TaxTMI 
TaxTMI 
2022 (8) TMI 380
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....s paid. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting disallowance u/s 40(a)(ia) for the payment made of Rs. 4,39,28,027/- to Deloitte Touche Tohmatsu India (P) Ltd. (DTTIPL) by ignoring fact that DTTIPL has rendered services to the assessee and that the payment was made in lieu of these services which cannot be termed as reimbursement as this payment partakes the character of expense for expense for services in the hands of the assessee. 3. On the facts and in the circumstances of the case and in law, the LD. CIT(A) has erred in deleting disallowance of remuneration paid to partners u/s 40(b) amounting to Rs.16,66,667/- by ignoring fact that the remuneration was to be paid proportionate to the period of working as per partnership deed." 4. Apropos disallowance on account of subscription fee paid : At the outset, on this issue, ld. counsel of the assessee submitted that ITAT, Delhi Bench in assessee's own case for AYs 2009-10, 2010-11, 2011-12 & 2012-13 has decided the issue in favour of the assessee. We note that pursuant to AO's disallowance of subscription fee of Rs.4,28,16,257/- paid for membership of ....
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....ue as under :- "5.4.1 The appellant is part of Deloitte Group and their common services in India handled by M/s DTTIPL. This company is doing other activities apart from giving common services like Accounts & Finance, Administration, IT, HR, documentation and risk& regulatory to its group companies at cost with no mark up. The cost relating to these services incurred by DTTIPL is shared amongst the members on the basis of members earning and computer related cost based on head count. It is observed that these consultancy firms are structured thin capital due to frequent incoming/outgoing members and most of the equipments/ buildings/cars etc. are on "hire basis" and system of accounting is also "cash system" which is probably done to avoid valuation & distribution issues arising from these assets when the partners come in/out of organization. As per the confirmation of DTTIPL filed it is observed that * Theses cost are charged on actual basis without any mark up by DTTIPL. * The methodology of accounting by DTTIPL is that all the costs reimbursed by the group companies is deducted from the total cost and net expenses for its own activities are claimed in ....
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....High Court in the case of Expeditors international are judgments on the identical facts as that of the appellant. * Without prejudice the case of the appellant is also covered by second proviso to section 40(a)(ia). Thus it can be concluded that the Tax is deductible on the income of the recipient and not in cases where there is no income in the hands of the recipient. The present payments are in the nature of reimbursement of expenses by appellant to DTTIPL on cost basis without any element of income in the hands of recipient DTTIPL. Therefore, the TDS was not deductible on such reimbursement of expenses on cost sharing on scientific basis. Accordingly, the provisions of section 40(a)(ia) cannot be invoked on such payments. Therefore addition made by the AO u/s 40(a)(ia) of Rs.4,39,28,027 is hereby deleted and this ground of appeal is allowed." 8. Against this order, Revenue is in appeal before us. We have heard both the parties and perused the records. 9. Ld. counsel of the assessee reiterated the point made out by the ld. CIT (A) that payment are in the nature of sharing of common cost without any profit element, hence they are not subject to TDS. In this regard, ....
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....der :- "The appellant has a structure of partners of firm working together on the salary signed by all the partners. If any partner joins during the year, a new partnership deed mentioning remuneration of each partner is prepared and signed by each partner. This deed mentions the annual amount to be paid to the partner. The controversy is that the AO considers the amount payable annually in the deed whereas a partner coming in during the year will not work for full year and, accordingly, his remuneration should be proportionately allowed for the months worked during the year. The appellant explained that although the annexure to the partnership deed mentions annual salary, it actually means that this amount will be payable for the financial year irrespective of the period of working. He filed the confirmation of the partner Mr. Mahesh Pansukhlal Sarda to show that this amount has been paid to him inspite of his introduction on 01.08.2012 in the firm. Similar issue arose in A.Y. 2014-15 also and the CIT(A) has deleted this addition, the operative part is reproduced as under: "4.3.3 The contention of the Assessing officer and the submission of the appellant has been....
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....e relevant Financial Year Rs.11,34,979/-; 3. Foreign Tax Credit." 16. Apropos disallowance of payment to retired partners : On the issue of payment to retired partners, the assessee's plea was that these payments were on account of diversion of overriding title of partnership deed and, therefore, not liable to tax at source. Accordingly, section 40(1)(ia) is not attracted in these cases. AO was not satisfied with the submission and made the disallowance of Rs.1,75,81,653/-. Ld. CIT (A) noted that on similar ground in AY 2015-16, CIT (A) confirmed the order of AY 2011-12. He referred to the decision of CIT (A) for AY 2011-12 and found that facts remained the same. He did not find any reason to deviate and accordingly he held that the disallowance of Rs.1,75,81,653/- made by the AO on this issue is upheld. 17. Against this order, assessee is in appeal before us. We have heard both the parties and perused the records. 18. Ld. counsel of the assessee submitted that the issue is covered in favour of the assessee by the ITAT decision in assessee's own case and also by catena of other decisions as under :- (i) Delhi ITAT order dated IS January 2021 in assessee o....
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....sment years 2000-01 and 2001-02 had held the issue in favour of the assessee. The Hon'ble High Court of Bombay in the case of DCIT versus Wadia Ghandy & Company, vide judgment dated 12/02/2019, also upheld an identical order of ITAT Mumbai and noted that payment to the partner would amount to diversion of income at source by overriding title. The court went on to observe that it was not necessary to refer to long line of decisions where a similar view in similar circumstances had been taken. The undisputed facts are that the partnership firm envisaged payment to a outgoing partner on the basis that the partner would have rendered service during his tenure as a partner of the firm but could not enjoy the fruits thereof on account of the fact that the work having remained incomplete, the concerned client had not been billed for the work already done. The Hon'ble Bombay High Court held that in similar circumstances, the courts have held that payment to the partner would amount to diversion of income at source by overriding title. The Ld. senior departmental representative could not point out any judgment to the contrary on this issue as well and, therefore, in view of the ratio of the....
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....ast 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, ground no. 2 also stands allowed in assessment year 2011-12." 25. Since the identical issue has been decided in favour of the assessee by the ITAT and the decision was not reversed by the Hon'ble High Court, we set aside the order of the authorities below and decide the issue in favour of the asse....