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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 ..... incipals satisfied. We hence answer the questions of law framed as 1 to 3 against the assessee and in favour of the revenue. TDS liability expenditure claimed in the previous year was disallowed for reason of no deduction of TDS having been made - Held that:- AO 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 assessment year not arising in the subsequent one. The proviso speaks of payment in a subsequent year and the allowance being made in that subsequent year. The question hence is answered against the revenue and in favour of the assessee, but the actual allowance being left to be decided by the Assessing Officer who has to verify the claim and decide accordingly. - I.T.A. No. 145 of 2012 - - - Dated:- 6-8-2018 - Mr K. Vinod Chandran And Mr. Ashok Menon, JJ. For The Appellant : ADVS.SRI.SAJI VARGHESE, SRI.R.VIHAYARAGHAVAN AND SMT.MARIAM MATHAI For The Respondent : SRI. P.K.R. MENON. Y STANDING COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH JUDGMENT Vinod Chandran, J: The subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court order and expenses/professional fees paid by the assessee as also the local expenses on behalf of the Principals from 16.04.2005 to 31.03.2007. The assessee offered the said amounts for taxation in the assessment year 2007-08. The AO, however, found the balance of the amounts remaining with the assessee after settlement of the liabilities to be the income of the assessee for the year 2006-07. 3. The settlement was entered into in February, 2006 and balance payments as per the settlement was made on 31.03.2006, reckoning the payment made by the agent in August 2005 also. The AO, added on the legal cost and local expenses of Principals as also the legal expenses incurred by the assessee in computing the taxable income. Thus, a total amount of ₹ 4,91,86,945/- was brought to tax. On first appeal, by Annexure-B the Commissioner of Income Tax found that the entire amount received on cessation of liability is taxable for the assessment year 2006-07. However, the AO was directed to allow the legitimate expenses incurred. But for the amount of ₹ 7,05,226/- for which there is no substantiating evidence produced of an allowable expense; which claim was also withdrawn by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct or the entries made by the assessee. The assessee had received the amounts as an agent, but then not as a commission or remuneration, and hence not a trading receipt or income at his hands was the finding. The assessee was found to hold the said amounts in a fiduciary capacity. 7. Andhra General Finance Corporation carried on the business of finance under hire-purchase agreements. When financing vehicles, it also insisted for the insurance to be paid through them, which amounts were transferred to the insurance company. There were some amounts remaining in excess with the insurance company which in the relevant assessment year, was debited to the running account it maintained with the insurance company and credited to its profit and loss account. However the assessee claimed it was not income, since they were obliged to refund it to their customers, if ever they claimed it. The AO found that the hire-purchase agreements against which the payments were received had long expired and the amounts were trading receipts especially since it was transferred to the P L account. The Tribunal held that the transfer to the P L account was irrelevant and the crucial test is the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts left in the account after deduction of expenses would be income taxable; especially since on settlement of the suit claims, the right if at all available to the Principals to such amounts, stands extinguished. 9. In The Commissioner versus Mahindra and Mahindra Ltd. [2018-TIOL-173-SC-IT] , the assessee, a company manufacturing motor vehicles, entered into a contract with a like foreign company, for purchase of die models and equipments and tools. A subsidiary company of the foreign company financed the purchase. The assessee had been regularly paying interest at the rate agreed upon. Later the financier was taken over by another, who waived the entire principal amount of the loan. The Income Tax Officer treated the entire principal amount waived as income of the previous year. Section 28(iv) was found to be not applicable since there was no benefit or perquisite arising from the business or profession. Section 41 was found to be a prohibition of a double benefit being claimed by the assessee; by virtue of an allowance or deduction in any previous year in respect of an expenditure or trading liability which later stood waived off by the creditor. The assessee therein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to represent winnings. Noticing the definition of 'income' under Section 2(24) as also the exclusion from total income specified under sub-section (3) of Section 10, it was held If the monies which are not earned - in the true sense of the word - constitute income why do monies earned by skill and toil not constitute income? Finding the word income to be one not easy to define, it was held so: Since the definition of income in section 2(24) is an inclusive one, its ambit, in our opinion, should be the same as that of the word income occurring in entry 82 of List I of the Seventh Schedule to the Constitution (corresponding to entry 54 of List I of the Seventh Schedule to the Government of India Act) . The word income , according to the Supreme Court, had to be given the widest amplitude. It was held again that: ... even if a receipt does not fall within sub-clause (ix), or for that matter, any of the sub-clauses in Section 2(24), it may yet constitute income. To say otherwise, would mean reading the several clauses in Section 2(24) as exhaustive of the meaning of income' when the Statute expressly says that it is inclusive. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; 13. The amounts received by the assessee-agent, on behalf of the Principal, after setting of the expenditure incurred on behalf of the Principal and satisfying that due to the Principal, is not kept 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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