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TMI Blog2011 (7) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... stioning, it was stated that the receipt is not taxable in firm's hand as it is capital receipt in the hands of partners. The Assessing Officer held that it was patently a receipt of the firm liable for income tax. ITAT confirmed AO's decision, in penalty proceedings AO further held that assessee firm camouflaged the nature of receipt by furnishing inaccurate particulars and imposed the penalty which is the subject matter of this appeal. 2.1. Deloittee Touche Tohmatsu International (DTTI), one of the leading accounting firms in the world established under Swiss Verein engaged in the practice of public accountancy in various countries. The Verein consists of members that are professional firms and are engaged in the profession of public accountancy. In other words, DTTI is a conglomeration of member firms, not individuals, which is being managed and run by a Board of Directors selected by member firms. DTTI has a member firm in India by the name of Deloittee Haskins and Sells (DHS) which is an association of four Indian accounting firms namely Khanna and Annadhanam, the assessee firm (KA), Fraser and Ross (FR), Gupta Choudhary and Ghosh (GCG) and P.C. Hansotia and Co. (PCH). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the International Firm was known by the name of DTTI. 2.6. The clients of DHS which were mostly multi-national companies operating in India were referred to DHS for providing professional services by member firms of DTTI, mostly the US and UK firms. Since DHS was constituted by three firms and later on by four firms, after admission of M/s. Fraser and Ross, the firms agreed that the DHS clients should be serviced by the local firms as DHS did not have necessary infrastructure in the various cities. The billing of the clients was done by DHS through the services rendered by the constituent firms. It was agreed between the firms that for the services rendered by the respective firms to DHS clients, the firm will be entitled to fee commensurate with the work done as may be mutually agreed to between the firms. In view of this, 80 to 90% of the fees collected by the DHS was passed on to the constituent firms for their services. The balance was left in DHS for certain common expenses like training course, secretarial services, indemnity insurances, etc. 2.7. In view of the increased activities of DHS in India, the Apex Bodies i.e. DTTI was keen that all the firms const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledged in clause 5 of the agreement dated 14.11.1996. By virtue of this agreement the assessee become entitled to impugned payment to compensate the assessee for the consequent professional loss and prejudice, the DTTI agreed to pay US$ 3.25 lacs. The Assessing Officer also held that though after the exclusion of the assessee from DTTI membership there was no reference of the clients by DTTI, yet the assessee was not prohibited from practicing the profession of accountancy. Thus there was neither restrictive covenant to carry on the profession by assessee nor cessation of assessee's business. The compensation paid was thus for profits which the assessee would have earned in future in the carrying on work with DTTI. Thus it can be said that the assessee only parted with particular fruits of the tree and not the tree itself. The source of assessee's income was accountancy profession and every client of the assessee cannot be regarded as separate source of income. The source of income was profession of accountancy as a whole. The Assessing Officer distinguished the case laws cited by assessee and relied upon following case laws to hold that the amount received by the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on of such profession, entered into an agreement for concurrent membership of DTTI in 1992. Since this arrangement was no more agreeable, this arrangement came to an end in a way it can be said that the arrangement or cessation of the arrangement is of in the course of carrying on the profession as such. The arrangement with DTTI and because of such association if any professional income is generated, it cannot be considered as a separate or distinguished profession de horse or unconnected with existing profession. The affect of new arrangement is that DTTI will not refer the clients and to facilitate the transfer of all referred clients. The assessee was compensated for probable loss or breach for the form of non-receipt of the professional fees. Thus all these things put together will be part of the profession. Accordingly, it can be said that, though voluntarily, the payment came to the Assessee in the course of carrying on the profession of accountancy. When such voluntary payments, which are connected with profession, will constitute income chargeable to tax. The payment has origin in the profession carried on which itself is a definite source of income and hence charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y u/s 271(1)(c) was a civil liability and establishment of willful concealment was not necessary, AO levied the impugned penalty of Rs. 46,28,000/- being 100% of the tax sought to be evaded. 3.3. Aggrieved, assessee preferred first appeal before the CIT(A), who cancelled the penalty by following observations: "I have considered facts of the case, It is seen that the basic issue involved in this case was whether the amount of Rs. 1,15,70,000/- received by the appellant was a capital receipt or a revenue receipt, exigible to tax. It is noticed from the assessment order that this amount was shown in the capital accounts of the partners. The appellant had earlier paid advance tax on this amount, treating it as revenue receipt. However, later on, while filing the return of income, the appellant claimed that it was advised that this receipt constituted capital receipt and hence, was not liable to tax. Accordingly, the receipt was not offered to tax. This fact is also stated in the penalty order. The claim of the appellant that this receipt was a revenue receipt was negatived at the assessment stage by the Assessing Officer but was accepted by the CIT(A). However, in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt; (ii) Services provided by the assessee to clients referred by DTII was undisputedly the source of income of the assessee and merely because the assessee entered into an agreement with DTII, the compensation received by the assessee against a possible future stoppage of income from such referred clients, cannot amount to closure of a source of income; (iii) The impugned receipt of the assessee was patently in the course of carrying on accountancy profession of the assessee; (iv) The assessee had no justifiable reason to assume that such receipts were capital receipts. The so called dispute about the nature of receipt is only figment of assessee's imagination to evade tax and was invented to create a smoke screen. (v) The assessee itself is an accounting firm and the DTTI referred clientage yielded professional fee and in lieu of compensation assessee gave up such future professional fee, these clients in due course were replaced by other clients. More so when the assessee earned DTTI membership reputation. (vi) Assuming but not admitting, even if it was assumed to be a capital receipt, the same should have been credited through firm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion. In the paper book filed before ITAT in quantum proceedings, there is neither copy nor reference to any legal opinion. (xi) It is clear that the issue of legal opinion was raised in penalty proceedings for the first time that too assessee failed to discharge its burden by not adducing the opinions before the AO. These were produced before the CIT(A) for the first time in penalty proceedings. 4.1. Learned DR further contends that: (a) DTTI agreement did not create any doubt, assessee paid advanced tax on such receipt and factually never intended to believe in these opinions and never took a plea in the course of assessment proceedings by filing copies of these legal opinions. (b) Finding of the CIT(A) that assessee had a bona fide belief is bereft of any reliable material and analysis of facts. The assessee's bona fide is questionable and its conduct does not match with the situation and the attempt amounts to unacceptable strategy to put blinkers in the eyes of legal process to whatever extent possible. A firm of Chartered Accountants which is bound by the ethical code of profession of accountancy and also income-tax law practices, should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is guilty. The order imposing penalty is quasi-criminal in nature and the burden lies upon the Department to establish that the assessee had concealed his income. Sine burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in the assessment proceedings that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceedings constitutes good evidence in the penalty proceedings. In the penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle." (ii) DHARAMENDRA TEXTILES 295 ITR 244(SC DB) "8. We are of the view that there is a conflict of opinions between the judgments of the Division Bench of this Court in the case of Dilip N. Shroff (supra) on one hand and on the other hand we have another judgment of this Court in the case of Shriram Mutual Fund (supra). Secondly, it may be pointed out that the object behind enactment of section 271 (1)(c) read with the explanations quoted above indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under the said sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7] Therefore, it must be shown that the conditions under section 271(J)(c) exist before the penalty is imposed There can be no dispute that every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee, who appeared initially, reiterated the facts and submissions argued before AO and contended that the assessee had disclosed sufficient details about its belief that the income in question was a capital receipt by following notes in computation: "Note: During the year the firm received US dollars 3,25,000 (Rs. 1,15,70,000/-) as compensation on withdrawal from the international accounting firm Deloitte Touche Tohmatsu International. The firm has been advised this receipt constitute a capital receipt and hence not liable to income tax." balance-sheet: "Note" On withdrawal from Deloitte Touche Tohmatsu International as a member firm, the firm received a compensation of Rs. 1,15,70,000/-. The firm has been legally advised that the amount being in the nature of capital receipt, it is not liable to tax. After transferring Rs. 23,14,000/- to 'Reserve for Professional Risks', the balance amount has been credited to the partners' accounts in the agreed ratio." 4.3. The assessee made a legal claim and merely because the claim has been rejected, it cannot lead to levy of penalty u/s 271(1)(c). Reliance is placed on following judgments: &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. v. CIT 53 ITR 261 (SC) - CIT v. Saurashtra Cements 325 ITR 422 (SC). 4.7. Their Lordships of the Hon'ble Supreme Court, the case of Rai Bahadur Jairam Velji (supra), observed as under: "The question whether a receipt is capital or income has frequently come up for determination before the courts. Various rules have been enunciated as furnishing a key to the solution of the question, but as often observed by the highest authorities, it is not possible to lay down any single test as infallible or any single criterion as decisive in the determination of the question, which must ultimately depend on the facts of the particular case, and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision." 4.8. It is pleaded that the Hon'ble Supreme Court in the case of Reliance Petroproducts (supra), has held that if the assessee has given the particulars in the return of income then taking a different view by AO did not constitute furnishing of inaccurate particulars. Mere making of claim, which is not sustainable in law, by itself will not amount to furnishing of inaccurate pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the assessee is in the profession of chartered accountancy and during the course thereof, it has to be associated with various modalities for rendering desired professional services to government agencies, banks, financial institutions, companies and various other entities by different profit earning arrangements. In this case, as a part of its profession, it entered into a partnership with DTTI, a non-resident professional undertaking, for the furtherance of its professional pursuit. The DTTI gave choice to assessee either to continue with it or discontinue with a compensation. Assessee thought, in its professional wisdom, chose to remain an independent player instead of an associate, so it preferred to disassociate from DTTI. If it had continued, the earning would have been professional receipt and the alternate receipt also takes same analogy and has no trapping of having any doubt about its being a purely professional receipt or the revenue receipt. The assessee is a firm of Chartered Accountants and it is not understandable that for such an issue about a clearly professional receipt, which is very basic in character, assessee had any doubt about its nature. If it is so, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the assessee, we have already held that the nature of receipt itself was decisive of the fact that assessee, a prominent Chartered Accountants firm, rendering professional services by various arguments and its association with world famous DTTI was in furtherance of profession and earned a lump sump professional compensation by choosing one out of two options. 5.5. The assessee firm can harbour any number of doubts, however, the law postulates that the assessee should file a return which is correct, complete and truthful. The law of Income-tax prescribes allowability of various kinds of incomes and expenses and in respect of professional income mandate is clear. The need of proper verification clearly indicates that law wants the assessee to be very vigilant while making a claim and not to make a claim which is not in accordance with law. If the receipt is prima facie revenue in nature, there is no gainsaying that assessee harboured doubt in respect of earning fruits of the tree though not from same branch of the tree. 5.6. Learned DR has pointed out that though the assessee is trying to shield itself behind the legal opinions, the glaring facts are - till th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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