$~13
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 06.05.2014
+ ITA 29/2014
CM APPL.1598-1600/2014
CHEIL INDIA PRIVATE LIMITED (FORMERLY KNOWN AS
CHEIL COMMUNICATIONS INDIA PRIVATE LIMITED)
..... Appellant
Through: Mr. Salil Kapoor with Mr. Vikas Jain,
Mr. Sanat Kapoor and Mr. Ankit Gupta,
Advocates.
versus
DEPUTY COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr. Kamal Sawhney, Sr. Standing
Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. The following question of law arises for consideration: -
"Whether the Tribunal fell into error in holding that the sum of
`1,66,99,360/- had to be treated as income and, therefore,
brought to tax."
2. With consent of the counsel for the parties, matter was heard
finally.
3. The appellant showed that, during the period relevant to AY
2008-09, it had received `1,66,99,360/- from two parties, i.e.,
Samsung India Electronics Pvt. Ltd. and a Samsung
ITA-29/2014 Page 1
Telecommunication India Pvt. Ltd. The AO by issuing show cause
asked: "why the amount should not be treated as income during the
relevant year". The assessee claimed that in terms of the provisions
of the Income Tax Act, 1961 the tax had to be deducted from the
payer which was done. The appellant also stated that the amounts
were treated as an advance, given the nature of its business which
was to book and publish advertisements on behalf of its clients. It was
submitted that the amount continued to be treated as an advance and
were appropriated towards the expenses actually incurred and
thereafter reflected as such. It was further urged that the commission
payable to the assessee was deducted from the advance so received
and disclosed as the income. Upon a reference to the Dispute
Resolution Panel (DRP) on the basis of draft assessment order, the
panel directed as follows: -
"4.6 Out directions on this issue:
We have considered the facts of the case. It is noticed that AO
has clearly brought on record the discrepancy. The amount
under reference is received by the assessee. The payer has
already treated this amount as expenditure during the year. If
the revenue is recognized in the case of the assessee during this
year itself it will lead to anomaly. Therefore, we do not find
any infirmity in the proposed action of the AO. An alternate
arguments has been raised by the assessee of not giving credit
of pass through cost in case the amount is being treated as
revenue. The same also could not have been entertained by
AO as no detail has been provided by the assessee as how much
is pass through cost incurred during the year relating to these
receipts and confirmation thereof, if any. Therefore alternate
objection of the assessee also cannot be entertained and
therefore rejected."
ITA-29/2014 Page 2
4. The assessee's appealed to the ITAT. The Tribunal in its order
after recording the submissions, directed a limited remission in the
following terms: -
"13. We have heard the rival contentions in light of the
material produced and precedent relied upon. We find that
the parties who have paid the said advance has clearly
informed that the amount in question has been treated as
expenses incurred by them during the year. Hence, the plea of
the assessee to treat the amount received as advance is not
very cogent. However, we find that there is considerable
cogency in the assessee's submissions that proper credit of
pass through cost should be taken, if the amount is being
treated as revenue receipt. Since we have already remitted the
first issue in this case to the file of the Assessing Officer. We
find that interest of justice will be served, if this issue is also
remitted to the file of the Assessing Officer. The Assessing
Officer will examine the assessee's submission in this regard
regarding the pass through cost in this case. We hold and
direct accordingly."
5. The assessee relies upon paragraph 12 of Accounting Standard
No.9 which reads as follows: -
"12. In a transaction involving the rendering of services,
performance should be measured either under the completed
service contract method or under the proportionate completion
method, whichever relates the revenue to the work
accomplished. Such performance should be regarded as being
achieved when no significant uncertainty exists regarding the
amount of the consideration that will be derived from rendering
the service."
6. It also relies upon the other relevant portion of the Accounting
Standard No.9 pertaining to advertising and insurance agency
ITA-29/2014 Page 3
commission, which reads as follows: -
"2. Advertising and insurance agency commissions
Revenue should be recognised when the service is completed.
For advertising agencies, media commissions will normally be
recognised when the related advertisement or commercial
appears before the public and the necessary intimation is
received by the agency, as opposed to production commission,
which will be recognised when the project is completed.
Insurance agency commissions should be recognised on the
effective commencement or renewal dates of the related
policies."
7. It is argued that in the light of the above provisions, the books
of accounts and other documents maintained by the assessee
consistently showed that the amounts were treated as advance and the
actual expenditure was appropriated as and when the occasion arose.
The learned counsel submitted that for the succeeding assessment
year, the revenue was recognized in the books of accounts and taxes
were paid, accordingly.
8. We have considered the submissions of the parties. Even
though the DRP and the Tribunal appear to have accepted the merit of
the assessee's contention, they have not fully endorsed the position ,
consistently projected by it, that the amounts received were not in the
nature of income. As to the exact arrangement that existed between
the assessee and its customers, i.e., Samsung India Electronics Pvt.
Ltd. and Samsung Telecommunication India Pvt. Ltd. who used to
remit the amounts towards the expenditure to be incurred by them,
has not been discussed. Counsel for the assessee had relied upon a
tabular statement, the 18 invoices raised and the net income reported.
ITA-29/2014 Page 4
This Court is of the opinion that in the absence of any investigation
by the lower authority as to the contractual arrangement that existed
between the assessee and its customers, the AO had to necessarily
carry out the necessary enquiry or investigation to see the amounts
received and how they were expended. For these reasons, the matter
is remitted to the AO for consideration on all aspects and not merely
on the questions indicated by the Tribunal. In case, it is held that the
amount is income, the consequential benefit is to be given to the
assessee for the subsequent years.
9. The appeal is partly allowed in the above terms. All the
pending applications also stands disposed of.
S. RAVINDRA BHAT
(JUDGE)
VIBHU BAKHRU
(JUDGE)
MAY 06, 2014
/vks/
ITA-29/2014 Page 5
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