SECOND WEALTH-TAX OFFICER v. N.V. IYER
[Citation -1987-LL-0203-3]

Citation 1987-LL-0203-3
Appellant Name SECOND WEALTH-TAX OFFICER
Respondent Name N.V. IYER
Court ITAT
Relevant Act Wealth-tax
Date of Order 03/02/1987
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags system of accounting • valuation report • land reforms act • cross-objection • valuation date • credit balance • cash basis • net wealth • maharaja
Bot Summary: 1979-80 included in the assessee's net wealth his share of outstanding fees of Rs. 10,19,640 in respect of the Bombay firm and Rs. 73,560 in respect of the Ahmedabad firm. Assessee in the cross objection claims that nothing was includible in the assessee's net wealth on account of outstanding fees of the firm. M/s. Orr Dignan Co., which firm maintained its books on cash basis and the firm had outstanding fees due from its clients and the WTO had determined Basu share in the outstandings at Rs.2.50 lacs, with the AAC had directed WTO to determine assessee's share in the outstanding fees in accordance with the percentage determined by him and the Tribunal had upheld the AAC's order. Calcutta High Court categorically held in the above cited case that no income-tax was payable on the outstanding on the valuation date in view of the case system of accounting and therefore, no question of deducting income- tax liability from the outstanding fees would arise. Reverting to the aforesaid report as on 31st March, 1975, actuaries vide para 3(i) gave 5 per cent rebate in respect of outstanding fees on the ground that certain fees become irrecoverable. Departmental representative pointed out that C.C. Chokshi Co., was not a small firm of Chartered Accountants which but was a leading firm of Chartered Accountants which had as its clients leading business houses and therefore, there was no question of 5 per cent of the outstanding fees becoming bad. In the alternative, it was urged that the matter should be sent back to the WTO so that the assessee can lead evidence to show irrecoverability of 5 per cent of outstanding fees giving figures for the last 5 years. In view of the above discussion, we restore this matter to the file of WTO to examine the Acutary's report regarding items 3(i), namely irrecoverability of outstanding fees, 3(ii), namely, realisation period of outstanding fees and 3(v), namely, applicability of interest rate to the realisation period outstanding fees.


Assessee is partner with 17 per cent share in leading firm of chartered accountants styled 'C.C. Chokshi & Co., Bombay, and with 40 per cent share in firm in same name at Ahemedabad. WTO in making assessment for asst. year. 1979-80 (valuation dt. 31st March, 1979) included in assessee's net wealth his share of outstanding fees of Rs. 10,19,640 in respect of Bombay firm and Rs. 73,560 in respect of Ahmedabad firm. AAC has reduced this figure to Rs. 78,502 accepting valuation report of M/s. K.A. Pandit, Actuaries dt. 3rd Jan., 1983 in respect of Bombay firm. said actuaries had also valued assessee's share at Rs. 5,663 in respect of Ahmedabad firm but ACA's order is silent in respect of assessee's share from said Ahmedabad firm. Revenue's grievance is against AAC reducing assessee's share of outstanding fees from Rs. 10,93,200 to Rs. 78,502. Assessee in cross objection claims that nothing was includible in assessee's net wealth on account of outstanding fees of firm. We may first deal with assessee's claim objecting to includibility of his share in outstanding fees of firm. Diptikumar Basu vs. CWT (1976) 105 ITR 450 (Cal), which was approved by Supreme Court in CWT vs. Vysya Raju Badreenarayana Moorthy Raju (1985) 45 CTR (SC) 271: (1985) 152 ITR 454 (SC), is complete answer to assessee's case. Dipitkumar Base was partner in firm of solicitors. M/s. Orr Dignan & Co., which firm maintained its books on cash basis and firm had outstanding fees due from its clients and WTO had determined Basu share in outstandings at Rs..2.50 lacs, with AAC had directed WTO to determine assessee's share in outstanding fees in accordance with percentage determined by him and Tribunal had upheld AAC's order. High Court, while upholding Tribunal's order, rejected assessee's claim (which was made on similar lines as before us), namely, that partner might not remain in firm at time of realisation of outstandings. High Court held that WT Act, was concerned with net wealth of assessee on valuation date outstandings were assets and wealth of firm on valuation date and assessee was partner of firm on that date. Following said decision, we reject contention of assessee before us that as per partnership deed of C.C. Chokshi & Co., assessee partner is not entitled to any share in outstandings at time he retires from firm. next contention raised before us which is as per para 3(iv) of actuaries' report is regarding income-tax payable by firm on outstandings. Calcutta High Court categorically held in above cited case that no income-tax was payable on outstanding on valuation date in view of case system of accounting and therefore, no question of deducting income- tax liability from outstanding fees would arise. Same observations would apply to para 3(iv) of actuaries' report in respect of personal taxation of partners. We may now deal with remaining grounds in actuaries' report for scaling down outstanding fees as on 31st March, 1975 of Rs. 27,70,350 to Rs. 2,13,289. We may mention that aforesaid report dt. 18th Feb., 1980 has been followed by said actuaries for valuing outstanding fees as on 31st March, 1979 of Bombay firm of Rs. 59,97,881 to Rs. 4,61,776 and of Ahemedabad firm of Rs.18,39,992 to Rs. 1,41, 584 for assessment year under consideration. Reverting to aforesaid report as on 31st March, 1975, actuaries vide para 3(i) gave 5 per cent rebate in respect of outstanding fees on ground that certain fees become irrecoverable. Revenue's grievance (which would be common to all deductions allowed by actuaries) is that on details for scaling down outstanding fees is given by actuaries and AAC has not examined matter nor has he given any opportunity to WTO to examine these aspects and therefore AAC was not right to accept without any verification actuaries' report. ld. departmental representative pointed out that C.C. Chokshi & Co., was not small firm of Chartered Accountants which but was leading firm of Chartered Accountants which had as its clients leading business houses and therefore, there was no question of 5 per cent of outstanding fees becoming bad. In alternative, it was urged that matter should be sent back to WTO so that assessee can lead evidence to show irrecoverability of 5 per cent of outstanding fees giving figures for last 5 years. Revenue's grievance is same regarding para 3(ii) of actuaries' report that average realisation period of outstanding fees is two years. It is urged that big business houses would not take even month after bill is submitted to them, more so when Chartered Accountant' certificate on balance-sheet is essential. Here again, Revenue wanted matter to be restored to WTO to verify position on assessee furnishing required details for preceding 5 years. In para 3(iii), actuaries have reduced establishment costs of 51 per c e n t from receipts. Revenue rightly contends before us that establishment costs have already been debited in relevant P & L account which have been incurred for rendering services to clients and therefore, no establishment costs would be relevant for recovering outstanding debts. Shri P.A. Nair, partner, who appeared on behalf of assessee, conceded this position. Regarding para 3(iv) of actuaries report about registered firm's tax and para 3(iv) regarding partners' taxation, we already discussed above in para 5 that no deduction on this account is allowable in view of observations of Calcutta High Court in Diptikumar Basu (supra). In para 3(v), actuary had discounted by "18 per cent gross or 5 per cent net realisable outstanding fees. We have not been told difference between gross and net rates and what rate has finally been taken by acturary. We direct that bank rate prevailing as on 31st March, 1979 may be applied, after ascertaining average period for which outstanding fees would remain unpaid by clients. Shri P.A. Nair for assessee relied on CWT vs. Maharaja Kumar Kamal Singh (1984) 39 CTR (SC) 147: (1984) 146 ITR 202 (SC) and CWT vs. Raghubar Narain Singh (1984) 39 CTR (SC) 153: (1984) 146 ITR 228 (SC) where, dealing with compensation receivable under Bihar Land Reforms Act on Abolition of Zimandari, Supreme Court observed that discount should be given for hazards in process of execution of decrees and other factors which hazard, clog or jeopardy recovery of assets. We have already considered such factors while dealing with different item under which Actuary has allowed discounting of outstanding fees. In view of above discussion, we restore this matter to file of WTO to examine Acutary's report regarding items 3(i), namely irrecoverability of outstanding fees, 3(ii), namely, realisation period of outstanding fees and 3(v), namely, applicability of interest rate to realisation period outstanding fees. WTO will thereafter determine assessee's share of outstanding fees in light of our observations above. In result, Revenue's appeal is partly allowed. Assessee's cross-objection, so far as it deals with inclusion of outstanding fees, stands rejected. Assessee's objection regarding inclusion of credit balance in CDS account (which was not dealt by AAC) is also rejected following Tribunal (Special Bench) Bombay's decision in Smt. Sushilaben A. Mafatlal vs. WTO (1986) 26 TTJ (Bom) 67 (SB): (1986) 18 ITD 189 (Bom) (SB). In result, cross objection is rejected. *** SECOND WEALTH-TAX OFFICER v. N.V. IYER
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