1987 (2) TMI 98 - AT - Income Tax

Summary

Issues:
1. Inclusion of outstanding fees in the assessee's net wealth for assessment year 1979-80.
2. Reduction of outstanding fees from the original amount by the Appellate Authority.
3. Dispute over income-tax payable by the firm on the outstanding fees.
4. Scaling down of outstanding fees as per the actuaries' report.
5. Verification of various deductions allowed by the actuaries.
6. Application of interest rate to the realisation period of outstanding fees.

Analysis:

1. The judgment addresses the inclusion of outstanding fees in the assessee's net wealth for the assessment year 1979-80. The Appellate Tribunal considered the valuation of outstanding fees in the Bombay and Ahmedabad firms. The original amount was reduced by the Appellate Authority based on a valuation report by actuaries.

2. The dispute arose regarding the reduction of the assessee's share of outstanding fees by the Appellate Authority. The Revenue challenged this reduction, while the assessee claimed that nothing should be included in the net wealth concerning outstanding fees of the firm.

3. The judgment discusses the income-tax payable by the firm on the outstanding fees. It refers to a previous case where it was established that no income tax was payable on the outstanding fees due to the cash system of accounting, thus rejecting the need to deduct income tax liability from the outstanding fees.

4. The judgment delves into the scaling down of outstanding fees as per the actuaries' report. Various grounds in the report were examined, including the irrecoverability of outstanding fees, the average realization period, and establishment costs deducted from the receipts.

5. There was a need for verification of the deductions allowed by the actuaries. The Revenue raised concerns about the lack of detailed information provided by the actuaries and the need for further examination by the assessing authority.

6. The application of the interest rate to the realisation period of outstanding fees was also discussed. The Tribunal directed the use of the prevailing bank rate to ascertain the average period for which the outstanding fees would remain unpaid by clients.

In conclusion, the judgment partially allowed the Revenue's appeal, rejected the assessee's cross-objection regarding the inclusion of outstanding fees, and dismissed the objection related to the credit balance in the CDS account. The matter was restored to the assessing authority for further examination based on the observations made in the judgment.