2010 (1) TMI 969 - AT - Income Tax

Appeal against the order of CIT - advance of Rs. 55 lakhs received by the assessee as professional receipts - considered as ''income'' - cash system of accounting - HELD THAT - Just because the assessee had received an amount of advance such sum cannot be treated as income, only for a reasoning that it was following the cash system of accounting. It is on account of this reason that in the assessee's own case for the earlier years, this Tribunal had held that it would not be proper and appropriate to treat professional advance received as income, unless and until proposed assignments had materialised. The assessee's contention that income could not be recognised till the artist had acted in the film, for which the advances were received, carries great strength. Storyline was not fixed, neither was the name, not even the co-artists were known. since this Tribunal had taken a view in favour of the assessee in the assessee's own case for earlier years, on similar fact situation, we find no compelling reasons to depart from the view taken earlier. Therefore, we find that amount of Rs. 55 lakhs received by the assessee as advance could not have been treated as his income for the impugned assessment year. Such addition stands deleted. Ground Nos. 2 to 9 of the assessee are allowed. Disallowance for sum of managing the call sheets paid as agency fees - HELD THAT - We are of the opinion that management of the call sheets of the assessee could not be considered as professional services or technical services. Expertise required for maintaining call sheets could not be considered to be of a level sufficient to be called as professional services . Neither any professional qualification was required for giving such services, nor could the AO show that such services were rendered by any professionals. There is no case for the Revenue that any professional expertise was required for giving dates on call sheets. Such payment could never be treated as agency fees in any case. Here, the assessee had deducted the sum and paid it on July 28, 2006, which is well before the due date for filing the return u/s139(1) and hence by virtue of the amendment, the payment could not have been disallowed. We are, therefore, of the opinion that the disallowance of Rs. 4,89,345 was not called for and such disallowance stands deleted. In the result the appeal of the assessee is partly allowed.

Summary

Issues:
1. Treatment of advance received as income.
2. Disallowance of expenses paid to M/s. Lakshmi Communication.

Issue 1: Treatment of advance received as income:
The appeal pertains to the assessment year 2006-07, where the assessee, a renowned film star, received advances for acting in films from M/s. Photon Factory and M/s. Studio Green. The Assessing Officer considered these advances as income, which was confirmed by the Commissioner of Income-tax (Appeals). The assessee argued that the advances were received for giving priority in dates and were not related to specific films, hence should not be treated as income until the films materialized. The Tribunal noted that the storyline, names, and co-artists of the proposed films were unknown, supporting the assessee's claim. The Tribunal emphasized that income recognition should align with the accrual principle, regardless of the accounting system used. Rulings in the assessee's own case for earlier years favored not treating professional advances as income until assignments materialized. The Tribunal upheld the assessee's contentions, deleting the addition of Rs. 55 lakhs as income.

Issue 2: Disallowance of expenses paid to M/s. Lakshmi Communication:
The assessee claimed agency fees paid to M/s. Lakshmi Communication for managing call sheets, which the Assessing Officer disallowed under section 40(a)(ia) for delayed tax remittance. The Tribunal found that managing call sheets did not constitute professional or technical services, and the expertise required did not meet the threshold for professional services. The Tribunal noted that the Finance Act, 2008, introduced amendments to section 40(a)(ia), preventing disallowance if tax was deducted and remitted before the due date for filing returns. Since the assessee had deducted and remitted the tax before the due date, the disallowance of Rs. 4,89,345 was deemed unjustified and was deleted. As a result, the appeal was partly allowed.

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