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Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI YOGESH KUMAR US
ORDER PER SHAMIM YAHYA, AM,
These are cross appeals by the assessee and Revenue arising out of the order of the Ld. CIT(A)-20, New Delhi, dated 31.01.2019, pertaining to Assessment Year 2015-16.
Grounds of appeal raised by the assessee in reads as under:-
“1. Disallowance of payment to Retired Partners Rs. 1,85,94,617 1.1 The learned CIT(A) erred in confirming addition of Rs. 1,85,94,617 made by the Assessing Officer, being professional fees diverted by overriding title to retired partners in terms of the Partnership Deed. 1.2 The learned CIT(A) erred in not appreciating the facts in right perspective and also erred in following the Commissioner of Income Tax (Appeals) order dated 30 March 2017 for the AY 2011-12. 1.3 The learned CIT(A) ought to have appreciated that as per clause 11.13 read with clause 11.14 of the Partnership Deed, the said amount was not income of the appellant firm as it was diverted by overriding title. 1.4 The learned CIT(A) erred in concluding that the payment to retired partners is an application of income without considering the fact that there is a prior charge on the income by way of superior title and therefore it is not an income of the appellant. 1.5 Without prejudice to the above, the learned CIT(A) erred in confirming the finding of the Assessing Officer that payment made to retired partners is not allowable as deduction under section 37(1) of the Act. 1.6 The learned CIT(A) erred in confirming finding of the Assessing Officer that the said payment has to be disallowed under section 40(a)(ia) of the Act as no tax is deducted. The learned CIT(A) ought to have appreciated that no tax was required to be deducted from such payment. 1.7 The learned CIT(A) erred in confirming the finding of the Assessing Officer that the payment to retired partners is in the nature of payment of remuneration to working partners. 1.8 The learned CIT(A) erred in confirming the action of the Assessing Officer in applying the provisions of section 40(b) of the Act in respect of payment to retired partners. 1.9 The learned CIT(A) erred in confirming the Assessing Officer’s observation that the payment to retired partners is similar to pension payment to ex-employees. 1.10 The learned CIT(A) erred in not appreciating the fact that the amount of Rs. 1,85,94,617 is included in the income of the retired partners and offered to tax in their return of income.
1.11 The learned CIT(A) erred in not considering reliance placed by the appellant on the Hon’ble Chennai Tribunal judgement dated 25 November 2016 and the Hon’ble Bombay High court and Mumbai Tribunal judgements passed in case of associated concerns of the appellant, wherein based on identical facts, the issue is decided in favour of the appellant. 2 The learned CIT(A) ought to have directed the Assessing Officer to allow TDS at Rs 11,92,04,350 as claimed by the appellant. 3 The learned CIT(A) ought to have directed the Assessing Officer to delete the interest levied under section 234B at Rs 1,72,81,968 as the appellant did not have the liability to pay the advance tax. 4 Each one of the above grounds of appeal is without prejudice to the other.”
Grounds of appeal raised by the Revenue in reads as under:-
“1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.5,22,26,931/- on account of subscription fees paid.”
At the outset, in this case, the Ld. Counsel for the assessee submitted that both the issues are covered in favour of the assessee by the decision of ITAT in assessee’s own case. List of case laws mentioned are as under:-
i. M/s Deloitte Haskins & Sells v. ACIT in (Assessment year 2012-13) - order dated 15 January 2021 ii. M/s Deloitte Haskins & Sells v. ACIT in ITA Nos.3715/Del/2017 (Assessment year 2011-12) - order dated 15 January 2021 iii. M/s Deloitte Haskins & Sells v. ACIT in ITA No.6749/Del/2015 (Assessment year 2010-11) - order dated 29 January 2021 iv. M/s Deloitte Haskins & Sells v. ACIT in ITA No.2927/Del/2013 (Assessment year 2009-10) - order dated 23 October 2018. v. DCIT v. M/s Deloitte Haskins & Sells in ITA no.587 & 588 /Kol/2016 (for AY 2010-11 and AY 2011-12) vi. DCIT v. M/s Deloitte Haskins & Sells in /Kol/2017 (for AY 2012-13) dated 28 September 2018 vii. ACIT v. M/s Deloitte Haskins & Sells (ITA no.682/AHD/2016) viii. DCIT v. Deloitte Haskins & Sells, Ahmedabad ITA no. 1983/AHD/2017 for AY 2013-14 and ITA no. 1984/AHD/2017 for AY 2014-15 ix. ACIT v. Arthur Anderson & Co. [2006] 5 SOT 393 x. Commissioner of Income- tax v. Spencers and Co. Ltd. [2014] 49 taxmann.com 318 (Madras HC) xi. M/s Deloitte Haskins & Sells v. ACIT in ITA Nos.3715/Del/2017 (Assessment year 2011-12) - order dated 15 January 2021 xii. M/s C.C. Chokshi & Co in ITA no.209 and 193 of 2008 and A. F. Ferguson & Co. in ITA no. 87 of 2011(Bom. HC) xiii. in ITA No. 2077/MDS/2016 (Deloitte Haskins & sells- Assessment year 2011 -12) and ITA No.2079/MDS -2016 for the AY 2011-12 xiv. C.C. Chokshi & Co. (1TA No. 492 to 495/Mum/2003) xv. M/s C.C. Chokshi & Co. in 1TA no.s 7791 and 9213 of 2004 xvi. DCIT v. Deloitte Haskins & Sells, Ahmedabad ITA no. 1983 /AHD/2017 for AY 2013-14 and 1984/AHD/2017 for AY 2014- 15 5. We note that ITAT in assessee’s own case for Assessment Year 2009-10 in on the issue disallowance of payment to retired partners, vide order dated 04.08.2022 has held as under:-
“(C.1) At the time of hearing before us, representatives of both sides, the Ld. Counsel for assessee and Ld. Sr. DR for Revenue were in agreement; that on merits, the issue regarding the assessee’s claim pertaining to aforesaid amount of Rs.1,37,75,514/- was squarely covered in favour of the assessee against Revenue by the order of Co-ordinate Bench of Income Tax Appellate Tribunal, Delhi dated 15/01/2021 in assessee’s own case in for Asst. Year 2011-12. Representatives of both sides were also in agreement before us at the time of hearing that the issue in the present appeal before us is identical to issue in Asst. Year 2011-12, and that the facts and circumstances in both the years, i.e. Asst. Year 2011-12 and 2009-10 are similar. The relevant portion of the aforesaid order dated 15/01/2021 of Co-ordinate Bench of ITAT, Delhi is reproduced as under: “7.2 As far as the issue of disallowance of payment to Retired partners in Assessment Year 2011-12 is concerned, it is seen that this issue is also settled in favour of the assessee by numerous judgments of the Hon’ble High Courts as well as the Co-ordinate Benches of the Tribunal. We find that an identical issue had come up before the ITAT Chennai bench in the case of a related concern of the assessee in assessment year 2011 - 12 and the ITAT Chennai bench in vide order dated 25/11 /2018, after relying on an order of ITAT Mumbai Bench in the case of CC Chokshi & Co. for assessment years 2000-01 and 2001- 02 had held the issue in favour of the assessee. The Honhle High Court of Bombay in the case of DCIT versus Wadia Ghandy & Company, vide judgment dated 12/02/2019, also upheld an identical order of ITAT Mumbai and noted that payment to the partner would amount to diversion of income at source by overriding title. The court went on to observe that it was not necessary to refer to long line of decisions where a similar view in similar circumstances had been taken. The undisputed facts are that the partnership firm envisaged payment to a outgoing partner on the basis that the partner would have rendered service during his tenure as a partner of the firm but could not enjoy the fruits thereof on account of the fact that the work having remained incomplete, the concerned client had not been billed for the work already done. The Hon’ble Bombay High Court held that in similar circumstances, the courts have held that payment to the partner would amount to diversion of income at source by overriding title. The Ld. senior departmental representative could not point out any judgment to the contrary on this issue as well and, therefore, in view of the ratio of the decisions as aforesaid and as relied upon by the Ld. Authorized Representative, on identical facts, respectfully following the above cited judicial precedents, we allow ground No.3 of the assessee’s appeal in Assessment Year 2011-12 and direct the Assessing Officer to delete the disallowance.” However, the Ld. Sr. DR relied upon the order of the Assessing Officer. (D) We have heard the representatives of both sides on merits of the aforesaid addition of Rs.1,37,75,514/-. We have perused the materials on record. There is no material dispute on facts regarding the merits of the aforesaid addition of Rs.1,37,75,514/-. Representatives of both sides were in agreement at the time of hearing before us that the issue in the present appeal before us for Asst. Year 2009-10 is identical to the issue in Asst. Year 2011-12. Representatives of both sides were also in agreement at the time of hearing before us that the facts and circumstances for Asst. Year 2009-10, to which the present appeal before us pertains, are similar to the facts and circumstances of Asst. Year 2011-12 to which aforesaid order dated 15/01/2021 of Co-ordinate Bench of ITAT, Delhi pertains. Representatives of both sides were also in agreement at the time of hearing before us that as far as the merits of the addition of the aforesaid amount of Rs.1,37,75,514/- is concerned, the issue is squarely covered in favour of the assessee and against Revenue in aforesaid order dated 15/01/2021 of Co-ordinate Bench of ITAT, Delhi in assessee’s own case in and 3716/Del/2017 for Asst. Year 2011-12. Neither side has brought any distinguishing facts and circumstances or legal submissions for our consideration to persuade us to take a view different from the view taken by Co-ordinate Bench of ITAT, Delhi in aforesaid order dated 15/01/2021. In view of the foregoing; and respectfully following the aforesaid order dated 15/01/2021 Co-ordinate Bench of ITAT, Delhi; we decide the issue regarding merits of the aforesaid addition of Rs.1,37,75,514/- in favour of the assessee and against Revenue, in Asst. Year 2009-10 also, to which the present appeal before us pertains; and we direct the Assessing Officer to delete the aforesaid addition of Rs.1,37,75,514/-.”
We further note that ITAT in assessee’s own case for Assessment Year 2011-12 & 2012-13 on the issue of subscription fees has held as under:-
7.0 We have heard the rival submissions and have perused the material on record. So far as the issue of disallowance of subscription fees is concerned, this ground is common in both Assessment Years 2011-12 & 2012-13. We agree with the contentions of the Ld. Sr. DR that this issue stands covered by the order of the Co-ordinate Bench of this Tribunal in Assessment Year 2009-10 in vide order dated 23.10.2018. The relevant observations and findings of the Tribunal are contained in paragraphs 11 to 17 of the said order and the same are being reproduced herein under for a ready reference: “11. We have given thoughtful consideration to the orders of the authorities below. It is not in dispute that the assessee has been paying subscription charges since Assessment Year 2007-08. It appears that this payment of subscription charges has been questioned only in the year under consideration. The observations of the Assessing Officer while disallowing the claim of subscription charges have been mentioned elsewhere.
First objection relates to the PAN of the DTT. The Assessing Officer observed that the assessee has paid subscription fees to a company registered in USA. According to the Assessing Officer, it cannot be claimed as business expenditure. In our understanding of law, such observation of the Assessing Officer does not hold any water, because under the Companies Act, a company can be incorporated under any other law also. The Assessing Officer has further mentioned that in the partnership deed, there is no clause relating to payment of DTT. We fail to understand the necessity of such clause in the partnership deed. The Assessing Officer further observed that DHS 13. Mumbai has paid to DTT after deducting tax at source u/s 194J of the Act which means that TDS has been deducted for fees for profession or technical services. The Assessing Officer was of the opinion that on the one hand DHS Mumbai is making payment as fees for profession or technical services and, on the other hand, the assessee is claiming the same as subscription fees. As mentioned elsewhere, in the case of DHS Mumbai in assessment years 2003-04, 2004-05 and 2005-06, payment made to DTJ-was disallowed u/s 40A(ia) of the Act. Thereafter, DHS Mumbai started deducting tax at source to avoid unnecessary litigation. But this has nothing to do with the subscription charges paid by the assessee to DHS Mumbai as its share of contribution.
In our considered opinion, the reasons given by the Assessing Officer for making disallowance are not based on sound principles. In our understanding of the facts, by becoming part of global net work of professional firms, it is easier to get work of international clients which are referred by firms of other companies from other countries. Similarly, the assessee may also refer its clients to its associated firm in other countries where the clients may require professional services. The use of the name Delotte is in itself sufficient to justify the business necessity of the subscription charges.
The co-ordinate bench in the case of DHS Mumbai and another has examined Article 1 of Verein in detail. The relevant part reads as under: "ARTICLE 1 NAME, DOMICILE AND PURPOSES 1.1 Name and Domicile. A Verein is hereby established with domicile in Zurich, Switzer land, under the name of Deloitte Touche Tohmatsu ("Verein"). The Verein consists of members that are professional firms ("Member Firms"). The Member Fir ms are engaged in rendering professional services, to the extent they may lawfully be performed under Local Laws (§7.1), in the fields of accounting, auditing, insolvency, law, management consulting, taxation and related services ("Professional Services"). The Verein is governed by these
Articles, by the Supplementary Agreement among the Member Fir ms supplementing these Articles ("Supplemental Agreement"), and by the applicable provisions of the Swiss Civil Code. 1.2 Purposes. The purposes of the Verein shall be:
(a) to further international cooperation and cohesion among the Member Firms;
(b) to assure that their practices shall conform to professional standards of the highest quality;
(c) to advance the international and national leadership of the Member Firms in rendering Professional Services; and to perform all other functions incidental to the above purposes. Article 8 deals with financial matters and Clause (b) of the said Article reads as under:- (a) Each Member Firm shall contribute to ward the budgeted operating expenses of the Verein for each fiscal Year in such proportions as shall be allocated by the Board of Directors; and (b) The amount allocated to each Member Fir m shall be based upon aggregate revenues and such other f actors, if any, as Delotte Haskins and Sells IT A No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No.: 5094/Mum/2011 may be determined by the Board of Directors and approved by the Member Firms. and Article 12 deals with dissolution, which reads as under:- 12.1 By Resolution a dissolution of the Verein shall occur if a resolution to that effect is, adopted by the Member Finns. 12.2 Distributions. Upon dissolution of the Verein, any liquidation proceeds shall be applied in the following order: (a) payment or discharge of all liabilities of the Verein, including any unpaid principal of and accrued interest on any loans and advances made by the Member Firms to the Verein; and (b) payment of any remaining balance to each Member Finn in the proportion that its allocated , contributions to budgeted operating expenses of the Verein bear to the total budgeted operating expenses of the Verein for the then current Fiscal Year, less any unpaid portion of the Member Finn's contribution outstanding on the date of dissolution"
From the reading of above Articles, it is seen that the association constitutes of Member firms which are engaged in rendering of professional services and the purpose of Verein is to further the international cooperation and cohesion among the member firms; to assure that practices of the Members shall conform to professional standards of highest quality; to advance the international and national leadership of the Member firms in rendering professional services, etc. Each Member contributes towards the budgeted operating expenses of Verein in such proportion which has been Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 allocated to them. The amount allocated to the each Member firm is based on aggregate revenues and other factors as illustrated therein. In pursuance of such allocation, invoices were issued by DTT to assessee in India allocating the DTT's operational budget. This is evident from certificate of the Chartered Accountant given at page 67. While making the said payment, the assessee had not deducted t h e &TDS inter alia on the ground that, firstly, the relationship between "the DTT and its Member is based on principle of mutuality", therefore, the Verein itself does not earn any income or renders any kind of professional services and the expenses are made through contribution by its members; and secondly, the reimbursement of expenses is based on allocation made by the DTT which in turn is on the basis of actual expenses. However both the authorities, Assessing Officer as well as CIT (A), instead of adjudicating the issue whether the subscription fees paid by the assessee to DTT Switzerland is taxable under the Act in India or not, have proceeded to disallow the payment on the premise that even if there existed a doubt regarding changeability of Income Tax, the assessee should have any way deducted the tax and should have complied with the provision of section 195 and 197. In support, strong reliance has been placed on the decision of ITAT Mumbai Bench in the case of Arthur Andersen & Co. and Hon’ble Supreme Court judgment in the case Transmission Corporation Andhra Pradesh (supra)."
Thus, both the issues are covered in favour of the assessee. Hence, the appeal of the assessee is allowed and appeal of the Revenue is dismissed.
In the result, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 30th August, 2022.