TaxTMI 
TaxTMI 
2025 (6) TMI 646
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....recognition of revenue shall be postponed when there is uncertainty in ultimate collection of the same. 1.3. The learned CIT(A) and the learned AO ought to have appreciated that the Appellant did not recognize the royalty income since there was no certainty regarding ultimate collection of the same. 1.4 The learned CIT(A) and the learned AO ought to have appreciated that the customer had not paid the royalty to the Appellant for past years as well as current year and hence, it was not reasonably certain that the ultimate collection would be made. 1.5 The learned CIT(A) erred in not considering the documentary evidences furnished by the Appellant which clearly demonstrated that subsequently the Appellant was failed to collect the royalty and has actually written-off the same as amount no longer receivable. 1.6 The learned CIT(A) and AO erred in making the addition stating that there is no uncertainty about collectability of revenue as the customer is depositing the TDS. 1.7 The learned CIT(A) and learned AO ought to have appreciated that deposit of TDS to government by the customer and payment of royalty the Appellant are two independent transactions and deposit of TDS doe....
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....rm 26AS. The appellant had claimed credit of TDS being fully conversant of the fact that the said income had accrued to it and the same was appearing in its Form 26AS. 4.4 Further, the claim of the appellant company that the TDS credit was inadvertently claimed is a vague & lame excuse. The assessee company had deposited "self Assessment Tax after reducing the credit of alleged TDS from the tax liability computed. In case the same would have been inadvertently claimed in ITR, the assessee company would have paid Self Assessment Tax excluding the alleged TDS and would have claimed refund to that extent. However, it is not the fact of the case. 4.5 From the above stated facts of the case it is evident that the appellant company had willfully avoided to include the alleged amount of professional income in its return of income. Accordingly, the claim of the Appellant is not admissible since it has claimed credit of TDS on royalty income. Hence, i find no infirmity in the order of the AO and therefore, this ground of appeal is dismissed. 5. Ground no.2 is directed against charging of interest u/s 234A, 234B and 234C. Since charging of interest is mandatory and procedural in nature....
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....appreciating/ considering the submissions made by the Appellant, by stating the Appellant had willfully avoided to include the alleged amount of professional income in its return of income. Accordingly, the claim of the Appellant is not admissible since it has claimed credit of TDS on the royalty income. Appellant's submissions: Brief Facts 2.3.3. It is respectfully submitted that during the course of its business, the Appellant entered into a sublicense agreement with The Indure Limited ('TIL' whereby TIL was granted the right to manufacture and sell a restricted range of Warman Pumps and parts. Pursuant to this agreement, in consideration of grant of a non-exclusive license by the Appellant, TIL was required to pay royalty to Appellant for use of the brand name. Copy of sub-license agreement entered between the Appellant with TIL is at pages 120 to 147 of the paper-book. 2.3.4 For AY 2012-13, TIL withheld taxes amounting to INR 7,98,200/- on the royalty income that TIL was liable to pay to the Appellant. However, no royalty was paid by TIL to the Appellant. Copy of Form 26AS of the Appellant is at pages 110 to 119 of the paper-book. 2.3.5. During AY 2012-13 ....
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....ed with complete uncertainty as to its realization, such an accrual gets deferred to the point of clearing of the clouds of uncertainty over it. 2.3.11 It is well settled principle by the Apex court in various judgements that "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a Hypothetical income, which does not materialize". 2.3.12. Further, it is submitted that the income can be brought to tax only when the Appellant has actually received or likely to receive or certainty of receiving the income in the near future. Income cannot be recognized when there in uncertainty regarding its ultimate collection. Deduction of TDS alone cannot be the reason to sustain the royalty income. 2.3.13. In the Appellant's case, royalty income pursuant to the sub license agreement, which has theoretically accrued in favor of Appellant, but has not factually resulted or materialized at all to an App....
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...., in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. This was exactly what had happened in instant case. Here the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account. A mere book-keeping entry cannot be income, unless income has actually resulted, and in the instant case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This was not a gift by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long-term managing agency arrangement for the two companies which it had floated. The High Court was right in coming to the conclusion that on the facts of this case....
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....23 * ACIT v. Shri Rajeev Tandon ITA No. 461/LKW/2013 2.3.20 Based on above, it is submitted that the AO as well CIT(A) has erred in concluding the royalty arising out of sublicense agreement is the undisclosed professional income, ignoring the fact that such amount was never recognised by the Appellant in its books of accounts and thus it was not the real income of the Appellant. Mere deduction of the TDS on such amount by TIL would, in any manner, not lead to the conclusion that such income to be taxed in hands of Appellant. 2.4 Re: Ground of appeal no.2: Consequential." 7. The ld. AR relied upon the above written submission as submitted that the entire addition of Rs. 79,81,999/- may be deleted. Further, the following evidences were also submitted by way of a paper book, which is as under:- 1. Copy of submissions dated December 18, 2018 filed by the Appellant with the Commissioner of Income Tax (Appeals) ("CIT(A)") along with the following documents * Copy of journal entry in the Appellant's books of account indicating the recognition of royalty income during AY 2013- 14. * Copy of journal entry in the Appellant's books of account indicating creation of provi....
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....he ultimate collection with reasonable certainty was lacking and the revenue recognition was postponed to the extent of certainty involved. In the accounting standards prescribed by the Institute of the Chartered Accountant of India are binding upon the preparation of financial statements u/s 211 of the Companies Act 1956. The relevant portion of AS9 is extracted below:- 8. The Use by Others of Enterprise Resources Yielding Interest, Royalties and Dividends 8.1 The use by others of such enterprise resources gives rise to: (i) interest charges for the use of cash resources or amounts due to the enterprise; (ii) royalties charges for the use of such assets as knowhow, patents, trademarks and copyrights; (iii) dividends rewards from the holding of investments in shares. 8.2 Interest accrues, in most circumstances, on the time basis determined by the amount outstanding and the rate applicable. Usually, discount or premium on debt securities held is treated as though it were accruing over the period to maturity. 8.3 Royalties accrue in accordance with the terms of the relevant agreement and are usually recognised on that basis unless, having regard to the substance of the ....