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TMI Blog2016 (8) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... further question whether the sum received in one year could be spread over several years, and that too in the absence of any agreement at the time of such payment would not arise. The ITAT could not have overlooked the fact that the agreements produced before the CIT (A) regarding engaging the Assessees as hospital consultant was more than four years after the amount had been paid. Such agreements were not reliable pieces of evidence. Assessees had offered to tax in the later AYs the sum proportionate to the period of service, the fact remains that the entire sum was received upfront in the year in question and TDS was also deducted on that basis. The agreements purportedly entered into between each of the Assessees and UGHPL was a document drawn up four years after they received the entire remuneration upfront in December 2005. Consequently, the Court is of the view that the ITAT erred in concluding that the sum received in each of the AYs in question could be spread over five years on the basis of the subsequent agreements dated 15th June 2010 between the UGHPL and the Assessees. Significantly, what the Trust was being paid was only a monthly payment whereas over a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Khera Hospital building and other places. 2. Khera Society shall facilitate and empower Metro Hospital in sorting out the legal and other disputes relating to Khera Hospital. 3. Khera Hospital shall make available all records, deeds, writings, files and documents to Metro hospital to facilitate proper day to day working in Khera Hospital within seven days of signing of this agreement. 4. Metro Hospital shall pay a monthly lump sum amount as mutually decided to Khera Society and all receipts of monthly in cash or by cheque shall belong to Metro Hospital. 5. Metro Hospital shall have full freedom in fixing rates for various medical procedures, consultation and treatment procuring medicines, consumables equipments, recruiting staff, maintenance of buildings, equipments etc. 6. Metro Hospital has to manage Khera Hospital to the best of its ability and capability. 7. Metro Hospital shall be entitled to use all the assets existing and to be procured in future for Khera Hospital to run and manage the Hospital for all purposes, intents and externs exclusively. 8. This managing agency agreement shall remain valid for twenty five years; This agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 3,82,155 and Ms. Jyoti Khera filed a return on 31st March, 2007 declaring an income of ₹ 33,950. None of them disclosed the entire amount received from UGHPL in their respective returns. Assessment orders 10. The returns of income were picked up for scrutiny and assessment orders under Section 143(3) of the Act were passed on 22nd December 2008 in the cases of Dr. Aman Khera and Dr. Raman Khera, and on 26th December 2008 in the case of Ms. Jyoti Khera for AY 2006-07. Each of them claimed that the amount received from UGHPL was on account of professional/management consultancy. Significantly, the AO noted in each of the assessment orders that none of the Assessees were able to produce their regular books of accounts or receipts to show the source of the salary income or the income from business. 11. As regards the receipt from UGHPL, the AO noticed that TDS had been deducted on the entire payment made in lump sum by UGHPL. The claim of the Assessees that the amount was received as advance on account of appointment as hospital/management consultant for five years and, therefore, the amount should be spread over for a period of five years, was not accepted by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) of the Act were also directed to be initiated. Proceedings before the CIT (A) 15. The Assessees appealed to the Commissioner of Income Tax (Appeals) [ CIT (A) ]. By separate orders dated 24th November 2010, the CIT (A) partly allowed each of the appeals. Significantly, before the CIT (A) for the first time, the Assessees placed on record the letters issued by UGHPL to each of them at the time of their appointment as Hospital Consultants; copy of the accounts of UGHPL in the books of the Assessees; confirmation receipt from UGHPL about the treatment of the payment in their books; income tax returns for each of the Assessees for AY 2007-08 and 2008-09 which showed that the proportionate fees in those respective AYs were shown in the income and offered to tax by the Assessees. 16. An alternative submission was made before the CIT (A) by each of the Assessees as under: if your Honour is of the view that the receipt for the period 01.01.2006 to 31.12.2010 is to be taxed in this year itself, it is prayed that the ld. Assessing Officer be directed to modify the assessment for the assessment years 2007-2008 to 2011-12 to that extent after allowing expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly settled at ₹ 1 crore and ₹ 15 lacs. Then came the issue of TDS. Since I wanted ₹ 1 crore and 15 lacs in hand, the whole amount was re-calculated so that the TDS was paid and I got ₹ 1 crore and 15 lacs. 6. Khera Hospitals, Pandav Nagar - whether it has been transferred or not. Who is running the hospital? Khera Hospital is owned by Dr. R.L.Khera Charitable Trust. It is now being run and managed by UG Hospitals under a management agreement. I have been appointed as a consultant to all the hospitals under the UG Group of Hospitals to assist them in the capacity of hospital management consultant including Khera Hospital. Copy of agreement attached. The balance documentation/information required is furnished below: 1. Trust deed of R.L. Khera Charitable Hospital: attached 2. Is there any Agreement between R.L.Khera Charitable Hospital and UG Hospital if so copy of that Agreement: already filed under cover of our letter dated 17.09.09 3. Service rendered by the assessee to R.L. Khera Charitable Hospital. Are they getting any salary/reimbursement or any in kind for these services: None. 4. What actual expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was obviously entered into nearly four years after the so-called engagement of the Assessees as Hospital Consultant could be taken on record by the CIT (A) under Rule 46A of the Income Tax Rules, 1962 ( Rules ). The CIT (A) concluded that these evidences only enable the undersigned to pass an order on this issue one way or other. The CIT (A) held that the nature of evidence is such that these do not give rise to any new principle or lead to any new facts requiring fresh investigation and by filing the additional evidence the assessee is not seeking to make any fresh line of enquiry. 22. On the merits of the appeal, the CIT (A) came to the following conclusions: (i) The evidence brought on record showed that UGHPL instead of making payment to the Trust on monthly basis as per agreement made payments of ₹ 4 crores excluding income tax to the Trustees of the Trust. The lump sum tax free payment was made in the following manner namely ₹ 1.15 crores each to Dr. Aman Khera, Dr. Raman Khera and Ms. Jyoti Khera and ₹ 55 lakhs to Dr. R.L. Khera. (ii) It is not understood how UGHPL was utilising the expertise of the three Assessees. One of them Ms. Jyoti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals: Did the Tribunal fall into error in accepting the assessee's contention that the sum of ₹ 1,21,83, 494/- received by him and offered in AY 2006-07 as income to be spread over a period of five years on the basis of an agreement entered into with M/s. UG Hospital Private Limited? 28. A similar question as above framed in the other two quantum appeals on 9th January 2015 (Jyoti Khera) and 25th May 2015 (Raman Khera). 29. In the penalty appeal in the case of Mr Aman Mehra, i.e. ITA 21/2015, while admitting the appeal on 9th January 2015, this Court framed the following question of law: Did the ITAT fall into error in deleting the penalty in the case of the assessee in the circumstances of the case? 30. However, in the penalty appeal in the case of Mr Raman Mehra i.e. ITA Nos. 476 of 2014, no question as such was framed and the matter was simply kept for hearing along with the quantum appeals. 31. However, it should be noted that as far as the penalty proceedings were concerned, the CIT (A) allowed the appeals of the Appellants by separate orders dated 22nd May 2013 on the ground that in the quantum proceedings the ITAT had deleted the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to be produced at the stage of appeal since none of the conditions under Rule 46A was satisfied. Reliance was placed on the decision in Commissioner of Income Tax v. Manish Buildwell (2012) 204 Taxman 106 (Delhi). Submissions of counsel for the Assessees 34. On behalf of the Assessees it was submitted by Mr. M.P. Rastogi, learned counsel, as under: (i) Under Section 4 of the Act, tax was chargeable on the total income which in terms of Section 5 included income derived from three sources (a) income received or deemed to be received in India (b) income that accrues or arises or deemed to accrue or arise in India (c) income that accrues or arise outside India. (ii) The liability of tax was attracted at the stage of accrual of income and at the stage of receiving income. To begin with there was an oral agreement that the Assessees would render services to UGHPL for five years. Therefore for the AY in question, the Assessees declared professional income from UGHPL in proportion to the period i.e. January to March 2006 for which each of them rendered services. The emoluments were spread over and declared in the subsequent years in proportion to the period of services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet out-of-pocket payment in the conduct of the case. (vi) In any event, the Assessees having offered the proportionate income in subsequent AYs, there was no justification to bring the entire amount received from UGHPL in this year i.e. AY 2006-07. Reliance is placed on the decision in Commissioner of Income-Tax v. D.C. Gandhi Associates (1994) 210 ITR 929 (Guj) where it was held that even in a cash system of accounting, income accrues upon rendering of service. Reference was also made to the decision in Commissioner of Income-tax v. Winner Business Link (P). Ltd. [2015] 55 taxmann.com 468 (Guj) where the Gujarat High Court following the decision in Commissioner of Income Tax v. Dinesh Kumar Goel (supra) held that the entire receipt of the membership fees in the business of discount cards was required to be spread over the period of membership and income had to be recognised proportionately. (vii) Whether it is a mercantile or cash basis of accounting, income would be said to have accrued only with the rendering of service. Income could be, therefore, sought to have accrued in the proportion to the services rendered to the Assessees over a period of five years. It is submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree company to the managing agents only on completion of a definite period of service. It was held that such remuneration constituted a debt only at the end of period of service and no remuneration or commission was payable to the managing agents for broken periods. 38. The above decision is of no assistance to the Assessees. In the first place the entities involved in the above decision i.e. the managing agencies had been transferred from one company to another. The question of any right accruing only at the completion of a definite period which existed in the decision in E.D. Sasoon Co. Ltd. v. Commissioner of Income Tax (supra) does not find place here. There is nothing to show that the Assessees would have to return the monies if they did not perform the services. In fact the agreement between the Trust and the UGHPL indicated that it is the Trust which is saddled with the responsibility of making good the losses. 39. The mere terming of the money received as advance will not per se render the payment as such when in fact it admittedly was paid upfront as a lump sum amount on which TDS was been deducted as such for the period 1st January to 31st March 2006. The deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the Assessees and UGHPL was a document drawn up four years after they received the entire remuneration upfront in December 2005. Consequently, the Court is of the view that the ITAT erred in concluding that the sum received in each of the AYs in question could be spread over five years on the basis of the subsequent agreements dated 15th June 2010 between the UGHPL and the Assessees. 44. Significantly, what the Trust was being paid was only a monthly payment whereas over a sum of ₹ 4 crores as lump sum payment was made to the Assessees. The questions raised by the CIT (A) do not appear to have been satisfactorily answered by the Assessees. In the facts and circumstances, the Court is of the view that the CIT (A) was right in affirming the order of the AO to the extent of bringing the entire amount received by the Assessees to tax in the year in question. 45. For the aforementioned reasons the question framed is answered in the affirmative i.e. in favour of the Revenue and against the Assessees. Consequential directions 46. Mr. Rastogi then made an earnest plea for directions to be issued to the AO to take into account, while giving the appeal effect to this o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of quantum appeals, i.e. ITA Nos. 653 of 2012, 19 of 2015 and 326 of 2015, are answered in the affirmative, i.e., against the Assessee and in favour of the Revenue. The ITAT s order is accordingly set aside and the order of the CIT(A) is sustained. Penalty appeals 51. As far as the penalty appeals are concerned, since the CIT (A) set aside the penalties imposed by the AO only on the ground that the ITAT had deleted the addition, it is necessary for the Court as a result of setting aside the order of the ITAT to remand the appeals concerning the penalty issue to the file of the CIT (A). 52. Accordingly, the orders dated 22nd May, 2013 of the CIT (A) and later affirmed by the ITAT in the penalty proceedings, which are challenged in ITA Nos. 476/2014 and 21/2015 are hereby set aside and the penalty appeals are restored to the files of the respective CIT (A) for a fresh decision in accordance with law. 53. The appeals are disposed of in the above terms but in the facts and circumstances with no order as to costs. CM No. 8784/2015 in ITA 326/2015 (for condonation of delay of 574 days in re-filing the appeal) 54. Although the delay in re-filing the appeal is extrao ..... X X X X Extracts X X X X X X X X Extracts X X X X
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