Income Tax Appellate Tribunal - Mumbai
Suresh Kumar Khurana vs Dy. Cit on 20 April, 2007
Equivalent citations: (2007)112TTJ(MUM)55
ORDER
Pramod Kumar, Accountant Member
1. This is an appeal filed by the assessee and is directed against the order dated 11-2-2002 passed by the learned Commissioner (Appeals) in the matter of assessment under Section 143(3) read with Section 147 of the Income Tax Act, 1961 for the assessment year 1996-97.
2. By way of this appeal, assessee has raised the following grievances :
1. The grounds mentioned hereunder are without prejudice to one another.
2. The learned Commissioner (Appeals) erred in facts and law by not going into the evidence about the assessee having asked for the reasons for issuing notice under Section 148 and the completing the assessment under Section 143(3) read with Section 147.
3. The learned Commissioner (Appeals) erred in facts and law in not considering that the learned assessing officer has made fishing inquiries and has made additions by travelling beyond the reasons originally recorded by him for taking recourse to Section 147.
4. The learned Commissioner (Appeals) has erred in retaining the addition of Rs. 11,351 out of crew wages on wrong appreciation of facts.
5. The learned Commissioner (Appeals) has erred in sustaining the addition on account of car maintenance in the sum of Rs. 25,118.
6. The learned Commissioner (Appeals) has erred in law and facts in sustaining theaddition of Rs. 18,18,228 on account of Social Allowance.
7. The learned Commissioner (Appeals) has erred in sustaining the disallowance undersection 80-0 on wrong appreciation of facts, without consideringthe fact that the original claim was not entertained for want ofcertificate which was a curable defect and the Commissioner (Appeals) should havegiven the appropriate directions.
3. Ground Nos. 1 to 5 were not pressed by the assessee, and the same are,therefore, dismissed for want of prosecution.
4. As regards ground No. 6, the relevant material facts are like this. Theassessee is engaged in the business of supplying manpower to the variousshipping lines. In the course of the assessment proceedings, the AssessingOfficer noticed that the assessee has received a sum of Rs. 18,18,228 fromthe principals and that the same is shown under the head 'Outstandingliabilities' in assessee's books of account. The assessing officer inferred this amount, which was termed as 'social allowance', as having been received on account of social services rendered. The assessing officer also required the assessee to show cause as to why it was not disclosed in the gross receipts and why should it not, therefore, be added to his income. The explanation given by the assessee was taken note of by the assessing officer as "The assessee has given the explanation that this amount was paid to the assessee by NOMADIC which is payable to the crews signed off from time to time. The amount in respect of 'social allowance' is not our creation, the same is payable to the organization of the crew members such as union etc., and the same is payable as per the instructions of NOMADIC." The assessing officer however, was not satisfied with this explanation. He noted that "the receipt is in view of the contract between the assessee and the principal" and that "It is relatable to the activities of the assessee. Therefore, the receipt is very much in the nature of trading receipt/professional receipt as per the ratio laid down by Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT ". The assessing officer was of the view that "there is no doubt that the receipt is a trading receipt/professional receipt received during the course of rendering services to the clients, and the liability to pay the same has not arisen, rather its not determined, therefore it is certainly a part of the income which the assessee has not shown by making a dubious entry in the books of account maintained by him". The Aassessing officer thus added the amount of Rs. 18,18,228, as assessee'sincome. Aggrieved, assessee carried the matter in appeal before theCommissioner (Appeals) but without any success. The C1T(A) held that the amount receivedby the assessee as social allowance is taxable as his income, though theassessee will be entitled to deduction in respect of any amounts paid inrespect of the same in the year in which the amounts are paid. Theassessee is not satisfied, and is in appeal before us.
5. We have heard the rival contentions, perused the material on recordand duly considered factual matrix of the case as also the applicable legalposition. We have also perused assessee's application for admission ofadditional evidence, affidavit dated 3rd November, 2006, letter dated 11th May, 2001 addressed by Nomadic Management AS, Norway, and also thedetails of wages account filed before us. Having heard the rival contentions of having perused the material on record, we are of the considered view that the additional evidences filed by the assessee - which mainlyconsists of letter dated 11th May, 2001 from Nomadic Management AS-should be admitted. While the assessing officer never requisitioned thedetails about assessee's obligation to refund the money and decided thematter against the assessee on the basis of his inferences about the same, the assessee could indeed have been under the bona fide impression, as the assessee claims that he was in, that this additional evidence could not have been produced before the Commissioner (Appeals) We have taken note of assessee's contention that the chartered accountant appearing before the Commissioner (Appeals) was not well conversant with the legal position, and that it was only in the course of handling of matter with the present tax consultant that the assessee realized that he could file this additional evidence. In any event, having perused the additional evidence filed by the assessee, we are also satisfied that this letter is an important piece of evidence which has to be taken into account in the interest of justice. We have also heard the learned departmental Representative on the same. In view of these discussions, we admit the additional evidence filed by the assessee.
6. We consider it appropriate to reproduced the letter received by theassessee, from his Norway based principal, which throws light on thenature of transaction in respect of which the assessee was holding a creditbalance for his principal:
11-5-2001 Subject: Social Allowance payable to our Ex-employees Reference to our telephone conversation regarding Social Allowance payable to ex-employees, we confirm as under :
For the period July 1995 to December 1995 we have remitted to you USD 55,276.54 to be disbursed by you on our instructions towards, Social Allowances in respect of crew employed on 6 vessels: MV Green Freesia, MV Green Lily, MV Green Violet, MV Green Tulip, MV Green Rose, MV Nomadic Dixie. We deducted this amount from the various crew members employed on our vessels as aforesaid, initially selected by you for employment on our vessels. The amount was not immediately payable to the crew or their Unions due to certain contradictions and assumptions.
We agreed to keep the amount with you to dispel your apprehension of claims arising in future (to you as our manning agent for the crew), though as per agreement with you, you were only acting as agents for selection of crew for our final approval and subsequent employment. As per our, instructions in the past, you have advised us of having disbursed payment as below (in Indian Rupees) To National Union of Seafarers of India (NUSI) during 1996-97 595,644.60 To Mr. Manimaran in 1997-98 6,419.00 To 4 crew members in 1998-99 Mr. S. Sudharshan 6000 Mr. V. Gangadharan 6200 Mr. H.M. Kutty Kannu 5490 Mr. K.P. Paradeepan 4920 22,610.00 To Mr. Chavan J. Laxman in 1999-2000 6,000.00 To 2 Crew members in 2000-01 Mr. Yusuf Dawood Amaye 4920.00 Mr. Yunus Ismail Taj 4416.00 9,336.60 Total 640,009.60 Further, you have advised us, based on the prevailing rate of exchange you have in all respect an amount equivalent to Indian Rupees 1,881,228 from us.
The net amount with you to our credit on account of Social Allowance as on 31-3-2001 is Indian Rupees 1,241,218.40, calculated as under :
Gross Amount remitted :
1,881,228.00 Less amount already disbursed :
640,009.60 Balance with you :
You have indicated to us that in India claims are lodged up to a period of 3 years, However keeping in view that the litigation by crew and its Unions can take longer time, as per our experience we agreed to keep the deposit with you till the end of 2003. If till then there are no claims you will transfer the balance of the amount lying in your account in Indian Rupees, back to us, subject to necessary permissions, which will be taken by us from the appropriate authorities. If there are claims against us from the Crew in USD we will only direct you to pay the amount to the extent lying with you in Indian Rupees and the difference if any, for remittance will be further remitted to you. You will under no circumstances be made to suffer any loss on this account.
We trust that the above will clarify remittance on account of Social Allowance.
Best regards Nomadic Management A/S Sd/-
Erik Thulin
7. Learned departmental Representative has not been able to produce any material which controverts the factual aspects, or other material with regard to the nature of transaction, embedded in the above letter. In any event, it was all along the case of the assessee that the money received by him from the assessee is a conditional receipt with corresponding obligation to account for the same to the principal. Not only that there was no material before any of the authorities below to give findings to the contrary of assessee's contentions, the Commissioner (Appeals) has gone to the extent of holding that the assessee will be entitled to the deduction in the year in which he actually makes payments in respect of the related liabilities, as and when they so arise. There are two significant aspects of the matter. First that the Commissioner (Appeals) proceeds on the fallacy that a receipt, even if it is attached with an obligation to account for the same to his principal, can be treated as income. It is elementary that what can be termed as an income is only such a receipt which comes without any corresponding obligations to us it in a particular manner or to refund the same. Unless a gain is earned or accrued, in money or money's worth, it cannot be said to be an income. In the case before us, the gain has not crystallized because the money received by the assessee, as at the material point of time, was not earned or accrued by the assessee. There is no material on record, save and except for the inferences drawn by the assessing officer, to even suggest that the assessee had a right to keep the balance money with him in his own right. As a matter of fact, the evidence filed before us shows that the assessee did not have any right to keep the balance, but he had an obligation to refund the balance to the principal. Second important aspect of the matter is that the authorities below have clearly erred in holding that Hon'ble Supreme Court's judgment in the cases of Chowringhee Sales Bureau (P.) Ltd. v. CIT and Indian Molasses Co. Ltd. v. CIT apply on the facts of the present case. In the case of Chowringhee Sales Bureau (P.) Ltd. (supra), Hon'ble Supreme court was in seisin of a situation in which while the auctioneer was issuing cash memos by including the amount of sales tax, but declining to pay the same to the exchequer or to refund the same to the seller. It was the contention of the assessee that he is not liable to pay the same as he was not the seller, but only an auctioneer, and yet he collected the sales tax from the persons to whom the auctioned goods was solearned It was on the facts that Their Lordships held that the receipt in question was a trading receipt. While holding so, Their Lordships observed as follows :
It is apparent from the order of the Appellate Assistant Commissioner and has not been disputed before us in the present case that the cash memos issued by the appellant to the purchasers in the auction sale that it was appellant who was shown as the seller. The amount realized by the appellant from the purchaser included sales tax. The appellant, however, did not pay the sales tax to the actual owner of the goods auctioned because statutory liability to pay the sales tax was of the appellant. The appellant company did not also deposit the amount realized by it as sales tax in the State exchequer because it took the position that the statutory provision creating that liability upon it was not valid. As the amount of sales tax was received by the appellant in its character as auctioneer, the amount in our view, should be held as trading or business receipt. The appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government.
It is difficult to comprehend as to how the above stated views of the D Hon'ble Supreme Court can be perceived as an authority of the proposition that, irrespective of assessee's obligation and willingness to account for a receipt, the same can be treated as of income nature. In the case before Their Lordships, it was the stand of the assessee that he is not liable to pay the amount collected from the customers. In the case before us, it is consistent stand of the assessee that the amount received by the assessee was a receipt in trust and for a specific purpose. We, therefore reject the reliance of the authorities below on the Hon'ble Supreme Court's judgment in the case of Chowringhee Sales Bureau (P.) Ltd. (supra). Similarly, as far as Indian Molassess Co. Ltd.'s case (supra) is concerned, the same has no application in the matter either. This case deals with the question whether or not deduction of a liability, which was held to be a contingent liability on the facts of that case, can be allowed as a deduction. We are not really concerned with the deductibility of an expenditure because the expenditure, in respect of the disbursements made by the assessee before us, will in fact be expenditure of the principal and not the assessee.
8. For the reasons set out above, we are of the considered view that the authorities below did not have cogent basis for coming to the conclusion that Rs. 18,18,228 lying to the credit of the assessee's principal constituted income of the assessee. As the assessee was accountable to his principal in respect of this amount, and as this amount was not an unfettered receipt in the hands of the assessee, it could not be said to be income of the assessee. The addition sustained by the Commissioner (Appeals), therefore, deserves to be deleted. However, the assessing officer is at liberty to tax the same in case this amount was subsequently, if so, the principal waived the liability of the assessee to account for or refund the same. Subject to these observations, the grievance of the assessee is uphelearned The assessing officer is, accordingly, directed to delete the impugned addition.
9. Ground No. 6 is thus allowed.
10. As regards ground No. 7, learned representatives fairly agree that theissue is squarely covered by Tribunal's decision in the case of Dy. CIT v. Tristar Consultants (2004) 91 ITD 15 (Mum) even as learned departmental Representative dutifully relied upon the orders of the authoritiesbelow. In any case, as far as the requirement of filing the necessarycertificate is concerned, it is only procedural requirement and is a curabledefect. There are number of decisions by several co-ordinate Benches to that effect. We see no reasons to take any other view of the matter than the view taken by the co-ordinate Benches. Respectfully following thesame, we uphold the grievance of the assessee and direct the assessing officer to grant deduction under Section 80-O in the light of our aboveobservations and in the light of Tribunal's decision in the case of Tristar Consultants (supra). The assessee succeeds on this ground as well. Ground No. 8 is also therefore allowed.
11. In the result, the appeal of the assessee is partly allowed in the termsindicated above.