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TMI Blog2012 (7) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, either by proportionate completion method or by the completed service contract method - in favour of assessee. - ITA No.475/Del/2011 - - - Dated:- 4-5-2012 - R P Tolani, Shamim Yahya, JJ. For Appellants: Shri M P Rustogi, Adv. Mrs Lalitha Krishnamurthy, CA For Respondent: Ms Y Kakkar, Sr. DR ORDER Per: Shamim Yahya: This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 24.11.2010 pertaining to assessment year 2006-07. 2. The grounds of appeal read as under:- 1. That the lower authorities had erred on facts and under the law in assessing the entire amount of consultancy fees of Rs. 1,21,83,494/-, received from UG Hospitals Pvt. Ltd., for the term of five years, even pertaining to the unexpired period of the contract, in the year under appeal and consequently the addition of Rs. 115,74,319/- in the income of the appellant is arbitrary, unjust and at any rate very excessive. 2. That the lower authorities had erred on facts and under the law in assessing the entire consultancy fees amounting to Rs. 1,21,83,494/-, received from UG Hospitals Pvt. Ltd. for the term of five years, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by assessee's father- Dr. K.L. Khera , Brother - Sh. Raman Khera as well as Sister- Miss Jyoti Khera. The amount received are claimed to have been received for one and only reason for all of them i.e. their being appointed as Hospital Consultant simultaneously having been also paid simultaneously in crores -in advance for 5 years. It is simply unbelievable that a hospital will need- all of a sudden - so many Hospital Consultants from a single family -all closely related to each other by blood - pay all of them in advance for 5 years - hefty sum amounting in crores -for the service as claimed! More puzzling is the fact that the father Dr K. L. Khera who is senior most among all the recipients has been paid only Rs 58,26,888 as advance for the same period i.e 5 years where as the assessee his sister Miss Jyoti Khera being much junior in experience compared to their father have both received Rs 1,21,83,494 each. The basis of advance payment received therefore is beyond comprehension therefore the reasons as advanced by the assessee for receipt of the payment are simply not acceptable therefore rejected. From the period mentioned on the TDS certificate i.e. 1-1-06 to 31- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line devoted by the assessee in his letter dt 11th Dec, 2008 as to why the assessee Dr K. L. Khera - his father - both failed to appear in person when opportunity after opportunity, were offered to them! The reply of U/G hospital in this regard is also not acceptable for the reasons as mentioned above totality of facts circumstances of the case in absence of any formal written agreement or contract as discussed in details above. I, therefore considering the overall facts circumstance of the case and the fact that no regular books of accounts has been maintained by the assessee under any system -mercantile or cash - am convinced that the entire receipt deserve to be taxed in the year of receipt only rejecting the theory of "advance" in absence of any written agreement or contract or non maintenance of regular books of accounts under any system under the circumstances mentioned above from undisclosed sources only. I accordingly treat the entire receipt of Rs. 1,21,83,494 as receipt from disclosed sources i.e. U.G. Hospital for undisclosed reasons under the circumstances mentioned above. However to tax the entire receipt without allowing any expenses which might have been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the services, but here it is just reverse. Ms. Jyoti Khera is not a doctor also and not having any management degree in hospital management. Then how her expertise was utilized by the UGH is not understandable. ii. If the above named persons of the appellant group are so management expert then why have they failed to run the hospital of KCT since quite long time? Answer: the payments are not for their expertise but for other wise. iii. If the above named persons of the appellant group are so management expert then why other hospital groups have not taken over them when they are free to join/take any job as per the agreement with UGH? Answer: the payments are not for their expertise but for other wise and that is why the appellant did not get any other assignment in subsequent years till 2009. iv. Amongst how many consultants, the above named persons of the appellant group were selected by UGH? NO answer was given by the appellant. v. How and why have all these four persons of the appellant group taken over by the UGH at one point of time? The answer is that the agreement is not person specific but here it is group specific. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and UGH both. 4.1 In view of the factual and circumstantial evidence gathered by the AO and as discussed in his order. Ld. Commissioner of Income Tax (Appeals) held that it is held in principle that the receipts of Rs. 1,21,83,494/- is chargeable to tax in the relevant year. Ld. Commissioner of Income Tax (Appeals) further held that the allowance of Rs. 42,65,000/- as expenses @ 35% of the receipt of Rs. 1,21,83,494/- from the UGH is not in accordance with the law because expenses more than what have been incurred/ claimed in the relevant year cannot be allowed. The Assessing Officer has already allowed the claimed expenses while determining the business income of Rs. 2,55,808/-. Hence, the allowance of 35% of the receipt of Rs. 1,21,83494/- as expenses over and above the claimed expenses by the Assessing Officer in the impugned order is not justified at all. Ld. Commissioner of Income Tax (Appeals) further held that it is double allowance of the expenses against the proportionate receipt of Rs. 6,09,175/- offered out of receipt from the UGH. Ld. Commissioner of Income Tax (Appeals) further observed that it was brought to the notice of the Ld. Authorised Representative that why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside India. (iii) In the case of Shoorji Vallabhdas in 46 ITR 144, the Hon'ble Supreme Court observed that the income-tax takes into account two points of time on which the liability to tax is attracted: (a) accrual of income; and (b) r eceipts of income. The Hon'ble Supreme Court says that in both the cases, the substance of the matter is income. (iv) In the case of Parimisethi Seetharamamma vs. CIT in 57 ITR 532, the Hon'ble Supreme Court stated that all incomes are receipts but all receipts are not income. It is only those receipts which bear the characteristic of income that can be taxed under the Act. (v) In the case of E.D. Sasoon Co. Ltd. vs. CIT in 26 ITR 27, at page 50, the Hon'ble Supreme Court explained what is income. The Hon'ble Supreme Court stated that income means what comes in as the periodical produce of one's work. At pages 51-52, the Hon'ble Supreme Court observed as under: " .... If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, therefore the entire fee had to be spread over in two years and had to be assessed proportionately. (viii) In the case of Career Launchers (India) Ltd. vs. ACIT in 131 ITD 414 at pages 431-433/434, the Coordinate Delhi Bench of the ITAT has also held that even if the amount is non-refundable, it has to be assessed on proportionate basis on the basis of duration of services rendered. The Delhi Bench of the ITAT followed another Coordinate Bench's decision in the case of K.K. Khullar vs. DCIT in 116 ITD 301 (Del) wherein the Delhi Bench of the ITAT held that even in the case of cash system of accounting, the income has to be assessed on the basis of services rendered because the income can be said to have accrued on the rendering of the services and not otherwise. (ix) The Chennai Special Bench of the Tribunal in the case of ACIT vs. Mahendra Holidays Resorts (India) Ltd. in 131 TTJ 1 has also held that where the services are required to be rendered in various years, the receipts have to be spread over the years for which the services are required to be rendered. The Special Bench of the ITAT further observed that recognizing entire receipt in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase where the relevant amount in the hands of the payer has been disallowed, cannot be assessed in the hands of the payee on this ground. The Hon'b1e High Court held that disallowance of a particular amount in the hands of payer cannot be a ground for its non-assessability in the hands of payee because in the hands of payee the amount already accrued as per the agreement. (b) 311 ITR 332 (Del), Magnum Power Generation Ltd. vs. Addl. CIT - Distinguishable on facts and law. In this case, the issue was the accrual of interest on inter-corporate deposits. The said assessee had made intercorporate deposit with another company. Such intercorporate deposits were renewed from time to time. A large part of the amount was not returned by the company and the cheques issued were dishonoured for want of funds. The said assessee initiated proceedings under the Negotiable Instruments Act, 1881 and filed a winding up petition under the Companies Act, 1956 for recovery of principal as well as interest thereof. On directions issued by the Company Court, the company made payment of the entire principal amount and the interest for the entire period which was received by the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, the estate duty is deductible as cost of acquisition or cost of improvement. The Hon'ble Supreme Court answered the issue in negative and held that the estate duty is not a deductible item while computing the capital gain on sale of property. It has no relevance in the facts of instant case. (g) In JCIT vs. Khanna Annandhanam in ITA No. 3444/Del/2001 dated 18th January 2008 in 2008-TIOL-377-ITAT-DEL , the issue was totally different. In that case, the issue was whether the amount received for the sterilization of future professional earnings is taxable or not. In the instant case, no such issue is there. (h) As per DR the amount is not refundable; hence it accrued during the year of receipt on cash basis. The amount refundable or not refundable is not the criteria to tax the amount in Income Tax Act. In the Income Tax Act as per the provision of Sections 4 and 5, it is only the income which is chargeable to tax as held by Supreme Court in the case of Shoorji Vallabhdas (supra). Moreover, in the case of Career Launchers (India) Ltd. (supra) and Dinesh Kumar Goel (supra) the amounts received were also not refundable. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has duly shown the proportionate receipts with reference to the period of services rendered during the year under appeal. The remaining receipts were also shown and assessed in subsequent years proportionately 8. Ld. Departmental Representative on the other hand relied upon the orders of the Assessing Officer and Ld. Commissioner of Income Tax (Appeals). She further pointed out that from the financial year 2007, assessee is following cash system of accounting. She further referred to clause 2.7 of the agreement which indicated that the fixed consultancy fees paid to the assessee Sh. Aman Khera is nonrefundable even on prior determination of agreement. She pointed out that the assessee has claimed full TDS credit of Rs. 6,09,175/- on professional receipts of Rs. 12183494/- in the computation of income. Hence, as per section 199 of the Act the whole income is taxable. Ld. Departmental Representative further relied upon the catena of cases laws including the following :- (a) 230 ITR 51 (Bom), CIT vs. Shah Construction (b) 311 ITR 332 (Del), Magnum Power Generation Ltd. vs. Addl. CIT. (c) 285 ITR 501 (AP), P.L. Ganpathi Rao vs. CIT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court has observed as under:- If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in prasenti, solvendum in futuro it cannot be said that any income has accrued to him.". 8.3 Now we examine the present case on the touch-stone of the aforesaid decision. Admittedly, assessee has not served for the period of five years. Assessee has not rendered enough services to warrant emoluments of Rs. 1,21,84,494/-. It is assessee s submission that during the year under consideration he has not created a debt or a right to receive the payment equivalent to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also held that where the services are required to be rendered in various years, the receipts have to be spread over the years for which the services are required to be rendered. The Special Bench of the ITAT further observed that recognizing entire receipt in the year of receipt can lead to a distorted picture. We further find that the other case laws relied by the ld. counsel of the assessee also support the assessee s case. 8.8 From the above discussion and precedents, it is amply clear that in service contract the income has to be recognized in proportion to the services rendered in a particular year. In the present case, admittedly the assessee has not rendered services for the period of 5 years. Hence, there is no question of recognizing the entire amount as income of the assessee in the year of receipt. It cannot be said that assessee has created such a debt or right against the M/s UG Hospital that the income for the entire 5 years had accrued to the assessee. In our considered opinion, in the background of the aforesaid discussion and precedent, we find that the assessee has correctly declared professional fee from the UG Hospital in proportion to the period of services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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