1 ITA No. 474/Del/2011
Asstt. Year: 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `D' NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No. 474/Del/2011
Assessment Year: 2006-07
Krishan Khera vs ITO
C/o Rahul Kapoor & Associates, CA Ward 25(3),
E-186, Greater Kailash 1 Vikas Bhawan
New Delhi 110 048. New Delhi 110 002
PAN AHEPK7955P
(Appellant) (Respondent)
Appellant by: Shri M.P. Rastogi, Advocate,
Ms. Lalitha Krishnamurthy, CA
Respondent by: Shri S.N. Bhatia, DR
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the assessee against the order of the
Commissioner of Income Tax (Appeals) VIII, New Delhi vide dated
27.12.2010 in appeal No. 430/08-09/Tr./10-11/23 for the asstt. year 2006-07.
2. On perusal of the grounds raised by the assessee we observed that the
ground No. 7 is of general in nature which needs no adjudication on the
merit. Remaining grounds of the assessee read as under :-
1. That the lower authorities had erred on facts and under the law in
2 ITA No. 474/Del/2011
Asstt. Year: 2006-07
assessing the entire amount of consultancy fees of Rs. 58,26,888/-,
received from UG Hospitals Pvt. Ltd. for the term of five years, even
pertaining to the unexpired period of the contract, in the year under
appeal and consequently the addition of Rs. 55,35,544/- in the income
of the appellant is arbitrary, unjust and at any rate very excessive.
2. That the lower authorities had erred on facts and under the law in
assessing the entire consultancy fees amounting to Rs. 58,26,888/-
received from UG Hospitals Pvt. Ltd. for the term of five years,
instead of yearly accrual, which is against the law and principle of
commercial accountancy.
3. That the lower authorities had erred in not allowing expense of Rs.
65,970/- claimed against the consultancy income of Rs. 2,91,344 that
had accrued in the year.
4. That the disallowance of expenditure as claimed by the assessee is
arbitrary, unjust and at any rate very excessive.
5. Without prejudice to above grounds that in case the entire amount of
consultancy fees is assessable during the year then the revenue
authorities ought to have also allowed the expenses incurred in
relation thereto in the subsequent years.
6. That the assessee denies his liability to pay interest charged under
section 234B and 234C of the Income Tax act, 1961.
3. Briefly stated the facts giving rise to the appeal are that the assessee is
a doctor. He has filed return showing income of Rs. 2,25,370/-. The assesee
has also shown professional receipt of Rs. 58,26,888/- during the year in the
P & L account but an amount of Rs. 2,91,344/- has been declared as
professional receipt. On query raised by the AO, the assessee submitted that
3 ITA No. 474/Del/2011
Asstt. Year: 2006-07
Rs. 58,26,888/- has been received as management consultant fee from UG
Hospital (P) Ltd. for 5 years starting from 1.1.2006 and professional receipt
shown in the income and expenditure account is for 3 months i.e. 1.1.2006 to
31.3.2006. The assessee has shown that the receipts pertaining to relevant
financial year i.e. 2005-06 for three months starting from 1.1.2006 to
31.3.2006 out of receipts of Rs. 58,26,888/- has been offered as revenue
receipts for taxation and remaining amount as advance. The AO adjudicated
the issue and concluded that the entire receipt of Rs. 58,26,888/- is an
income from undisclosed source with following observations and findings :-
"However in order to provide one more opportunity a letter dated
15.12.2008 was sent to the assessee as to why the entire receipt of Rs.
5826888/- by him-professional fee as claimed during the year - &
further claimed as advance- should not be taxed for the reasons as
mentioned in the above letter in the year of receipt that is in the A.Y.
under consideration 2006-07. In response to the above cited letter, the
assesee has been perused and examined. There is no further evidence
or disclosure of facts in the written submission furnished by the
assesee . In the submission it has been requested not to take the entire
receipt for taxation during the year under consideration as proposed
by the undersigned in the letter dated 15.12.2008. However, the
request of the assesee cannot be acceded to considering the overall
facts & circumstances of the case and as no further acceptable
evidence in support of what has been claimed have been furnished.
There is no regular books of accounts maintained by the assesses
under any system cash-or-mercantile as mentioned and discussed
above. The assesee should have maintained regular books of account
keeping in view huge receipt of payment & nature of claim as being
advanced by him! The reply of U/G hospital in this regard is also not
acceptable for the reasons as mentioned above & totality of facts &
circumstances of the case in absence of any formal written agreement
or contract as discussed in details above. I therefore, considering the
4 ITA No. 474/Del/2011
Asstt. Year: 2006-07
overall facts & circumstances of the case and the fact that no regular
books of accounts has been maintained by the assessee under any
system- mercantile or cash am convinced that the entire receipt
observe to be taxed in the year of receipt only rejecting this theory of
"advance" in absence of any written agreement or contract or non-
maintenance of regular books of accounts under any system under the
circumstances mentioned above from undisclosed sources only. I
accordingly treat the entire receipt of Rs. 5826888/- as receipt from
disclosed sources i.e U.G. Hospital for undisclosed reasons under the
circumstances mentioned above.
4. Being Aggrieved the assesssee preferred an appeal before the CIT(A)
which was also dismissed with following findings :-
4.2 I have carefully considered the submissions made on behalf of the
appellant and have also carefully examined the details of expenditure
claimed to have been incurred in connection with the consultancy income of
Rs. 5826888. On consideration, I find that there is no merit in the alternative
claim of the appellant. I have already discussed in detail that no specific
responsibility, no specific working days, no specific working hours and no
specific work of place has been provided even in the agreement executed in
June, 2010. The nature of expenses which have been listed hereinbefore
clearly suggests that these expenses are not in connection with the so called
management consultancy to be provided by the appellant in lieu of receipt of
Rs.5826888/-. I am of the view that the expenses claimed by the appellant in
different AYs are in connection with private practice which he must have
been engaging in. Therefore, I do not find any substance in the alternative
ground also and the same is accordingly dismissed.
Ground No. 1 & 2 of the assessee
5. We have heard arguments of both the sides and carefully perused the
record. At the outset of arguments, the Ld. Counsel for the assessee
submitted a copy of the decision of ITAT Delhi "A" Bench in ITA No.
5 ITA No. 474/Del/2011
Asstt. Year: 2006-07
475/D/2011 for assttt. Yaer 2006-07 in the case of Dr. Aman Khera vs.
DCIT vide dated 4.5.2012 wherein the same issue has been decided in
favour of the assessee with following observations and findings :-
8.2 We have carefully considered the submissions and perused the records.
During the year under consideration, the assessee entered into an agreement
M/s UG Hospitals Pvt. Ltd. who are the owners of Metro chain of hospitals
as a Hospital Management Consultant for a period of five years w.e.f. 1st
January, 2006 for a total emolument of Rs. 1,15,00,000/- plus TDS Rs.
6,83,494/-, thereby workingout the total taxable emoluments at Rs,
1,21,83,494/-. The duration of the agreement was for five years and the
assessee was committed to render the services to the UG Hospitals for five
years, hence for the year under consideration the assessee declared the
professional income from UG Hospitals in proportion to the period for
which the assessee had rendered the services during the year under appeal.
Rest of the emoluments was spread over and declared in subsequent years in
proportion to the period of services rendered in those years. Assessing
Officer was of the opinion that the entire amount has to be taxed in the year
of its receipt and accordingly, he treated the entire amount of ` 1,21,83,994/-
as income of the year under appeal. Ld. Commissioner of Income Tax
(Appeals) confirmed this action of the Assessing Officer. Now it is the
submission of the ld. counsel of the assessee that the assessee was committed
as per agreement to serve for 5 years for the UG Hospitals. Under the
circumstances, the only income from UG Hospitals in proportion to the
period for which the assessee had rendered the services during the
concerned year should be recognised. This proposition draw support from
the decision of the Hon'ble Apex Court in the case of E.D. Sasoon & Co.
Ltd. vs. C.I.T. 26 ITR 27. In this case at pages 51-52, the Hon'ble Supreme
Court has observed as under:-
"If income has accrued to the assessee it is certainly earned by him in the
sense that he has contributed to its production or the parenthood of the
income can be traced to him. But in order that the income can be said to
have accrued to or earned by the assessee it is not only necessary that the
assesseemust have contributed to its accruing or arising by rendering
services or otherwise but he must have created a debt in his favour. A debt
must have come into existence and he must have acquired a right to receive
the payment. Unless and until his contribution or parenthood is effective in
6 ITA No. 474/Del/2011
Asstt. Year: 2006-07
bringing into existence a debt or a right to receive the payment or in other
words a debitum in prasenti, solvendum in futuro it cannot be said that any
income has accrued to him.".
8.3 Now we examine the present case on the touch-stone of the aforesaid
decision. Admittedly, assessee has not served for the period of five years.
Assessee has not rendered enough services to warrant emoluments of Rs.
1,21,84,494/-. It is assessee's submission that during the year under
consideration he has not created a debt or a right to receive the payment
equivalent to Rs. 1,21,84,494/-. Hence, it cannot be said that the income
equivalent to total emolument ` 1,21,84,494/- has accrued to the assessee.
8.4 In this regard, assessee's reliance of AS-9 issued by the ICAI is also
relevant. AS-9 deals with the system of recognition of revenue in the
rendering of services. In para 7.1 it states that revenue from service
transactions is usually recognized as the service is performed, either by
proportionate completion method or by the completed service contract
method. It further specifies that in proportionate completion method, the
revenue is recognized proportionately by reference to the performance of
each Act and when services are provided by an indeterminate number of
acts over a specific period of time, revenue is recognized on a straight line
basis over the specific period. In other words, AS-9 also prescribes that in
case of service contracts which is spread over to various years, the revenue
is recognized on proportionate basis.
8.5 We further find that the decision of Hon'ble Jurisdictional High Court in
the case of C.I.T. vs. Dinesh Kumar Goel in 331 ITR 10 (Del) also supports
the case of the assessee. In this case assessee was running an institute of
coaching students and had received the total fee of the entire course having
the duration of two years. The fee was non-refundable. The said assessee
claimed that the fee should be spread over to the years for which the
coaching was to be made, whereas the Revenue was of the view that because
the money was non-refundable and as per the agreement the students have
to pay the entire fee in advance at the time of admission, therefore, it is
assessable in the year of receipt. The Jurisdictional High Court negative the
contention of the Revenue and held, after following the judgment of E.D.
Sasoon & Co. (Supra) that because the services had to be rendered in two
years, therefore the entire fee had to be spread over in two years and had to
be assessed proportionately.
7 ITA No. 474/Del/2011
Asstt. Year: 2006-07
8.6 Furthermore, in the case of Career Launchers (India) Ltd. vs. ACIT in
131 ITD 414, the Coordinate Delhi Bench of the ITAT has also held that
even if the amount is non-refundable, it has tobe assessed on proportionate
basis on the basis of duration of services rendered.
8.7 The Chennai Special Bench of the Tribunal in the case of ACIT vs.
Mahendra Holidays & Resorts (India) Ltd. in 131 TTJ 1 has also held that
where the services are required to be rendered in various years, the receipts
have to be spread over the years for which the services are required to be
rendered. The Special Bench of the ITAT further observed that recognizing
entire receipt in the year of receipt can lead to a distorted picture. We
further find that the other case laws relied by the ld. counsel of the assessee
also support the assessee's case.
8.8 From the above discussion and precedents, it is amply clear that in
service contract the income has to be recognized in proportion to the
services rendered in a particular year. In the present case, admittedly the
assessee has not rendered services for the period of 5 years. Hence, there is
no question of recognizing the entire amount as income of the assessee in the
year of receipt. It cannot be said that assessee has created such a debt or
right against the M/s UG Hospital that the income for the entire 5 years had
accrued to the assessee. In our considered opinion, in the background of the
aforesaid discussion and precedent, we find that the assessee has correctly
declared professional fee from the UG Hospital in proportion to the period
of services rendered during the year. Under the circumstances, we set aside
the orders of the authorities below and decide the issue in favour of the
assessee."
6. The Ld. Counsel for the assessee submitted that the assessee of the
present case i.e. Dr. Krishan Khera and Dr. Aman Khera was of the ITA No.
475/D/2011 (supra) are family members of the Khera family and they
entered into similar agreements with M/s. UG Hospital Pvt. Ltd. for a term
of five years to provide consultancy services w.e.f. 1st January, 2006.
Therefore there is no question of recognizing the entire amount as income of
8 ITA No. 474/Del/2011
Asstt. Year: 2006-07
the assessee for the year of a receipt and it cannot be said that the assesee
has created such a debt or a right against M/s. UG Hospitals that the income
for entire five years had accrued for the assessee. The Ld. Counsel further
contended that the professional fees receipt from M/s. UG Hospitals for five
years cannot be treated income of the relevant assessment year and the
assesee correctly declared professional fees from the UG hospitals in
proportion to the three months period of services rendered during the year.
7. The Ld. DR fairly accepted that on similar factual mattes the ITAT
"A" Bench Delhi has granted relief for Dr. Aman Khera vide decisions
dated 4.5.2012 (supra) the Departmental Representative also pointed out that
when the entire amount of consultancy has been received in the year under
consideration then the same may be treated income of the relevant year in
which amount was receieved.
8. On careful consideration of submissions and contentions of both the
parties and careful perusal of the decision of ITAT Delhi A Bench in ITA
No, 475/D/2011 dated 4.5.2012 (supra) in Dr. Aman Khera's case , we
clearly observe that in the similar facts and circumstances the coordinate
bench of the Tribunal hold that the receipts under service contract of five
9 ITA No. 474/Del/2011
Asstt. Year: 2006-07
years starting from 1.1.2006 has to be recognized in proportionate to the
services rendered in a particular year and the entire amount of receipt cannot
be taxed as income from undisclosed source. In Dr. Aman Khera's decision
(supra) the Tribunal in para 8.8. has held that admittedly the assessee has not
rendered services for the period of five years, hence, there is no question of
recognizing the entire amount as income of the assesee in the year of receipt.
9. The Tribunal further hold that it cannot be said that the assesee has
created such a debt or right against M/s. UG Hospitals that the income for
the entire five years had accrued to the assessee. The factual matrix of the
present case is also similar and in the background of the aforesaid discussion
and legal precedent, we reach to a conclusion that the assessee has correctly
declared professional fee from the UG Hospital in proportion to the period
of services rendered during the year i.e. from 1.1.2006 to 31.3.2006 for three
months . Accordingly we hold that the issue is squarely covered in favour of
the assesee by the decision of the Tribunal in the case of Dr. Aman Khera
(supra) and consequently orders of the authorities below are set aside and the
AO is directed to charge professional fee received from UG Hospitals by the
assesee in proportion to the period of services rendered during the year i.e.
from 1.1.2006 to 31.3.2006. Finally we hold that the ground No. 1 and 2 of
10 ITA No. 474/Del/2011
Asstt. Year: 2006-07
the assessee are squarely covered by the decision of the Tribunal dated
4.5.2012 (supra) in favour of the assessee and respectfully following the
same ground No.1 & 2 of the assessee are allowed.
Ground No. 3,4 and 5
10. Apropos these grounds the Ld. Counsel for the assessee submitted
that the authorities below had erred in not allowing the expenses of Rs.
65,970/- claimed against the consultancy income of Rs. 2,91,344/- which
was declared as income in the year under consideration. The Ld. Counsel
further submitted that without prejudice to the above contentions in case the
entire amount of consultancy fees is sustainable during the year then the
revenue authorities ought to have also allowed the expenses incurred in
relation thereto in the subsequent years as per agreement.
11. Ld. Departmental Representative replied that when the assessee is
not able to substantiate its claim of expenses then the AO has no alternative
but to disallow the same. The DR further pointed out that the onus on the
assessee that the amount of expenses was incurred wholly and exclusively
for the purpose of profession of consultancy which was not discharged by
11 ITA No. 474/Del/2011
Asstt. Year: 2006-07
the assessee. Therefore claim of the assesee was rightly disallowed by the
AO and the findings of the AO was rightly upheld by the CIT(A).
12. On carefully consideration of the above submission and contentions
we observed that the authorities below have not decided and adjudicated the
issue of claim of assessee in regard to expenses incurred against
consultancy income. Ld. Counsel of the assessee as well as Ld. DR fairly
accepted that the issue requires fresh verification and examination at the end
of the year. Accordingly issue involved in ground No. 3,4 and 5 is restored
to the file of the AO with the direction that the AO shall verify and examine
the claim of the assesee about expenses of Rs. 65,970/- claimed against the
consultancy income denovo by affording due opportunity of hearing for the
assesee. In view of above ground No. 3,4 & 5 of the assessee are deemed to
be allowed for statistical purposes.
Ground No. 6
13. Ground No. 6 is consequential . Since issue of claim of expenses
placed by the assessee has been restored to the file of AO therefore ground
No. 6 is also disposed off with a direction to the AO that the issue of interest
12 ITA No. 474/Del/2011
Asstt. Year: 2006-07
u/s 234B and 234C of the Act should be decided in accordance with
conclusion of the assessment as per provisions of the Act.
14. In the result, appeal of the assesee is partly allowed on ground No. 1
and 2 and on ground No. 3 to 6 part appeal of the assessee is deemed to be
allowed for statistical purposes.
15. The order was pronounced on conclusion of the hearing on 11th July,
2014.
sd/- sd/-
(R.S. SYAL) (CHANDRA MOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated 11th July, 2014
*Veena"
Copy of order forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5 DR
By Order
Asstt Registrar, ITAT
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