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TMI Blog2016 (11) TMI 1592X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed the Assessing Officer to verify the claim of the assessee vis-à-vis Form 26AS and give for the correct amount of T.D.S. Giving correct amount of payment of taxes is the duty of the assessing officer. The assessee should not be made to suffer for getting the refund of taxes paid. We direct the assessing officer to allow the correct amount of TDS without any further delay. This ground is allowed for statistical purposes. Levy of interest u/s 234D - Held that:- AO is directed to examine the applicability of interest u/s 234D and levy correct amount of interest. Accrual of income - Addition towards advance fee - assessee contended that the amount of advances were received from clients for the services not yet rendered, therefore, the income is not accrued and accordingly, the advance cannot partake the character of income - Held that:- We agree with the submission of the assessee that the advance cannot be treated as income in the hands of the assessee unless the services are rendered by the assessee. The Assessing Officer has not made out a case that advances received in question were towards the services rendered by the assessee. The ld. DR also could not bring any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g professional services. As a professional firm, the method of accounting adopted by the firm is cash method of accounting. As a matter of practice, memo of fees is raised on the client on completion of engagement. The income in respect of professional fees gets booked only on receipt of professional fees from the client. Similarly, at any given point of time, there are several ongoing professional engagements for which professional time has been spent and efforts are made. Such work in progress is not reflected in the accounts because of the cash method of accounting. In view of the above, there is considerable amount of income either unbilled or billed but not received and work in progress to be received from the clients for which costs are incurred, time is devoted and efforts are made during the period when retiring partner was active in the firm. Such sums will be realized by the firm in the post retirement period. The assessee-firm continues its operations after the retirement of a partner with same name and apparatus. The ongoing firm has the base of clients and human and physical infrastructure built over a period of time inter alia with efforts made by the retiring partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the spouse or nominee of the deceased Partner, as the case may be, permitting the continuing partners the use of the Firm name of Deloitte Haskins Sells., to carry on the profession, along with the clientele and the attendant rights of the Firm; iii. the contribution made by the surviving Partner or the deceased Partner as the case may be, during his association with the Firm, in increasing the future income earning potential of the Firm, the benefits whereof are likely to be reflected in the receipts of the Firm for a reasonable number of years immediately following the retirement or death of the Partner; and/or Determination and payment of amounts under clause 10.m iv. In consideration of the assuming of the liability of the Retired Partners of the Legacy Firms consequent to the acquisition of the clientele and employees together with the substantial business of the Legacy Firms. It is clarified that a person who becomes a Partner in the Firm or Participating Firms on or after 1 April 2010 shall not be entitled to any payments under this clause, as computed under clause 10.n. n. The further sum payable to Retiring Partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the previous year would be worked out with reference to the Amount Received in the Previous Years in absolute terms for the period he served as a Partner. Provided that a Partner who retires on attainment of the normal Retirement age after completing at least five continuous years as a Partner but without completing the Qualifying Period of 20 years shall be entitled to the payments of ₹ 6,00,000 per annum for a period of ten years from the date of the retirement. The absolute amount referred to above will be indexed as per the Cost Inflation Index specified in section 48 of the Income Tax Act, 1961 and the base year for the Indexation being 2007-08 or increased every year at the simple rate of 5% per annum, whichever is higher. iv. Notwithstanding anything contained above the amounts payable under clause 10.n iii to a Retiring Partner of the Spouse or nominee of a deceased Partner in any financial year (on or after 1 April 2007) shall not be less than ₹ 6,00,000 per annum provided the said Partner has completed the Qualifying Period of 20 years. The minimum amount of ₹ 6,00,000 shall be adjusted by Cost Inflation Index specified in section 48 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the partnership deed which is reproduced in the earlier paragraph. 10. Referring to the decision of ITAT Mumbai Bench in the case of associated concern of the assessee-firm M/s C.C Chokshi Co. vs JCIT in I.T.A.No.s 492 to 495/Mum/2003 for the A.Y 1995-96 to 1997- 98 the ld. Senior Counsel submitted that on identical facts, the ITAT Mumbai, Bench held that the payment is by overriding title but not an application of income. He further submitted that clauses 22 and 28 of partnership deed of M/s C.C. Chokshi Co. are identical to the clauses 10(m), 10(n) and 7(e) of assessee s partnership deed and a comparative chart was submitted by the Senior Counsel which reads as under: Clause in the Partnership Deed of C.C. Chokshi Co. Clause in the Partnership deed of the Appellant Description Detailss Clause 22 Clause 10m Right to receive payments on retirement or death. The list of sums entitled to be received determined based Clause 10n Determination and payment of amounts under clause 10m. The period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retiring partner or the legal representative of a deceased partner as the case may be, shall be entitled to receive the further sum speared in clause 23, in respect of the following:- (a) (i) amounts billed, but not received, (ii) work completed, but not billed, and (iii)work partly completed and not billed as at the date of death of retirement, as the case may be, having regard to the fact that the partnership follows the cash system of accounting, and (b) (i) in consideration of the retiring partner or the legal representative of the deceased partner, as the case maybe, permitting the continuing partners the use of the firm name of C. C. CHOKSHI Co. to carry on the profession, along with the clientele and the attendant rights of the firm, (ii) the contribution made by the surviving partner or the deceased partner as the case may be during his association with the Firm, in increasing the future income earning potential of the Firm, the benefits thereof are likely to be reflected in the receipt of the Firm for a reasonable number of years immediately following the retirement or death of the partner, and (iii) the restrictive covenants contained in clause 26 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons to whom it is payable and is only paying the amount subsequently. The decisions relied upon by the learned DR are not applicable to the facts of the case. 12. The Senior Counsel also relied on the decision of ITAT Mumbai in the case of M/s C.C. Chokshi Co for the assessment years 200-01 to 2001-02 which held the issue in favour of the assessee following decision of the Co-ordinate Bench in I.T.A.Nos. 492 to 495/Mum/2003 and observed that the ITAT has referred to several judgments in the above case including the judgment of Hon'ble Supreme Court in the case of CIT vs Sitaldas Tirathdas, 41 ITR 367 which was relied upon by the Assessing Officer in the assessment order as well as by the CIT(A) in his appellate order. The appeal filed by the Revenue against the above order of the Tribunal was dismissed by the Hon'ble Bombay High Court in ITA No.209 of 2008 dated 25.7.2008. The Bombay High Court followed its judgment in the case of CIT vs Mulla and Mulla and Craigie, Blunt and Caroe 1991 ITR 198. The ld. Senior Counsel relied on the following decisions also on identical facts: 1. CIT vs Punjab Tractors Co-op. Multipurpose Society Ltd, 95 Taxman 579 2. GFA An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an application of income or gratuitous payment. We therefore respectfully following the decision of Coordinate bench of ITAT Mumbai in the case of the associate concern of the assessee, M/s C.C. Chokshi Co. (supra), hold that the payment is a diversion by overriding title and cannot be included in the total income. 16. The assessee also raised the ground for allowance of expenditure u/s 37(1) of the Act. Since we held that the payment made to retiring partners is diversion of income by overriding title, the ground raised by the assessee became infructuous and hence dismissed. 17. The next ground is related to the TDS credit of ₹ 1,98,27,735/- which has been suffered by the assessee in connection with the professional fees received from clients. 18. The CIT(A) in her appellate order, has directed the Assessing Officer to verify the claim of the assessee vis- -vis Form 26AS and give for the correct amount of T.D.S. Giving correct amount of payment of taxes is the duty of the assessing officer. The assessee should not be made to suffer for getting the refund of taxes paid. We direct the assessing officer to allow the correct amount of TDS without any further delay. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed advances from clients before rendering such services. Such advances are kept in advance account. The advance received from client is transferred to professional fee account on completion of service. The assessee further submitted that the advance is a very small amount as compared to the aggregate professional fees. Apart from the above, alternatively the ld. AR submitted that the advance received during the assessment year under consideration was only ₹ 2,79,161/- which may be added to the income of the assessee if the assessee s contentions are not accepted. Further Ld. A.R submitted that on identical facts in the case of A.F. Ferguson Co in ITA No.7792/M/04 dated 30/01/2008 Mumbai ITAT has dismissed the appeal of the revenue. 28. We heard the rival submissions and perused the material placed before us. The assessee-firm is a Chartered Accountants rendering professional services. As per Balance Sheet as on 31.3.2011 the advance outstanding was ₹ 64,39,989/-. The assessee contended that the amount of advances were received from clients for the services not yet rendered, therefore, the income is not accrued and accordingly, the advance cannot partake the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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