TaxTMI 
TaxTMI 
2021 (1) TMI 738
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..../additions: (i) Disallowance of Subscription Fees paid to Deloitte Touche Tohmatsu - Rs. 2,55,59,636/-. (ii) Disallowance of TDS payable - Rs. 44,09,937/-. (iii) Disallowance of payments to Retiring Partners - Rs. 1,66,80,091/. 2.1 In Assessment Year 2012-13, the return of income was filed declaring an income of Rs. 3,27,04,110/- and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called 'the Act') was completed at an income of Rs. 6,10,37,970/- after making a disallowance of Rs. 2,83,33,858/- paid as subscriptions fees to Deloitte Touche Tohmatsu. Apart from this, the Assessing Officer (AO) did not allow deduction of expenditure of Rs. 44,09,937/- representing tax deducted at source for Financial Year 2010-11 but paid in Financial Year 2011-12. The Assessing Officer also did not grant assessee's claim of TDS amounting to Rs. 8,59,85,393/-. 2.2 Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the orders of the Assessing Officer in both the captioned assessment years. However, the appeals of the assessee were only partly allowed by the Ld. Commissioner of Income Tax (Appeals) {CIT (A)} and now the as....
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....IT (A) erred in confirming the disallowance of Rs. 1,66,80,091, being payment to retired partners in disregard to the underlying principle of diversion by overriding title. 3.2 The learned CIT (A) ought to have appreciated that as per Clause 10.n of the Partnership Deed, the said amount was not income of the appellant firm as it was diverted by overriding title. 3.3 The learned CIT (A) erred in concluding that the payment to retired partners is an application of income without considering the fact that there is a prior charge on the income by way of superior title and therefore it is not an income of the appellant. 3.4 The learned CIT (A) erred in confirming the finding of the Assessing Officer that payment made to retired partners has to be disallowed under section 40(a)(ia) of the Act as no tax is deducted. 3.5 The learned CIT (A) erred in confirming the action of the Assessing Officer in applying the provisions of section 40(b) of the Act in respect of payment to retired partners. 3.6 The learned CIT (A) erred in not appreciating the fact that the amount of Rs. 1,66,80,091 is included in the income of the retired partners and offered ....
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....rned CIT(A) ought to have directed the Assessing Officer to allow deduction for expenditure of Rs. 44,09,937 representing TDS deducted in the Financial Year ('FY') 2010-11 but paid in the FY 2011-12. 3. Credit of Tax Deducted at Source ('TDS') 3.1 The learned CIT (A) ought to have specifically directed the Assessing Officer to grant credit for the entire amount of TDS of Rs. 8,59,85,393 as claimed by the appellant. 4. Each one of the above grounds of appeal is without prejudice to the other. 5. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well on facts in confirming the additions made by the AO to the returned income." 3.0 The Ld. Authorized Representative (AR) submitted that as far as the disallowance pertaining to subscription payment to Deloitte Touche Tohmatsu was concerned, the issue was covered in favour of the assessee by the order of the Delhi Bench of the Tribunal in Assessment Year 2009-10 in ITA No.2927/Del/2013 vide order dated 23.10.2018. The Ld. Authorized Representative explained the necessity of paying subscription fees and further explained how the subscription fees is collected from the members/compan....
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....penditure is fully discharged. With such accounting another liability i.e., obligation to deposit the tax so deducted at source is created which has a direct nexus with the disbursement to the payee. Thus, the liability in respect of such expenditure stands fully discharged. It was submitted that, however, the Assessing Officer did not accept the contentions of the assessee and the amount outstanding in respect of TDS payable was disallowed and added back to the income of the assessee on the ground that the assessee was following cash system of accounting and the tax deducted at source was being paid in the next Financial Year. The Ld. Authorized Representative further submitted that as per the provisions of Section 40(a) (ia) of the Act, an expenditure can be disallowed only when the statutory liability has not been deducted or after having deducted has not been deposited as per XVII-B of the Act. It was submitted that this provision was not applicable as the amount of statutory liability on which had been deducted had been deposited within the specified due date. 3.2 With respect to disallowance of payments made to the Retiring Partners, the Ld. Authorized Representative submi....
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....e findings of the Assessing Officer as well as the Ld. CIT (A). It was submitted that the assessee could not furnish the details of quantification of subscription fees and further the assessee could not establish that these expenses had been incurred wholly and exclusively for the purposes of assessee's business. 5.1 With reference to the arguments of the Ld. Authorized Representative in respect of disallowance of Rs. 44,09,937/- relating to tax deducted at source, the Ld. Sr. DR submitted that it is undisputed that the tax deducted at source was not paid into the account of the Government before the end of the Financial Year and, therefore, the same had rightly been disallowed. It was further submitted that since the assessee was following the cash system of accounting, the same was deductible only in the year in which the payment has been made and not in the year in which the claim has been made as having accrued. 5.2 With respect to the disallowance of payments made to the Retired Partners amounting to Rs. 1,66,80,091/- in Assessment Year 2011-12, the Ld. Sr. DR submitted that this payment had been made to the Retired Partners and that this payment was in the nature of cap....
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....icer, it cannot be claimed as business expenditure. In our understanding of law, such observation of the Assessing Officer does not hold any water, because under the Companies Act, a company can be incorporated under any other law also. The Assessing Officer has further mentioned that in the partnership deed, there is no clause relating to payment of DTT. We fail to understand the necessity of such clause in the partnership deed. 13. The Assessing Officer further observed that DHS Mumbai has paid to DTT after deducting tax at source u/s 194J of the Act which means that TDS has been deducted for fees for profession or technical services. The Assessing Officer was of the opinion that on the one hand DHS Mumbai is making payment as fees for profession or technical services and, on the other hand, the assessee is claiming the same as subscription fees. As mentioned elsewhere, in the case of DHS Mumbai in assessment years 2003-04, 2004-05 and 2005-06, payment made to DTJ-was disallowed u/s 40A(ia) of the Act. Thereafter, DHS Mumbai started deducting tax at source to avoid unnecessary litigation. But this has nothing to do with the subscription charges paid by the assessee to DH....
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.... be based upon aggregate revenues and such other f actors, if any, as Delotte Haskins and Sells IT A No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No.: 5094/Mum/2011 may be determined by the Board of Directors and approved by the Member Firms. and Article 12 deals with dissolution, which reads as under:- 12.1 By Resolution a dissolution of the Verein shall occur if a resolution to that effect is, adopted by the Member Finns. 12.2 Distributions. Upon dissolution of the Verein, any liquidation proceeds shall be applied in the following order: (a) payment or discharge of all liabilities of the Verein, including any unpaid principal of and accrued interest on any loans and advances made by the Member Firms to the Verein; and (b) payment of any remaining balance to each Member Finn in the proportion that its allocated , contributions to budgeted operating expenses of the Verein bear to the total budgeted operating expenses of the Verein for the then current Fiscal Year, less any unpaid portion of the Member Finn's contribution outstanding on the date of dissolution" From the reading of above Articles, it is seen that the association const....
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....ore us is concerned, the assessee paid an amount of Rs. 48,95,212/- to OHS, Mumbai. It is the claim of the assessee that payment was its share of subscription allocated to various Indian entities of a common global network on the basis of the revenue by OHS, Mumbai, of which the assessee is a member. The total subscription is paid by OHS, Mumbai after deduction of tax at source (TDS) to DTT towards utilization of common knowledge systems, common information technology systems and better access for clients of uniform and high quality services by the Indian members of the network. The assessee's contribution/share of Rs. 48,95,212/- comprised it share of Rs. 31,86,534/- for the relevant previous year and differential share of Rs. 17,08,679/- paid for the earlier years being the difference between the contribution payable on the basis of the revenue and contribution already paid earlier for those years and was claimed in line with the cash system of accounting followed by the assessee. The assessee produced debit notes issued by DHS, Mumbai as supporting evidence. The assessee has to pay subscription fees through Delloite, Haskins and Sells, Mumbai (DHS, Mumbai) for this purpose to DT....
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.... established with substantial materials." Moreover, we note that Coordinate Bench of ITAT Kolkata in the case of CIT vs. Ernst & Young (P.) Ltd. [2014] 49 taxmann.com386 (Kolkata-Trib.) upheld the same principle on the identical issue under consideration, wherein it was held as follows: "The two concerns, namely, EY&S LLP and Ernst and Young U.K. LLP, were set up by member firms of Ernst and Young for providing resources to obtain best methodologies at a lower cost which in the present days of globalization is imperative for any professional firm. Development of such methods by any one concern would have been cost prohibitive apart from lacking uniformity and mutual compatibility. Accordingly, arrangement was arrived at for such services to be developed in a pool by the said two concerns to which the member firms would have access to it and reimbursing their respective shares of cost incurred therefor. Such reimbursement was agreed on the basis of respective turnover of the member firms. These facts are not denied by the revenue and these are reimbursement of expenses. Once these are reimbursement of expenses, the assessee is not liable to deduct TDS u/s 195. Acco....
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....t of TDS is deemed to have been received by the recipient of the income. Therefore, in our considered opinion, it cannot not be said that the assessee had not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax had been deducted. TDS is a liability cast upon the assessee to deduct the sum from the recipient of such income. The moment the assessee deducts the tax at source from the sums paid to the other person it becomes the liability of the assessee who can be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also. Therefore, the amount of TDS is to be considered as the sum paid by the assessee on behalf of the recipient of the income. Therefore, it cannot be said that the above sum had not been paid by the assessee even while following the cash system of accounting. It is also not in dispute that the assessee has duly deposited the tax deducted at source within the time prescribed under the Act. Accordingly, we are unable to concur with the findings of the Ld. CIT (A) on the issue and direct that the impugned amount of TDS be granted as a deduction in assessment year 2011-12. Thus, gr....