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TMI Blog2015 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... y from his client, he does not do so as a trading receipt but he receives the money of the principal in his capacity as an agent and that also in a fiduciary capacity. The solicitor remains liable to account by this money to his client and hence it does not become the income of the assessee. Thus we have no hesitation in deleting the addition made towards advance received from clients by the Learned AO in various assessment years - Decided in favour of assessee Disallowance u/s 40(a)(ia) in respect of payments to Receiver etc. - Held that:- In respect of remuneration component to the receiver Shri.Samir Roy Choudhury (assessee client’s share is ₹ 38,250/-) and Shri. Tapas Kr. Banerjee (Special Officer), the same are liable for deduction of tax at source in terms of section 194J of the Act. But it is not clear from the records, whether the said sums were debited by the assessee in his income and expenditure account and whether any deduction was claimed by the assessee in that regard . It is also not clear that whether the payments made to these counsels have been reimbursed to the asseseee by his clients. We hold that if there is no profit element in this activity and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Bank Ltd took place owing to purchase of cum Bonus Shares and sale of Ex Bonus Shares. It was also pleaded that the Learned AO had not considered the fact whether the assesee had received dividend in respect of the subject mentioned share scripts during the relevant period. It was further pleaded that in several cases, the assessee received dividend not on the shares sold but on the shares continued to be retained by him. It was also further pleaded that disallowance u/s 94(7) , if any, could be restricted only to the extent of dividend received. We hold that the Learned CITA had rightly restricted the disallowance u/s 94(7) of the Act to the extent of dividend received in accordance with the provisions of the Act and by duly appreciating the true intention behind introduction of provisions of section 94(7) of the Act. Hence we find no infirmity in the order of the Learned CITA in this regard.- Decided against revenue. - I.T.A Nos. 2137/Kol/2010 & 612/Kol/2011, I.T.A Nos. 2000& 2001/K/2010, 758 &536/Kol/2011 - - - Dated:- 6-11-2015 - Shri Mahavir Singh,Judicial Member, and Shri M. Balaganesh, Accountant Member For The Appellant : Shri Sanjay Mukherjee, JCIT, ld.DR F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h system of accounting followed by the assessee. On first appeal, the assessee reiterated the submissions stated before the Learned AO and the Learned AO having stated that the advances received from clients cannot take the character of a trading receipt unless the services are rendered and bills are raised by the assessee, sought to restrict the disallowance to 10% of advances as income in view of the fact that the assessee could not furnish the complete details substantiating that no income actually arising in the previous year was postponed to the next year. Aggrieved by this decision, both the assessee as well as the revenue are in appeals before us for various asst years by raising various grounds. 3.2. The assessee has been consistently following cash system of accounting and treating the advance received from clients as a liability in the balance sheet and the same are taken to income as and when the relevant matters are concluded. This practice has been followed by the assessee right from Asst Year 1985-86 onwards. During the course of scrutiny assessment proceedings for the Asst Years 2003-04 2004-05, this stand of the assessee has been accepted by the revenue and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Holiday Resorts (I) Ltd vs ACIT reported in (2008) 111 ITD 116 (Chennai) . In that case, the assessee offered time share units to the customers for providing usership rights along with other facilities and amenities for the period of 99 years. The assessee company had 100% of the consideration on account of time share agreements from its customers. It, however, treated only 45% of the receipts so received as assessable in the relevant year and sought to defer the balance 55% of such receipts. The 55% receipts was sought to be spread over the duration of the said time share agreements on the ground that with reference to the said income, the assessee had obligations to discharge in future and to incur expenditure therefor. Accordingly, it has shown 55% of such receipts as its liability. Before the tribunal, the assessee could not give any particulars or details of the expenditure which it was obliged to incur for any obligation for which the said sum could be set apart. The Tribunal further found that the said amount did not have the character of deposit for any expenses to be incurred in future. It found that the assessee had merely adopted a subterfuge to avoid payment of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w firms following cash system putting aside all the advances in balance sheet, thereby they are deferring the tax liabilities and enjoying the said advances without paying tax? Page 2 3 of the order: - It is submitted by Mr. J.P Khaitan that the issue involved is covered by the judgment in CIT, West Bengal-I vs. Sandersons Morgans: 75 ITR 433 (Cal). In support of his submission, he has referred to a paragraph of the said judgment, which specifically deals with issue in the following manner: On the other hand, he submitted, when money was made over to the solicitor, in the instant case, the solicitor received the money as trading receipt. That character he submitted, was impressed upon the money throughout and the balance of that money, even though refundable to the client, when transferred to the profit and loss account would be profit out of trading receipt and consequently assessable to income tax. In our opinion, this argument should not be accepted. The argument proceeds on an entire misconception of the character of client s money received by a solicitor. The solicitor is the agent of the client. The client makes over the money to the solicitor for so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under similar circumstances needs must be followed . 8. .. .. The issue of lawyers accepting monies from clients on account to defray the expenses and appropriating fees as income only upon completion of a case has been examined in the past and a consistent view has been taken by the ITAT. This has been adverted to in the impugned order of the ITAT. The principles on the basis of which those decisions were taken are unexceptional. Given the manner and functioning of the lawyers and law firms, it is correct that the cateogorisation of a receipt can take place only at the time of appropriation i.e in case of fees only when the matter is over or as when the Assessee decides on the quantum of fees. This will not be the entire advance received as at the time it is received it does not bear any particular characterisation for the purposes of treating it as income . 3.8. Similar views were taken by the Hon ble Bombay High Court and the Gujarat High Court in the cases of Manilal Kher vs A G Lulla Seventh ITO Others reported in (1989) 176 ITR 253 (Bom) and CIT vs D C Gandhi reported in (1994) 210 ITR 929 (Guj) respectively. The operative portion therein is not rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in ITA No. 758 /Kol / 2011 for Asst Year 2006-07 stands allowed. ISSUE II DISALLOWANCE U/S 40(a)(ia) of the Act in respect of payments to Receiver etc 4. The brief facts of this issue is that the assessee as a lawyer had engaged the services of various other lawyers and receivers and made payments to them, either as professional fees or as reimbursement of expenses , in the course of his profession. The Learned AO found during the course of assessment proceedings that the following payments were made to the following persons :- Shri.J.P.Khaitan 24,114 Shri.S.Roychoudhury 38,250 Shri.Samir Roy Choudhury 37,408 Shri.Tapas Kr.Banerjee 35,700 --------------- 1,35,472 4.1. The assessee stated that payments were made to Sri Tapas Kr. Banerjee for acting as an Arbitrator appointed by the Hon ble Calcutta High Court and payments to Sri S Roychoudhury and Sri Samir Roy Choudhury as Receiver in pursuance of the orders of the Hon ble Calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 4.3. We have heard the rival submissions and perused the materials available on record. We find that the assessee had paid a sum of ₹ 37,738.25 and not ₹ 37,408 (as mentioned in the assessment order) to Shri.Samir Roy Choudhury towards deficit registration charges by way of draft in favour of Additional Registrar of Assurances I Kolkata being the share of client of the assessee as directed by the Hon ble Calcutta High Court. The necessary proof for the same is filed in page 72 of the paper book by the Learned AR. On this sum, no tax need to be deducted at source and hence no disallowance u/s 40(a)(ia) could be made. In respect of fees paid to Shri.J.P.Khaitan, no disallowance u/s 40(a)(ia) is to be made in view of the facts stated hereinabove. In respect of remuneration component to the receiver Shri.Samir Roy Choudhury (assessee client s share is ₹ 38,250/-) and Shri. Tapas Kr. Banerjee (Special Officer), the same are liable for deduction of tax at source in terms of section 194J of the Act. But it is not clear from the records, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayed for similar direction for the Asst Years 2005-06 ; 2006-07 2007-08 also. In response to this, the Learned DR vehemently supported the order of the Learned AO. 6.2. We have heard the rival submissions and we find the Learned CITA had disallowed only 5% towards personal element of expenditures involved hereinabove in the earlier years and hence his action of increasing the disallowance to 10% is without any basis. We also find that against the orders passed by the Learned CITA on this issue for the Asst Years 2003-04 2004-05, the revenue had not challenged this issue before tribunal. In any case, it is only an estimated disallowance. Accordingly, we direct the Learned AO to restrict the disallowance at 5% towards personal element. Hence the Ground Nos. 4-7 in ITA No. 2000/ Kol /2010 for Asst Year 2005-06 ; Ground Nos. 3-5 in ITA No. 2001/Kol/2010 for Asst Year 2006-07 and Ground Nos. 4-6 in ITA No. 536/Kol/2011 for Asst Year 2007-08 of the assessee appeals are partly allowed. ISSUE V Depreciation on Leasehold Property 7. During the course of hearing before us, the Learned Senior Counsel for the assessee informed the Bench that he is not pressing this gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its, it is stated that most of the shares and Units, held by the assessee, are in demat form and the Assessee has given instructions to the Depository for crediting dividends to the account of assessee electronically. In most of the cases, the dividends were credited to the account of the Assessee. Moreover, the Assessee being a Gold Card holder of Citi Bank NA, the Assessee has made arrangement with the Citi Bank NA where under the representatives of Citi Bank NA attends the office of the Assessee on every working day for collection of cheques. The Assessee has not incurred any expenditure even for deposit of cheques in the Bank Account. Similarly, no expenses whatsoever was incurred by the Assessee in receiving tax free interest income on his Public Provident Fund Account or earning interest on tax free Bonds etc. That the expenses claimed by the Assessee and set off against the professional income were incurred by the Assessee for earning the income from profession and no part of such expenses are attributable to tax free income earned by the Assessee. The plea of the Assessing Officer that the expenses relating to handling and management of such investment portfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making disallowance u/s 14A of the Act in the facts and circumstances of the case is not in accordance with law. We also place reliance on the decision of the Jurisdictional High Court rendered in the case of CIT vs Ashish Jhunjhunwala in G.A.No. 2990 of 2013 ITAT No. 157 of 2013 dated 8.1.2014 , wherein it was ordered as below:- The Court: The subject matter of challenge in this appeal is a judgment and order 14th May, 2013 by which the learned Tribunal dismissed the appeal preferred by the Revenue. Aggrieved by the order of the Tribunal, the revenue has come up in appeal. The Assessing Officer applied the Thumb Rule prescribed in Rule 8D of the Income Tax Rules in exercise of power under section 14A of the Income Tax Act without first recording that he was not satisfied with the correctness of the claim of the expenditure made by the assessee or the claim made by the assessee that no expenditure had been incurred. Aggrieved by the order of the Assessing Officer, an appeal was preferred before the Commissioner of Income Tax. The appeal preferred by the assessee was allowed. The Commissioner of Income Tax directed as follows: Therefore, he is directed to dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of nine months after such date;] (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purpose of computing his income chargeable to tax.] 9.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee had sold certain shares within a period of three months. Before us, the Learned AR pleaded that the loss of ₹ 1,54,690/- on the shares of Federal Bank Ltd took place owing to purchase of cum Bonus Shares and sale of Ex Bonus Shares. It was also pleaded that the Learned AO had not considered the fact whether the assesee had received dividend in respect of the subject mentioned share scripts during the relevant period. It was further pleaded that in several cases, the assessee received dividend not on the shares sold but on the shares continued to be retained by him. It was also further pleaded that disallowance u/s 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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