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TMI Blog2018 (9) TMI 1469X X X X Extracts X X X X X X X X Extracts X X X X ..... see? (iii) Without prejudice to the claim of the Appellant as above, whether on the facts and circumstances of the case the Tribunal was right in holding that the entire amount waived would accrue during the current Assessment year ignoring the possible liability that will arise from the pending litigation arising from the agency business? (iv) Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the balance expenditure disallowed in the assessment year 2005-06 u/s.40(a)(ia) is not an allowable deduction in the current assessment year even though tax was deducted and remitted to the Government? 2. The appellant-assessee was the agent of two foreign shipping lines. The appellant was providing agency services to both the Companies in accordance with the agreements executed by the Principal and Agent. The shipping lines intended to terminate the agency and a Memorandum of Understanding [MoU] was arrived at for effecting termination. On such termination being effected, the relationship hit rough weather and the Shipping Companies together raised a claim of Rs. 45,00,00,000/- against the appellant. The outstanding balance in the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax v. Andhra General Finance Corporation [(1985) 156 ITR 386]. It is argued that when there was a mere waiver of the liability, there is actually no income received by the assessee and in such circumstances, there could be no taxation of the amounts waived on account of the compromise agreement. The learned Counsel would also rely on the decision of the Hon'ble Supreme Court in Commissioner v. Mahindra & Mahindra Ltd. [2018-TIOL-173-SC-IT]. 5. The learned Senior Counsel for Government of India (Taxes) would place reliance on Raghuvanshi Mills Ltd. v. Commissioner of Income Tax [(1952) XXII ITR 482], Commissioner of Income Tax v. Dharamdas Hargovandas [(1961) XLII ITR 427] and C.I.T. v. G.R.Karthikeyan [(1993) 201 ITR 866]. 6. Bengal & Assam Investors Ltd.; an insurance agent had excess amounts with them which was not commission and hence not trading receipts. The High Court found that these moneys were received by the assessee not as remuneration but rebates for timely payment of the premium, which were in fact amounts entitled to the insured on whose behalf the premium was paid. Though it was the assessee who paid the premium in time, the assessee had the liability to pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not held by the assessee in a fiduciary capacity. The transactions entered into by the assessee on behalf of the Principals, saw amounts coming in to the running account of the Principal and the agent. The amounts expended on behalf of the Principal and the commission of the agent had to be deducted and the balance is the amount due to the Principal. When the Principal's dues are settled by Court order or by settlement and the expenses too are deducted, what remains in the account is not something which is retained in a fiduciary capacity and is income at the hands of the assessee. Only on settlement of accounts it will be disclosed as to what are the amounts available to the assessee. There can hence be no claim raised by the erstwhile Principals or any others to the amounts the agent, the assessee, received on behalf of the Principals. Admittedly the entire amounts from the customers of the principals were credited to the agent-assessee, who maintained a running account for the Principals. There is no determination of the commission and admittedly after the expenses incurred on behalf of the principal is met and the amounts due to the Principal is transferred what the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alleged waiver of five crores, three crores were towards legal expenses incurred by the assessee and two crores towards possible future claims. The terms of settlement between the principals and the assessee, as was noticed by the Tribunal, was never placed on record by the assessee. Though we find that the legal expenses could be validly claimed to the extent evidenced, there is no reason to find the assessee holding any amounts in a fiduciary capacity. The contention is also belied by the action of the assessee in having offered the allegedly waived amounts, after making deductions, for assessment in the next year. We agree with the hypothetical situation narrated by the Tribunal as reflected in Paragraph 19 of the order. 11. We garner further support from the decision of the Supreme Court in G.R.Karthikeyan (supra). The assessee, a renowned Motor Rallyst, was allowed exemption from including in the income an amount of Rs. 22,000/- having come out first in an All India Highway Motor Rally. The rally was basically one designed for testing the endurance driving, observance of traffic regulations, reliability of the automobiles and so on and so forth, with prizes awarded on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual income is income' is evident from Section 10(3). Section 10 seeks to exempt certain "incomes' from being included in the "total income". A casual receipt - which should mean, in the context, casual income - is liable to be included in the total income, if it is in excess of Rs. 1,000/-, by virtue of sub-section (3) of Section 10. Even though it is a clause exempting a particular receipt/income to a limited extent, it is yet relevant on the meaning of the expression "income". In our respectful opinion, the High Court, having found that the receipt in question does not fall within Sub-clause (ix) of Section 2(24), erred in concluding that it does not constitute income". 12. We also have to notice, in the context of the specific receipt of amounts by an agent, Section 2(24)(v) and 28(ii)(c): Sec.2(24): "income" includes-- xxx xxx &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in its hands in a fiduciary capacity and is income in its hands. Tribunal was right in holding the amounts waived by the Principals; in accordance with a settlement arrived at with their agent as income in the hands of the assessee-agent. What is left with the assessee-agent after settlement of accounts with the Principals and after deducting the expenses incurred on behalf of the Principals, constitute the character of commission received and are trading receipts of the assessee. There is no question of any further liability arising from the litigation initiated by the Principals of the assessee, since the same has been settled and amounts due to the Principals satisfied. We hence answer the questions of law framed as 1 to 3 against the assessee and in favour of the revenue. 14. On the fourth question it is to be noticed that the expenditure claimed in the previous year was disallowed for reason of no deduction of TDS having been made. The assessing Officer would have to look at whether the assessee is entitled to the benefit available under the first proviso to Section 40(a)(ia). The Tribunal by a laconic statement dismissed the plea finding the dis-allowance of the earlier as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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