1994 (11) TMI 169 - AT - Income Tax

Advance Tax Assessing Officer Expenditure Incurred Foreign Company Interest Payable By Assessee

Summary

Issues Involved:
1. Taxability of the amount received as advances for reimbursable expenses.
2. Levy of interest under Sections 215 and 216 of the Income-tax Act.
3. Deduction of expenses incurred for earning remuneration.

Detailed Analysis:

1. Taxability of the Amount Received as Advances for Reimbursable Expenses:
The assessee, an individual who worked as a consultant for a Moroccan company (OCP), received Rs. 7,98,717 as advances for expenses to be incurred on behalf of the company. The Assessing Officer added this entire amount to the assessee's income, suspecting it to be a facade for tax evasion. The Commissioner of Income-tax (Appeals) [CIT(A)] sustained the addition but allowed deductions for expenses incurred.

The Tribunal examined the agreement dated 14-3-1986, which stipulated a monthly consultancy fee of Rs. 40,000 and reimbursement of expenses against justificative vouchers. The Tribunal noted that the assessee maintained regular books of accounts and that the advances were received through normal banking channels. It was also observed that the expenses were indeed incurred on behalf of OCP and that the vouchers were approved by OCP, albeit with some disallowances.

The Tribunal concluded that the advances were not of a trading nature and hence not taxable. The Tribunal emphasized the importance of the initial character of the receipt, stating that if it is of a trading nature, it would be taxable. However, in this case, the advances were meant for reimbursable expenses and were not the assessee's income. The Tribunal thus deleted the addition of Rs. 6,22,795 sustained by the CIT(A).

2. Levy of Interest Under Sections 215 and 216 of the Income-tax Act:
The assessee contested the interest charged under Sections 215 and 216. The assessee argued that the advance tax was paid in three installments and that there was no understatement of advance tax payable in the first two installments.

The Tribunal rejected this argument, stating that the assessee's income consisted of fixed remuneration from OCP, and the understatement in the first two installments was not justified. The Tribunal upheld the levy of interest under Section 216 but directed the Assessing Officer to modify the interest under Section 215 in view of the relief allowed.

3. Deduction of Expenses Incurred for Earning Remuneration:
The CIT(A) had directed the Assessing Officer to allow a deduction of Rs. 1,75,922 for expenses incurred by the assessee for earning remuneration from OCP. However, the Tribunal, in light of its finding that the entire amount of Rs. 7,98,717 was not taxable, concluded that the expenses allowed by the CIT(A) were also not allowable. Consequently, the department's appeal was allowed on different grounds.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the addition of Rs. 6,22,795 and upholding the levy of interest under Section 216 while directing modification of interest under Section 215. The department's appeal was also allowed, disallowing the deduction of Rs. 1,75,922 for expenses incurred.