Income Tax Appellate Tribunal - Mumbai
David Dhawan vs Deputy Commissioner Of Income Tax on 21 October, 2004
Equivalent citations: (2005)92TTJ(MUM)161
ORDER
Pramod Kumar, A.M.
1. This is an appeal filed by the assessee and is directed against the order dt. 24th Jan., 2001, in the matter of assessment under Section 143(3) of the IT Act, 1961, for the asst. yr. 1997-98.
2. During the course of hearing before us, learned counsel did not prefer to advance any specific arguments in support of first ground of appeal, i.e., against quantum of CIT(A)'s confirming the disallowance in respect of personal use of electricity expenses, motor car expenses and telephone expenses. He relied upon the submissions before the authorities below which are on record, and which we have carefully gone through. Having given our thoughtful consideration to material on record, and having carefully perused the orders of the authorities below, we do not see any need to interfere in disallowance of two-third of electricity expenses and one-fourth of car maintenance, car depreciation and telephone expenses. We approve the same and decline to interfere in the matter.
3. Ground No. 1 is thus dismissed.
4. In ground No. 2, the assessee is aggrieved that the CIT(A) has erred in confirming the addition made by the AO under Section 28(iv) of the IT Act, 1961, in respect of foreign travelling expenses of Rs. 1,17,030.
5. The material facts are not in dispute. The assessee is a film director and his work involves travelling abroad in connection with shooting of cinema films. In the course of one such foreign trip in May and June, 1996, which was to shoot some sequences for the film 'Hero No. 1', assessee's wife and their two children also accompanied him to the United Kingdom and Switzerland. It is an admitted position that air fares in respect of this travelling by wife and children were borne by the client, i.e., producer, for whom the assessee was working on this project. While there is no dispute that so far as assessee's foreign travelling expenses are concerned, which were also borne by the client producer, the same do not have any tax implications in the hands of the assessee, the core of this dispute is whether or not the travelling expenses in respect of the family members so borne by the producer constitute "benefit of perquisite" in exercise of a profession taxable under Section 28(iv) of the Act. In his assessment order, the AO has concluded that the expenses on travelling, boarding and lodging of assessee's family members are taxable under Section 28(iv) of the Act. In appeal, the CIT(A) has concluded that "the expenses incurred by the producer on foreign tour of family members of the appellant are nothing but a benefit in the hands of the appellant which arose from his business and profession". The assessee is aggrieved and is in further appeal before us.
6. Shri Hiro Rai, learned counsel, appeared for the assessee, and Shri Sanjay Rai, learned Departmental Representative, appeared for the Revenue. Learned representatives have been heard at considerable length, orders of the authorities below carefully perused, and the factual matrix of the case as well as applicable legal position duly considered.
7. Section 28(iv) lays down that "the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of profession" is chargeable to income-tax under the head 'income from business and profession'. The scope of this provision is akin to the scope of Section 17(2)(iii) of the Act. It is noteworthy that Section 28(iv) was inserted in the IT Act, 1961, w.e.f. 1st April, 1964, and while explaining the object and scope of this legal amendment, the CBDT Circular No. 20-D, dt. 7th July, 1964, stated as follows :
"83. The effect of the abovementioned amendment is that in respect of the asst. yr. 1964-65 and subsequent years, the value of any benefit or amenity, in cash or kind, arising to an assessee from his business or the exercise of his profession e.g., the value of rent-free residential accommodation secured by an assessee from a company in consideration of the profession services, as a lawyer rendered by him to that company, will be assessable in the hands of the assessee as his income under the head 'profits and gains of business and profession."
(emphasis, italicised in print, supplied by us) The object of the amendment thus was to bring to tax the benefits which are obtained by the assessee as a quid pro quo for the services rendered, and which were received by the assessee as de facto consideration for services rendered.
8. It is not even Revenue's case that defraying of family's travelling expenses to shooting locations was a quid pro quo for professional services rendered by the assessee, or, to put it differently the payment of professional services was partly made by the producer by defraying the travelling expenses of assessee's family. There is also no dispute that the consideration that he has received for directing the said film, i.e., Rs. 40 lakhs, has already been separately brought to tax under the head 'income from business and profession'. Therefore, so far as intent of legislature in making the said amendment is concerned, the case before us is certainly not covered by that. The next question is whether part of the remuneration was received by the assessee as defraying of his family's travelling expenditure to assessee's temporary place of work. It is not even Revenue's case that the payment of professional fees is made in the garb of defraying the family's travelling expenses to the place of assessee's work. There is also no material before us to lead us to such a conclusion either.
9. The scope of expression 'perquisite' and 'benefit' also requires to be examined. The words 'benefit' and 'perquisite' have been used together in the statute. It is well settled, as noted by Maxwell in his oft referred book 'Principles of Interpretation' and while elaborating upon the principle of 'noscitur a socciis', when two or more words, which are susceptible to analogous meaning, are used together, they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of mere general being restricted to a sense analogous to that of less general. Broom's Legal Maxims (10th Edn.) observes that "it is a rule laid down by Lord Bacon that copulatio verborum indicat acceptationem in eodem sensu, i.e., coupling of the word together shows that they are to be used in the same sense". In any event, the provisions of Section 28(iv) are admittedly materially similar to the provisions of Section 17(2)(iii) which is under the heading 'perquisites'. Therefore, unless the benefit is such that it results in some kind of a perquisite to the assessee, it cannot be said to be covered by the scope of Section 28(iv) of the Act.
10. The question that we have to examine is as to whether the expenses on assessee's family being flown to the place of his work, which temporarily was the shooting locations, would constitute perquisite in the assessee's hands. The expression 'perquisite' is defined, by the Webster's Dictionary, as 'any casual emolument, fee or profit attached to an office or position'. Black's Law Dictionary explains the scope of this expression as "emoluments or incidental profits attached to an office or official position, beyond the salary or regular fees". In the case before us, the only benefit that has been taxed by the Revenue is the assessee's family being allowed to join the assessee abroad, during his stay abroad because of shooting schedules which essentially involve long absence from home. Can this benefit be said to be in the nature of perquisite ? The assessee is a Mumbai based cine professional, and it is only when he was required to be away from his normal place of work that the client producer paid for his and his family's travel to the shooting locations. It is not the case that the assessee has rendered services in India and was away to Europe on vacations with his family, and the travelling expenses for such travel were met by the producer-client as a quid pro quo for the services rendered by the assessee in India. The places where services were partly rendered were outside India and it is only for the period that the services were so rendered outside India, and during which the assessee was thus temporarily located that his family's travelling expenses were borne by the client. The travelling expenses having been met by the producer cannot be a perquisite because the travelling itself was necessitated by the fact that the assessee had to render the services outside India. The very nature of assessee's work is such that he had to spend a good deal of time outside India, and the family's travelling expenses were admittedly in the course of such temporary relocations. Therefore, these expenses being met by the producer-client cannot be held to be in the nature of a perquisite and, therefore, in the nature of income. If such a narrow interpretation of 'perquisite' is to be adopted, as is canvassed by the Revenue, it will result in absurdities like travelling expenses of the family members to join even a Government servant in his place of posting being viewed as 'perquisite', since the family members travelling to the place of posting is a 'benefit', in that narrow sense of the expression 'benefit', to the Government servant, and since, after all, the services are to be rendered by the Government servant and not his family members. There can be no doubts that benefits of this nature cannot be treated as perquisites, leave aside taxable perquisites. It is of course besides the point that, strictly speaking, it was not a benefit at all, but rather an inevitable fact of life of professions and services involving temporary relocations. No doubt when a person or his family members are proceeding on vacations, it has to be viewed as a perquisite but that cannot be the situation when the person is travelling for performing the work and his family joins him at that, place of temporary relocation. The assessee's services are creative in nature. In order to get optimum return for his money, the client-producer has not only to ensure physical presence of the artists/cine professionals, like the assessee, but also a congenial environment to get the best out of his creative talent. Therefore, the presence of an artist's family along with him abroad is perceived to be an advantage by the producer-client, and that is the reason that it is not uncommon for producers to encourage and allow families to accompany the artists' abroad at producers' expense. In our considered view, therefore, the expenses on assessee's family members travelling to the shooting locations in Europe, where he was temporarily relocated to perform the professional work at the instance of the producer-client, cannot be viewed as perquisite. Once we hold that it does not amount to perquisite in the hands of the assessee, the very basis of its addition under Section 28(iv) ceases to be good in law.
11. In view of the above discussions, and bearing in mind entirety of the case, we considered it appropriate to direct the AO to delete the aforesaid addition of Rs. 1,17,030. The assessee, thus, succeeds in the second ground of appeal.
12. That leaves us with third ground of appeal, i.e., assessee's grievance against denial of deduction of Rs. 6,66,750 under Section 80RR, i.e., in respect of professional fees of US $ 25,000 received from a Nairobi based entrepreneur, Shri B.S. Dogra.
13. We have heard the rival contentions, perused the material before us and duly considered factual matrix of the case as also the applicable legal position.
14. It is not denied that the deduction under Section 80RR is available, if an assessee earns such income from his profession. It is also not denied that the amount in question was remitted to the assessee as advance remuneration for film direction. The authorities below, however, doubt that it was in the nature of professional income, even though the same is taxed as an income from business and profession. Agreement dt. 28th Nov., 1997, is also to the effect that this amount was taken payment towards acceptance by the assessee for directing the film. The factors which led the authorities to decide against the assessee are that the direction of the film had not hitherto started; that though the agreement was of 28th Nov., 1997, the amount was received on 13th Sept., 1996, i.e., prior to the execution of the agreement; that no further action had been taken by the assessee with regard to the proposed film; that the assessee furnished no proof that the receipt was in exercise of his profession; and that though the production of the film was not started, Shri B.S. Dogra, the remitter took no steps to retrieve the money. The CIT(A) has confirmed the action of the AO, and, aggrieved by the confirmation of this disallowance by the CIT(A), the assessee is in appeal before us.
15. We may also refer to the letter dt. 28th Nov., 1993 addressed by Shri B.S. Dogra, the payer, to the assessee, a copy of which has been produced on record. This letter is as follows :
"Dear Sir, Sub : Our Production No. 2 As discussed with you, you have kindly consented to direct our proposed Hindi feature film tentatively titled "Production No. 2". As informed to you, this film is to be extensively shot abroad. As a token of your acceptance of this proposal, we are hereby paying you US $ 25,000 towards signing amount. The details of your remuneration and other terms and conditions shall be decided at the time of commencement of shooting of the film.
You are requested to kindly sign hereinbelow as a token of your acceptance of this proposal."
16. The contents of the above letter leave no doubt as to the nature of the receipt in question. This income is "advance for film production". It is, therefore, none other than income derived from the profession of the assessee.
17. We find that the authorities below have merely expressed the doubts about the nature of this receipt, but this suspicion per se, however strong and well founded, even if that be so, cannot be basis enough for declining a deduction which is admissible to the assessee on the basis of material available on record. The receipt is duly disclosed by the assessee as his income and the Revenue authorities have accepted that position. Confirmatory letter by the party and foreign inward remittance certificates, which give complete details of the transactions, are on record. No investigations have been done in respect of the same, nor any cogent material is brought on record to disprove the contents of the same. These documents establish that the money in question was received in exercise of the profession. It is not a case of addition under Section 68 of the Act. Even on the test of preponderance of probabilities, there is nothing unusual in the situation that a film project is started with big fanfare and then abandoned. It is hardly a secret that what attracts many entrepreneurs to the film business is the glamour rather than hard-nosed business sense, and that is the reason why their conduct in these film ventures is at times unexplainable. Starting with a bang and ending without even a whimper is the order of the day in the glamour business, at least so far as new entrepreneurs in this line of business are concerned. The doubts raised by the authorities below are ill-founded.
18. The receipt of US $ 25,000 is in the nature of income. That is an undisputed position. In the light of the above discussions, we find that it is in the nature of professional receipt, as advance for directing a cine film, from the said Shri Dogra. The fact that the project was abandoned does not, and cannot, alter the character of receipt and income. This professional income, therefore, cannot be said not to be entitled to claim under Section 80RR of the Act. The grievance of the assessee is quite justified.
19. In the light of the above discussions, we consider it appropriate to direct the AO to grant deduction under Section 80RR in respect of the said receipt of US $ 25,000. The assessee shall get the resultant relief.
20. Ground No. 3 thus allowed.
21. In the result, the appeal of the assessee is partly allowed in the terms indicated above.