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TMI Blog2013 (6) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made even in the subsequent years. Since the AR has pleaded for a reasonable and suitable reduction ad-hoc disallowance of Rs. 15,000/- would meet the ends of justice. Partly in favour of assessee. Disallowance of foreign travel expenses - Held that:- From the breakup reproduced along with the bills with regard to foreign travel, which do have a positive presumption of carrying professional/business connection, because, durations are small, which can only be presumed to be professional/business oriented. But expenses shown under "others" and "Visa fee", cannot be allowed, because, visa once given can be used by the person for any number of times, including for personal requirements and there are no details of others (Rs. 20,728/-). Therefore, set aside the order of the CIT(A) and direct the AO to restrict the disallowance to Rs. 20,728/- and allow the balance aggregating to Rs. 3,92,115/-. Partly in favour of assessee. Disallowance u/s 40(a)(i) for non deduction of TDS - assessee paid membership fee to Baker Tilly International (BTI), located in England - Held that:- No part of the payment made as subscription to BTI has resulted in income in its hands. Clause 3.5 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds are mostly common, therefore, for the sake of convenience and brevity, we are passing common and consolidated order covering the three impugned appeals with the captioned ITAs number. ITA No. 384/Mum/2009 : Assessment year 2005-06: 3. Ground no. 1 : The assessee agitates the excessive disallowance of telephone expenses, as against the reasonable suo moto disallowance. 4. In the computation, the assessee had made a suo moto disallowance of Rs. 2,000/- against the total expense claimed at Rs. 8,02,101/-. Of the total claim of Rs. 8,02,101/-, Rs. 2,48,761/- pertained to mobile phone expenses and Rs. 1,41,621/- pertained to telephones installed at the partner's residence. The AO disallowed 20% of the aggregate of Rs. 3,90,382/- (Rs.2,48,761/- and Rs. 1,41,621/-), i.e. Rs. 78,076/-. 5. In appeal, the CIT(A) reduced the disallowance to 15%, i.e. in money terms, the disallowance of Rs. 78,076/- made by AO was reduced to Rs. 58,557/- by the CIT(A). 6. Before the ITAT, the assessee agitates, that even this disallowance is excessive. To demonstrate, the AR, placed before us a chart showing the total expenses claimed and the disallowance made suo moto by the assessee and the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed conveyance allowance and therefore nothing further could be charged/disallowed in so far as the assessee was concerned. In any case, the disallowance, as per the chart submitted by the AR is only in the impugned year. No disallowance has been made even in the subsequent years. In these circumstances, the disallowance was uncalled for. 14. The DR placed reliance of the orders of the revenue authorities. 15. We have heard the arguments and have gone through the relevant material placed in APB 222. The conveyance allowance are fixed by the company to its partners. This fact, as well as the fact that the disallowance has been made only in the impugned year has not been denied by the DR. 16. In any case, following the rule of consistency, we are of the opinion that no further disallowance is called for. 17. We, therefore, set aside the orders of both the revenue authorities and direct the AO to delete the disallowance made. In the result, the ground no.2 is allowed. 18. Ground no. 3 is allowance of Rs. 30,000/- out of business development expenses claimed at Rs. 3,30,271/-. 19. The AR has prayed for a reasonable relief, whereas, the DR relied on the orders of the revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni (Representative) Asia Pacific Conf. 03.03.04- 06.03.04 32,328 32,339 Hong Kong NB: * Conf.-Conference. ** A/cing -Accounting 26. The AR submitted that no disallowance was made by the revenue authorities in the preceding years or in the subsequent years and in any case, as per the detail, per se the expenses cannot be held to be of personal nature to be disallowed. He, therefore, prayed that the disallowance be deleted. 27. The DR relied upon the orders of the revenue authorities. 28. We have heard the arguments from either side and have also referred to the detail and its breakup. From the above breakup, along with the bills with regard to foreign travel, which do have a positive presumption of carrying professional/business connection, because, durations are small, which can only be presumed to be professional/business oriented. But expenses shown under "others" and "Visa fee", cannot be allowed, because, visa once given can be used by the person for any number of times, including for personal requirements and there are no details of others (Rs. 20,728/-). We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to restrict the disallowance to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Channai ITAT observed that they are at a loss to understand how the assessee sitting in his office can take a decision that the payment they are making to the non-resident would not ultimately be taxable in the hands of non-resident who never filed any I.T. Return in India. Therefore, the assessee's contention that the remittances are not taxable in the hands of BTI is rejected. Further, the remittances of membership fees paid by the assessee to BTI is subject to the TDS provisions u/s. 195 of the I.T. Act, 1961. A similar and identical issue had arisen in the case of Arthur Anderson & Co., Mumbai in which payment was made by Arthur Anderson & Co., Mumbai to M/s. Arthur Anderson & Co. society Corporative Company [Anderson SC] it was claimed that the amount was membership fees and reimbursement of its share of establish expenses incurred by Anderson SC which operates on a no profit basis". 32. The AO, referring to a host of decisions, finally concluded, "Therefore, respectfully following the decision of the Mumbai Tribunal in the case of Author Anderson & Co., the assessee's contention that the membership fees paid to BTI is allowable expenditure, the remittances made to BTI are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities and submitted that the CIT(A), placed reliance on the decision Arthur Anderson & Co. in ITA No. 9125/Mum/1995, wherein the coordinate Bench had extensively dealt with the principles of abundant caution in the context of TDS. The AR, submitted that liability of TDS arises when the payment made by an assessee, involves an element of income in the hands of the recipient. Since, this is case of payment made only as a subscription, there is no element of income, hence the provisions 195 would not get attracted. The AR referred to the important clauses of the agreement between BTI and the assessee, which reads as follows: Company means Baker Tilly International Limited, a company incorporated in England with registered no. 434879 whose registered office is at 2, Bloomsbury Street, London WC1B 3ST, United Kingdom. "The objectives of the Company are as follows: (a) to operate a worldwide association of independent, high quality accounting firms; (b) to promote the continuing professional development of Members through exchanges of information on subjects of professional interest; (i) the maintenance and continuing development of an intranet and an extranet for use by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments were therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is therefore deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller and Auditor General have agreed to drop the objection referred to above". 39. The AR, pleaded that since no part of the payment made by the assessee to BTI, generated any income to the recipient, i.e. BTI, which is a non resident and payment having made to a non resident, out side of Indian tax regime, there was no liability on the assessee to deduct tax at source and, therefore, the assessee did not contravene the provisions of section 195 of the Income Tax Act, 1961. 40. The DR, on the other hand supported the orders of the revenue authorities and submitted that the issue should be restored to the file of the AO, who should examine the element of income, if at all, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d direct the AO to delete the disallowance of Rs. 2,17,594/- made to BTI. The ground is, therefore, allowed. 44. Ground no. 6(a) & (b) are on the issue of disallowance of payment of Rs. 20,26,244/- made to the legal heirs of the deceased partner. 45. The facts as reproduced by the AO are as follows, "The assessee has claimed and debited Rs. 20,26,444/- as revenue expenditure under the head payment to the legal heir of deceased party, partner Mrs. Laxmi M. Iyer. The assessee's representative vide this office order-sheet dated 24.8.2007 was requested to furnish details, nature of allowability of such expenditure claimed. The assessee vide letter dated 8.9.2007 has quoted the extract from deed of partnership of 1992- para 5(a), 5(b) which reads as under: 1. "The amount is claimed as a normal business expense of earning business income. The various extracts from the Deed above show the details. 2. And the same wordings appear in the current deed wherein all previous liabilities from earlier deeds continue. 3. Under AS-15, all retirement benefits need to be provided for in the accounts. The standard is mandatory and is applied by all Assessee and the Firm is not exception. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure so incurred is really incidental to the business of the firm. Because it is not enough that the expenditure is merely connected with the Trade; it must be incurred and incidental to the business itself. The payments to legal heir of deceased partner represents in a mere division of profit and not ascertained by reference to the profits. The assessee has not furnished any details or basis on which such amount payable to the legal heir of the deceased partners. Such payment out of profit and conditional on profit cannot be treated as incurred for earning profit. The profits earned by the firm which came into existence attract tax at that point and the Revenue is not concerned with the subsequent application of the profits. Therefore, payment made to the legal heir of the deceased partner is not allowable as Revenue expenditure and added back to the total income of the assessee. The similar issue i.e. payment made to partner or to the legal heir of the partners was considered by the revenue. However, the relief allowed by the appellate authority on this account was not accepted by the Department and the issue is being further contested. The Mumbai High court decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iversion of funds by an overriding title. This ground is, therefore, rejected". The CIT(A), thus, sustained the disallowance, primarily relying on the decision of Sital Das Tirath Das (supra) and sustained disallowance, as made by the AO. 48. The assessee, now before ITAT. 49. Before us, the AR referred to the relevant clauses of the partnership deed and submitted that the payment has been made in accordance with the relevant clauses of the partnership deed. The AR has referred to the following decisions:- Sr. No. Particulars Page No. 13 Order of the Hon'ble Tribunal in the case of M/s K S Aiyar & Co. for AY 1980-81 in ITA no. 6159 (Bom) of 1983 dated 11.07.1986 277 - 283 14 Judgment of the Hon'ble Bombay High Court in the case of CIT vs Crawford Bayley & Co. (106 ITR 884) 284 - 290 15 Judgment of the Hon'ble Bombay High Court in the case of CIT vs Nariman B. Bharucha & Ors. (130 ITR 863) 291 - 296 16 Judgment of the Hon'ble Bombay High Court in the case of CIT vs Mulla & Mulla and Craigie Blunt and Caroe (190 ITR 198) 297 - 303 17 Order of the Hon'ble Tribunal in the case of M/s RSM & Co. vs Addl. CIT {125 ITD 243(Mum)} 304 - 313 18 Order of the Hon'ble Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant in view of diversion of the same by an overriding title. 3. The CIT(A) erred in confirming disallowance of payment made to Baker Tilly International (BTI) of Rs. 1,19,601/- u/s 40(a)(i) of the I.T. Act on the ground that no tax has been deducted at source. The appellant submits that on the facts and circumstances of the case no tax is deductible from the payments made to BTI as no part of the payment is taxable in India. 56. The grounds, as raised are identical to the grounds no. 6(1) and (2) and 5 raised in assessment year 2005-06, in ITA No. 384/Mum/2009. 57. We have taken the view on the impugned issues in appropriate paras in ITA No. 384/Mum/2009, following the same, the appeal is accordingly disposed. In the result, the appeal is treated is allowed. 58. The assessee has taken the following grounds: "1. The Commissioner Of Income Tax (Appeals)-- 3 [hereinafter referred to as CIT(A)] erred in confirming disallowance of Rs 28,84,923/- being payment made to legal heir of the deceased partner on the ground that these payment are not deductible business expenditure u/s 37(1). The Appellant submits that payment made to legal heir of the deceased partner is not taxable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the payment was to non-professionals. This was without deduction of tax which was actually Rs. 5,96,375/- as per the details in the assessment order. Appellant also relied on 2 decisions one in United Hotels Ltd. vs. ITO (2005) 002 SOT 0267 of E-Bench, Delhi on salary vis-a-vis 194J. In the facts of that case when an employee or employer relationship was established, Hon'ble ITAT held that there was no deductibility u/s. 194J. The other case law cited was Parasrampuria Synthetics Ltd. (2008) 020 SOT 0248, H-Bench, Delhi. That company had made payment to contractor in respect of maintenance support agreement. fabrication of chilled water line, work order for thermal insulation etc. Hon'ble ITATI Delhi held that there may have been use of services of technically qualified persons to render services but that would not bring it u/s. 194J as the use of such services was for delivering the contract 2.2.3 Appellant further responded that as per Section 194J, Clause (a) to the Explanation postulates that the person rendering professional services must have received the fees In the course of carrying on any of the professions mentioned therein. The appellant submits that It cannot e cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tudents who are perusing their accountancy degree/diploma or even as interns. The concept of internship during college days has caught the fancy of students and employees alike, because, the students perusing their formative degree/diplomas are in a lookout of internship to get the knowledge of the field and they are paid, which is good enough for their pocket money. It is economical for the employees to engage such persons, who would come, do the basic work of a paid employee, prepare some details/reports and go in 3-4 months time. On going through the submissions as reproduced by both the revenue authorities, we find that assessee has made payments to such students or small time accountants, who take up office job work at certain period of times. 65. In these circumstances, we feel that these payments shall not attract deduction of tax at source and hence would not be hit by section 40(a)(ia). 66. We, therefore, set aside the orders of the revenue authorities and direct the AO to allow Rs. 5,33,992/-. 67. Ground no. 4 is addition of Rs. 24,050/-, being unreconciled entries of AIR. 68. The AR submits that the addition is not pressed on account of smallness of the amount, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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