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2022 (9) TMI 705 - AT - Income TaxAddition being amount of unreconciled TDS and income not offered for taxation - real or hypothetical Income - method of accounting for revenue recognition - As argued deductors have accounted the same in its books of account and have also subjected it to TDS, which has been remitted to the Government Treasury - CIT-A deleted the addition - assessee enforces that the income distributed to the concerned members has to be taxed in the hands of the members only and not on the assessee - HELD THAT - It is observed that the assessee company is a mere step through entity, which collected royalties and licence fees on behalf of its members and distributed the said amount to the concerned member after duly deducting the related expenses on actuals. It is pertinent to consider the submission of the assessee with regard to the method of accounting followed by the assessee company and how the receipts are accounted for. Assessee has also tried to reconcile the TDS amount which were not taken credit. it is essential to consider whether any income is real or hypothetical and that whether there is a corresponding liability of the other party to pay the amount to the assessee and that the probability of realization of income by the assessee are the factors that are to be considered to determine whether an income has accrued or not. We would also like to place reliance on the decision of CIT vs Neon Solutions Pvt Ltd 2016 (4) TMI 1162 - BOMBAY HIGH COURT which was also relied on by the Ld.CIT(A) for the fact that even in accrual method of accounting, income which cannot be realized and the collection of the same is uncertain, the same cannot be accounted. No infirmity in the decision of the Ld.CIT(A) and we hereby uphold the order of the Ld.CIT(A). Resultantly, the appeal filed by the Revenue is dismissed.
Issues Involved:
1. Deletion of addition of Rs. 7,83,76,440/- as unreconciled TDS and income not offered for taxation. 2. Failure to show relevant amounts as advances in the balance sheet. 3. Whether the assessee, as a step-through society, should have income attributed to it. 4. Reliance on Apex Court decisions without considering the specific case facts. 5. Reliance on Bombay High Court decision without considering the specific case facts. Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs. 7,83,76,440/- as Unreconciled TDS and Income Not Offered for Taxation: The Revenue's primary contention was that the Ld. CIT(A) erred in deleting the addition of Rs. 7,83,76,440/- made by the Assessing Officer (AO) based on unreconciled TDS credits. The AO had determined this amount as undisclosed income since the assessee neither took credit for the TDS nor declared the corresponding income. The Ld. CIT(A) deleted this addition on the ground that the assessee was merely a step-through society that collected and distributed royalties on behalf of its members, and thus, the income in question did not belong to the assessee. The Tribunal upheld the Ld. CIT(A)'s decision, recognizing that the assessee was not liable for the said income, as it was duty-bound to distribute it among its members. 2. Failure to Show Relevant Amounts as Advances in the Balance Sheet: The Revenue argued that the assessee failed to show the relevant amounts as advances in the balance sheet, which could imply that the income had accrued to the assessee. The Tribunal noted that the assessee consistently followed a specific method of accounting for income recognition, wherein income was accounted for only upon receiving log records from users/licensees and identifying the corresponding members. This method was accepted in prior and subsequent years without any additions. Thus, the Tribunal found no merit in the Revenue's argument and upheld the Ld. CIT(A)'s decision. 3. Whether the Assessee, as a Step-through Society, Should Have Income Attributed to It: The Revenue contended that the Ld. CIT(A) erred in holding that the assessee, being a step-through society, did not have income attributed to it. The Tribunal observed that the assessee's role was limited to collecting royalties and license fees on behalf of its members and distributing the net income after deducting expenses. The assessee's return filings under the Copyright Act evidenced the collection and distribution of royalties, and the income was rightly attributed to the members, not the assessee. Therefore, the Tribunal upheld the Ld. CIT(A)'s decision. 4. Reliance on Apex Court Decisions Without Considering the Specific Case Facts: The Revenue argued that the Ld. CIT(A) erred in relying on Apex Court decisions in Shoorji Vallabhdas, Morvi Industries, and Godhra Electricity Co without considering the specific facts of the case. The Tribunal reviewed these judicial precedents, which emphasized that income must be real and not hypothetical, and there must be a corresponding liability of the other party to pay the amount to the assessee. The Tribunal found that the Ld. CIT(A) correctly applied these principles, as the income in question was not real but hypothetical due to ongoing disputes and the method of accounting followed by the assessee. 5. Reliance on Bombay High Court Decision Without Considering the Specific Case Facts: The Revenue also contended that the Ld. CIT(A) erred in relying on the Bombay High Court decision in CIT vs. Neon Solutions Pvt. Ltd. without considering the case's specific facts. The Tribunal noted that the High Court decision supported the principle that income, which cannot be realized and whose collection is uncertain, should not be accounted for, even under the accrual method of accounting. The Tribunal found that this principle was applicable to the assessee's case, where income recognition was contingent upon receiving log records and resolving disputes. Thus, the Tribunal upheld the Ld. CIT(A)'s reliance on this decision. Conclusion: The Tribunal upheld the Ld. CIT(A)'s order, finding no infirmity in the deletion of the addition made by the AO. The appeal filed by the Revenue was dismissed. Consequently, the cross-objection filed by the assessee was also dismissed, as it was contingent on the outcome of the Revenue's appeal. The Tribunal's decision reaffirmed that the assessee, a step-through society, was not liable for the disputed income, which was to be distributed among its members.
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