2021 (1) TMI 738 - AT - Income Tax

Disallowance of Subscription Fees paid to Deloitte Touche Tohmatsu - HELD THAT - As relying on assessee ow case We note that the said amount was towards the reimbursement of the expenses, which was in fact incurred on behalf of the assessee and there was no profit element. That being so, we decline to interfere with the order of Ld. CIT (A) deleting the aforesaid addition. we allow ground No.1 in both the years under consideration and direct the Assessing Officer to delete the disallowance. Disallowance of TDS payable - HELD THAT - 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, ground no. 2 also stands allowed in assessment year 2011-12. Disallowance of payments to Retiring Partners - HELD THAT - 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 decisions as aforesaid and as relied upon by the Ld. Authorized Representative, on identical facts, respectfully following the above cited judicial precedents, we allow ground No.3 of the assessee s appeal in Assessment Year 2011-12 and direct the Assessing Officer to delete the disallowance.

Issues Involved:
1. Disallowance of Subscription Fees
2. Disallowance of TDS Payment
3. Disallowance of Payments to Retiring Partners
4. Credit of Tax Deducted at Source (TDS)

Issue-wise Detailed Analysis:

1. Disallowance of Subscription Fees:
The primary issue was the disallowance of subscription fees paid to Deloitte Touche Tohmatsu (DTT). The assessee argued that the fees were necessary for business purposes and had been consistently paid since Assessment Year 2007-08. The Tribunal noted that the issue had been previously settled in favor of the assessee in similar cases, including decisions by the Delhi Bench and the Mumbai Bench of the ITAT. The Tribunal found that the subscription fees were indeed paid for the purpose of business, allowing the assessee to be part of a global network, which facilitated international cooperation and business referrals. The Tribunal directed the Assessing Officer to delete the disallowance for both Assessment Years 2011-12 and 2012-13.

2. Disallowance of TDS Payment:
The second issue was the disallowance of TDS payment amounting to ?44,09,937/-. The assessee contended that the TDS was deducted and paid within the prescribed time, and thus, should be allowed as a deductible expense. The Tribunal agreed with the assessee, noting that under the provisions of Section 198 of the Income Tax Act, the TDS amount is deemed to be received by the recipient of the income. Therefore, the amount of TDS should be considered as paid by the assessee. The Tribunal directed that the TDS amount be allowed as a deduction in Assessment Year 2011-12.

3. Disallowance of Payments to Retiring Partners:
The third issue was the disallowance of payments made to retiring partners, amounting to ?1,66,80,091/-. The assessee argued that these payments were made as per the partnership deed and were not income of the firm but a diversion of income by overriding title. The Tribunal noted that similar issues had been settled in favor of the assessee in various judgments, including those by the ITAT Mumbai Bench and the Hon'ble Bombay High Court. The Tribunal held that the payments to retiring partners were indeed a diversion of income by overriding title and directed the Assessing Officer to delete the disallowance for Assessment Year 2011-12.

4. Credit of Tax Deducted at Source (TDS):
The final issue was the credit of TDS amounting to ?8,67,44,316/- for Assessment Year 2011-12 and ?8,59,85,393/- for Assessment Year 2012-13. The Tribunal directed the Assessing Officer to grant the credit for the entire amount of TDS after due verification and providing the assessee with an opportunity to present its case.

Conclusion:
The Tribunal allowed the appeal for Assessment Year 2011-12 and partly allowed the appeal for Assessment Year 2012-13. The disallowances of subscription fees and TDS payments were deleted, and the payments to retiring partners were allowed as deductions. The Tribunal also directed the Assessing Officer to grant the credit for the TDS amounts after due verification.

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