rights of Kolkata Knight Riders Cricket team for IPL Season-II for which assessee had paid the relevant consideration to M/s. Knight Riders Sports Pvt. Ltd. on behalf of M/s. Star India Pvt. Ltd. As a part of the understanding, assessee had agreed to attend one press conference each at London ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee also assailed the invoking of Sec. 2(24)(iv) of the Act by the Assessing Officer by pointing out that no benefit or perquisite has been obtained by assessee for getting sponsorship of Kolkata Knight Riders Cricket team for M/s. Star India Pvt. Ltd. and, therefore, the impugned addition was untenable on this point also. In sum and substance, the claim of assessee was that the impugned addition was a notional assessment and there was no real income on this count. With regard to the observation of Assessing Officer of having acquired the shares of M/s. Knight Riders Sports Pvt. Ltd. in the subsequent year for a consideration, assessee pointed out that the consideration paid was very much above the then book value of shares and that such shares were purchased from M/s. Red Chillies Entertainment Pvt. Ltd., who was initially funded by the assessee for acquisition of such shares. In sum and substance, the assessee argued that there was no justification for such an addition. The CIT(A), however, was not impressed with the arguments of assessee and has upheld the addition made by the Assessing Officer. Against the aforesaid, assessee is in further appeal before us. 10. Before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r never took place and, therefore, there was no occasion for earning any income thereof. Further, it has also been asserted before the lower authorities that the agreed appearances and promotions referred to were a part of the understanding arrived at with M/s. Star India Pvt. Ltd. as a consequence of non-shooting of 52 episodes for which proportionate fee was already received in the earlier years. On both the aforesaid assertions, we find no negation by the income-tax authorities, therefore, it is abundantly clear that the impugned addition of Rs. 7 crores is merely an assessment of a notional income, which is neither supported by receipt or accrual of income. It cannot be overemphasised that what is required to be assessed to income-tax is the real income and not a hypothetical or notional income. As per the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. (supra) in case of accrual of income or receipt of income, what is of relevance is to assess an income which materialises. If an income does not result at all, obviously there cannot be taxation of such an income. In the orders of the authorities below as well as before us, the Revenue has not been able to p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee was gifted a villa in Dubai by Nakheel PJSE and possession was received by the assessee on 18/06/2008. The Assessing Officer show caused the assessee to explain as to why the deemed annual letting value within the meaning of section 23(1)(a) of the Act should not be adopted in respect to the said property. Before the Assessing Officer assessee contended that in view of the provisions of Para -1 of Article - 6 of the Double Taxation Avoidance Agreement between India and UAE, no income in respect of the said property was required to be assessed. However, Assessing Officer did not accept the plea of the assessee and estimated the annual letting value at Rs. 96.00 lacs and thereafter, allowing the deduction under section 24(a) of the Act amounting to Rs. 28,80,000/-, the income from house property was assessed at Rs. 67,20,000/-. Before the CIT(A), assessee reiterated the submissions put forth before the Assessing Officer. The CIT(A) has upheld the stand of the Assessing Officer in the light of the Notification Nos.90 & 91 of 2008 dated 28/08/2008 issued by the CBDT. As per the CIT(A), in view of the aforesaid notifications, the annual letting value of the said property was includib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, assigning meaning to the terms used in the DTAA, which has neither been defined under the Act nor in the agreement provided that such a meaning should not be inconsistent with the provisions of the Act or agreement. In pursuance of such a statutory empowerment, Central Govt. has issued a notification on 28th August, 2008, clearly specifying that where the DTAA entered into by the Central Govt. with the Govt. of any other country provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act, 1961 and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. This meaning assigned to the term "may be taxed" has changed its complexion; ii) The notification dated 28th August 2008, reflects a particular intent and objective of the Government of India, as understood during the course of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpret- tation given by govt. of India ....