Asstt.Commissioner of Income Tax, Circle,I, Nagpur V. M/s. Zaidun Leeng SDN,BHD-Artefact Projects, Nagpur

ITA 177/NAG/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9677 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND BHUSARI
• Keywords: Business income; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3)

Judgement Text

ITA NO. 177/NAGPUR/2009 ZAIDUN LEENG SDN. BHD ARTEFACT PROJECTS (JV), NAGPUR IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , NAGPUR BEFORE: SHRI P.K. BANSAL , ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , JUDICIAL MEMBER ITA NO. 177 / NAGPUR / 20 09 ASSESSMENT YEAR : 2006 - 07 ACIT, CIRCLE - 1 NAGPUR VS. M/S. ZAIDU N LEENG SDN, BHD ARTEFACT PROJECTS (JV) NAGPUR (APPELLANT) (RESPONDENT) PAN NO.AAAAZ 0129L APPELLANT BY: DR. MILIND BHUSARI, CIT(DR) RESPONDENT BY: SHRI K.P. DEWANI, ADVOCATE DATE OF HEARING: 09.10.2012 DATE OF PRONOUNCEMENT: 18.10.2012 ORDER PER P.K. BANSAL, ACCOUNTANT MEMBER: - THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWIN G RELIEF BY DELETING THE ADDITION OF RS.3,72,67,402/ - AND RS.5,68,837/ - MADE UNDER SECTION 40(BA) OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) FAILED TO NOTICE THAT THE ASSESSEE OMITTED TO DISCLOSE THESE SUMS AS RECEIPTS AND HENCE THE CIT(A) SHOULD HAVE UPHELD ADDITION AFTER GRANTING CERTAIN DEDUCTIONS TOWARDS ESTIMATED EXPENDITURE TOWARDS EARNING THESE RECEIPTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) FAILED TO AP PRECIATE THE FACT THAT THE AMOUNTS OF RS.3,72,67,402/ - & RS.5,68,837/ - BEING CONSULTANCY CHARGES PAID ARE COVERED UNDER THE WORD REMUNERATION WHICH IS MENTIONED IN SECTION 40(BA). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) FAI LED TO APPRECIATE THE FACT THAT THE JV AGREEMENT CLEARLY SPELT OUT THE ROLE OF THE MEMBER WHICH IS IN LINE WITH THE EXISTING BUSINESS OF THE MEMBER COMPANY AND SUCH THE PAYMENTS MADE ARE CLEARLY COVERED BY THE PROVISIONS OF SECTION 40(BA) OF THE I.T. ACT. ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SUBMITTED THE RETURN AT AN INCOME OF RS.6,44,171/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AT RS.3,84,90,310/ - . THE ASSESSEE IS A JOINT VENTURE OF TWO CORPORATE ENTITIES NAMELY M/S. ZAID UN LEENG SDN BHD NON RESIDENT AND ARTEFACT PROJECTS (UNIT OF ARTEFACT SOFTWARE AND FINANCE LTD.). IT MAINTAINED REGULAR BOOKS OF ACCOUNTS DULY AUDITED BY A CHARTERED ACCOUNTANT. THE WORK OF NATIONAL HIGHWAY AUTHORITY WAS TO BE EXECUTED MAINLY BY M/S. ART EFACT PROJECTS. THE JOINT VENTURE COMPANY REDUCED THE PAYMENT MADE TO ARTEFACT PROJECTS FOR THE WORK EXECUTED BY THEM AND THE PAYMENT MADE ARE NOT IN THE NATURE OF PROVISIONS OF SECTION 40(BA). THE ASSESSING OFFICER APPLIED THE PROVISION OF SECTION 40(BA ) AND DID NOT ALLOW THE PAYMENT MADE BY THE ASSESSEE TO ARTEFACT PROJECTS AND M/S. ZAIDUN LEENG SDN BHD ARTEFACT PROJECTS (JV) FOR EXECUTING THE WORK IGNORING THAT THE PAYMENT MADE IS NEITHER INTEREST NOR SALARY, COMMISSION, BONUS OR COMMISSION. THE ASSES SEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE CONSIDERED SUBMISSIONS OF THE COUNSEL OF THE APPELLANT AND PERUSED THE EVIDENCE ON RECORD. I FIND SUBSTANTIAL FORCE IN THE VARIOUS SUBMISSIONS MADE BY A PPELLANT. THE FACTS OF THE CASE ARE THAT THE APPELLANT IS AN ASSOCIATION OF PERSONS (AOP), COMPRISING OF TWO CORPORATE ENTITIES. ONE OF THE MEMBER IS A DOMESTIC COMPANY WHEREAS OTHER MEMBER IS A NON - RESIDENT COMPANY. BOTH THE COMPANIES HAVE ENTERED INTO A JOINT VENTURE AND OBTAINED WORK FROM NATIONAL HIGHWAY AUTHORITY OF INDIA, HEREINAFTER REFERRED TO NHAI. THE NHAI IS A GOVT. COMPANY WHICH IS EXECUTING DEVELOPMENT PROGRAM OF GOVERNMENT OF INDIA IN REGARD TO CONSTRUCTION OF 4 LANE, 6 LANE AND EXPRESS WA Y, ETC. THE MEMBERS OF THE APPELLANT ASSOCIATION HAVE POOLED ITS CAPABILITIES IN ORDER TO EXECUTE THE WORKS OF NHAI. THE MEMBERS HAVE DEFINED EXECUTION OF WORK WHICH IS TO BE CARRIED BY EACH OF THE COMPANY FORMING JOINT VENTURE. THE WORK WHICH IS EXECUT ED BY ARTEFACT PROJECT IS BILLED TO JOINT VENTURE AOP AND AT THE SAME VALUE THE BILLS ARE RAISED BY JOINT VENTURE TO NHAI. THE AMOUNT RECEIVED FROM NHAI TOWARDS THE BILL IS PARTED TO THE CORPORATE ENTITIES OF A JOINT VENTURE. IN CASE THERE ARE CERTAIN DE DUCTIONS MADE BY NHAI FROM THE BILL OF THE JOINT VENTURE RELATING TO WORK EXECUTED BY MEMBER COMPANY, THE SAME IS REVERSED IN THE BILL RECEIVED FROM THE MEMBER COMPANY EXECUTING THE SAID WORK. IT IS SEEN FROM THE DETAILS THAT M/S. ARTEFACT PROJECT HAD RAI SED GROSS BILLS OF RS.3,79,60,789/ - DURING THE PREVIOUS YEAR WHICH WERE ONWARD RAISED BY APPELLANT ON NHAI. OUT OF THIS, SUM OF RS.12,83,687/ - WAS RECEIVED LESS. THE AFORESAID AMOUNT IS CORRESPONDINGLY REVERSED FROM THE BILLS RAISED BY ARTEFACT PROJECT T O THE JOINT VENTURE. THE ABOVE FACT IS EVIDENT FROM THE DETAILS OF BILLS AND RECEIPTS APPEARING IN BOOKS THE DETAILS OF WHICH ARE PLACED ON RECORD IN THE COURSE OF APPELLANT PROCEEDINGS. IT IS EVIDENT THAT THE RECEIPTS OF THE APPELLANT HAVE BEEN PARTED W ITH TO THE EXTENT OF WORK EXECUTED BY M/S. ARTEFACT PROJECTS, ONE OF THE CONSTITUENT OF THE JOINT VENTURE. ON ABOVE FACTUAL POSITION, THE ASSESSING OFFICER HAS HELD THAT THE PROVISIONS OF SECTION 40(BA) OF I.T. ACT 1961 ARE APPLICABLE IN RESPECT TO PAYMEN T ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 3 MADE TO THE TWO COMPANIES CONSTITUTING THE JOINT VENTURE (AOP). THE ASSESSING OFFICER HAS CONCLUDED THAT THE PAYMENT MADE TO THE TWO COMPANY EXECUTING THE WORK IS IN THE NATURE OF REMUNERATION AS PROVIDED IN SECTION 40(BA) OF I.T. ACT 1961. THE ASSESSI NG OFFICER HAS ACCORDINGLY DISALLOWED THE SAME IN THE ASSESSMENT FRAMED. THE TOTAL ADDITION MADE BY THE ASSESSING OFFICER IS RS.3,72,67,302/ - . THE ASSESSING OFFICER HAS NOT ACCEPTED THE DETAILED EXPLANATION GIVEN IN THE COURSE OF ASSESSMENT PROCEEDINGS A ND BY RELYING ON CERTAIN DECISIONS AND PROVISIONS OF SECTION 40(B) OF I.T. ACT 1961 MADE THE ADDITION. THE ASSESSING OFFICER HAS HELD THAT THE PROVISIONS OF SECTION 40(BA) ARE VERY MUCH CLEAR IN REGARD TO ANY PAYMENT IN THE NATURE OF REMUNERATION PAID TO MEMBER THUS PAYMENTS MADE ARE NOT TO BE ALLOWED AS DEDUCTION. 5.3 THE PROVISION OF SECTION 40(BA) OF I.T. ACT 1961 PROVIDES THAT IN THE CASE OF ASSOCIATION ANY PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED PAID BY SUCH ASSOCIATION TO MEMBER OF SUCH ASSOCIATION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE SHORT QUESTION IN THE PRESENT APPEAL IS WHETHER PAYMENT MADE BY THE APPELLANT TOWARDS EXECUT ION OF WORK WOULD FALL FOR CONSIDERATION AS REMUNERATION AS PROVIDED U/S 40(BA) OF I.T. ACT 1961. IT IS NOT THAT EACH AND EVERY PAYMENT MADE TO MEMBER IS NOT ALLOWABLE DEDUCTION. THE DISALLOWANCE IS ONLY WITH RESPECT TO SPECIFIED NATURE OF PAYMENTS PROVI DED U/S 40(BA) OF INCOME TAX ACT, 1961. IN THE FACTS OF PRESENT CASE AO IS OF THE VIEW THAT PAYMENTS TO MEMBERS ARE IN THE NATURE OF REMUNERATION. 5.4 THE PROVISIONS OF SECTION 40(BA) HAVE BEEN INTRODUCED BY THE DIRECT TAX LAW AMENDMENT ACT 1989 W.E.F 1. 4.1989. THE AFORESAID PROVISIONS ARE IN LINE WITH THE PROVISION OF SECTION 40(B) WHICH IS APPLICABLE IN THE CASE OF PARTNERSHIP FIRM. THE PROVISION OF SECTION 40(B) CORRESPONDS TO SECTION 10(4)(B) OF I.T. ACT 1922 WHICH WERE INTRODUCED BY THE AMENDMENT A CT OF 1939. THE HON BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. CHITRA KALPANA REPORTED AT 169 ITR 678 HAS HELD AS UNDER. 5. `SECTION 10(4)(B) OF THE 1922 ACT CORRESPONDS TO S. 40(B) OF THE 1961 ACT. SEC. 10(4)(B) WAS INC ORPORATED IN THE 1922 ACT IN THE YEAR 1939. THE LEGISLATIVE HISTORY IS SUFFICIENT TO INDICATE THAT THE PROVISIONS CONTAINED IN S. 40(B) OF THE 1961 ACT ARE INTENDED TO PREVENT THE SIPHONING OFF OF THE FIRM S INCOME TO PARTNERS IN ORDER TO REDUCE TAX LIABI LITY IN THE HANDS OF THE FIRM. A PART OF THE INCOME EARNED BY THE FIRM, WHICH IS LIABLE TO BE TAXED IN ITS HANDS, MAY BE DIVERTED TO THE PARTNERS SO THAT THE INCOMES SO DIVERTED, IF DEDUCTED IN THE FIRM S HANDS, DO NOT EITHER SUFFER TAX IN THE HANDS OF TH E PARTNERS OR SUFFER A LESSER RATE OF TAX. INCOME EARNED BY THE FIRM CAN BE DIVERTED INTO PARTNERS HANDS BY MAKING PAYMENTS ON ACCOUNT OF SALARY, BONUS, INTEREST, COMMISSION OR OTHER REMUNERATION. SEC. 40(B) OF THE ACT TAKES CARE OF SUCH ATTEMPTS TO AVO ID TAX BY MAKING IMPERMISSIBLE THE DEDUCTIONS CLAIMED BY THE FIRM TO THE PARTNERS ON ACCOUNT OF SALARY, BONUS, INTEREST, COMMISSION OR REMUNERATION. ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 4 THE ABOVE DECISION HAS BEEN RENDERED ON THE PROVISIONS OF SECTION 40(B) OF I.T. ACT 1961 AND PROVISION OF SECTION 40(BA) ARE SIMILARLY WORDED. THE DECISION OF HON BLE ANDHRA PRADESH HIGH COURT HAS BEEN APPROVED BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DHARTI FILMS REPORTED AT 191 ITR 261 (BOM.). THE HON BLE BOMBAY HIGH COURT HAS HELD AS UNDER. 10. THE MADRAS HIGH COURT DECISION IN CIT VS. GEMINI PRODUCTION (SUPRA) AND THE ANDHRA PRADESH HIGH COURT JUDGEMENT IN CIT VS. CHITRA KALPANA (SUPRA) IN OUR JUDGEMENT, ARE THE CASES ON POINT. IN THE MADRAS CASE, UNDER AN AGREEMENT ENTERED INTO BETWEE N THE ASSESSEE FIRM AND ONE OF THE PARTNERS, A LIMITED COMPANY, THE COMPANY HAD TO ADVANCE TO THE FIRM A SUM OF RS.20,00,000/ - WITHOUT INTEREST. IN CONSIDERATION, THE COMPANY WAS ENTITLED TO THE SOLE AND PERMANENT DISTRIBUTION AND EXPLANATION RIGHTS OF TH E PICTURES INVOLVED IN THE AGREEMENT AT THEIR SOLE DISCRETION. THE AGREEMENT PROVIDED THAT, OUT OF THE REALISATIONS OF THE EXHIBITION AND DISTRIBUTION OF THE PICTURES, THE COMPANY MAY PAY THEMSELVES THEIR DISTRIBUTION COMMISSION IN RESPECT OF THE SAID PIC TURES AND, THEREAFTER, PAY TO THEMSELVES THE AVAILABLE BALANCE UNTIL THE ENTIRE ADVANCE OF RS.20,00,000/ - WAS COMPLETELY DISCHARGED AND SATISFIED. AFTER SUCH SATISFACTION, THE COMPANY WAS TO PAY TO THE ASSESSEE FIRM THE BALANCE AVAILABLE OUT OF THE REALIZ ATION AFTER ADJUSTING THEIR DISTRIBUTION COMMISSION. THE QUESTION INVOLVED WAS WHETHER THE DISTRIBUTION COMMISSION WHICH THE COMPANY PAID TO ITSELF UNDER AN AGREEMENT FOR EXHIBITION AND DISTRIBUTION OF THE PICTURES WAS HIT BY THE PROVISIONS OF S. 10(4)(B) OF THE OLD ACT. IT WAS HELD, AND IN OUR JUDGEMENT RIGHTLY, THAT, BEFORE THE APPLICATION OF S. 10(4)(B), TWO REQUIREMENTS MUST BE SATISFIED: (1) THE INCOME MUST BE THE INCOME OF THE FIRM; AND (II) OUT OF THE SAID INCOME, THE PAYMENT MUST BE MADE TO A PART NER. THE VERY OBJECT OF THE TOTAL BAR OF PAYMENT OF INTEREST, SALARY, COMMISSION OR REMUNERATION TO A PARTNER UNDER S. 10(4)(B) WAS TO PREVENT DIVERSION OF THE PROFITS OF THE FIRM IN THE HANDS OF ITS PARTNERS. THEREFORE, IT MUST FIRST BE ESTABLISHED THAT THE PAYMENTS WERE MADE BY THE FIRM TO ITS PARTNERS OUT OF ITS INCOME. REFERRING TO THE FACTS OF THAT CASE, VIZ., THE COMPANY WAS CARRYING ON AN INDEPENDENT BUSINESS OF DISTRIBUTION OF FILMS PRODUCED BY OTHERS ALSO AND THAT THE PAYMENT MADE BY THE COMPANY TO ITSELF WAS A RECEIPT IN THE COURSE OF ITS CARRYING ON THE BUSINESS AND AS SUCH WAS ITS INCOME AND NOT THE INCOME OF THE PRODUCERS WHOSE PICTURES THE COMPANY WAS EXHIBITING, EXPLOITING AND DISTRIBUTING, IT WAS HELD THAT THE APPROPRIATION OF THE COMMISSI ON BY THE COMPANY NEVER REPRESENTED THE INCOME OF THE ASSESSEE FIRM AND COULD NOT, THEREFORE, BE SAID TO CONSTITUTE `PAYMENT OF COMMISSION WITHIN THE MEANING OF S. 10(4)(B) OF THE ACT. A SIMILAR VIEW HAS BEEN TAKEN BY THE ANDHRA PRADESH HIGH COURT IN CIT VS. CHITRA KALPANA (1988) 169 ITR 678. THE HON BLE BOMBAY HIGH COURT HAS ALSO OBSERVED THAT WE AGREE WITH THE VIEWS EXPRESSED BY THE MADRAS AND ANDHRA PRADESH HIGH COURTS IN THAT THE PROVISIONS OF SEC. 40(B) ARE INTENDED TO PREVENT THE SIPHONING OFF OF THE FIRM S INCOME TO PARTNERS IN ORDER TO REDUCE THE TAX LIABILITY IN THE HANDS OF THE FIRM. IN THE FACT OF PRESENT ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 5 CASE IT IS SEEN THAT THE PAYMENTS MADE ARE IN FACT PARTING OF THE RECEIPTS ITSELF. M/S. ARTEFACT PROJECT IS HAVING BUSINESS ACTIVITIES OF EXECUTING THE PROJECTS. THE TOTAL GROSS RECEIPTS OF ARTEFACT PROJECT FOR THE YEAR ENDING 31.3.2006 ARE RS.12.26 CRORES FOR EXECUTING VARIOUS PROJECTS WHICH INCLUDE RS.3.66 CRORES FROM THE APPELLANT. THE ARTEFACT PROJECTS IS HAVING REGULAR BUSINESS ACTIVI TIES OF EXECUTING SIMILAR PROJECTS. PAYMENT MADE IS NOT OUT OF THE INCOME OF JOINT VENTURE AND NEITHER IT CAN BE SAID THAT IT IS APPROPRIATION OF PROFITS OF JOINT VENTURE. THE JOINT VENTURE AS WELL AS MEMBERS ARE ASSESSABLE AT THE SAME RATE OF TAX AND TH US THERE COULD BE NO OBJECTIVE IN MAKING PAYMENTS TO MEMBERS TO REDUCE THE BURDEN OF TAXATION. THE PAYMENT IS FOR WORK EXECUTED BY MEMBER. 5.5 A PERUSAL OF THE PROVISION OF SECTION 40(BA) WOULD INDICATE THAT THE WORD REMUNERATION IS STATED IN THE SECTION IN ASSOCIATION OF THE WORDS SALARY, BONUS AND COMMISSION. THE SETTLED POSITION OF INTERPRETATION OF LAW IS THAT THE MEANING OF THE WORD PROVIDED IN THE STATUE IN ASSOCIATION IS TO BE GIVEN CONSIDERING THE WORDS PRECEDING TO SUCH WORD. IN THE FACTS OF TH E PRESENT CASE THE WORD REMUNERATION HAS TO BE INTERPRETED CONSIDERING THE PRECEDING WORD BEING SALARY, BONUS OR COMMISSION. THE AFORESAID CANON OF INTERPRETATION IS KNOWN AS RULE OF EJUSDEM GENERIC. 5.6 THE PROVISIONS OF SECTION 43B CONTAINS EXPRESSIO N AS TAX, DUTY, CESS OR FEE BY WHATEVER NAME CALLED. THE EXPRESSION FEE BY WHATEVER NAME CALLED HAD COME UP FOR CONSIDERATION BEFORE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. UDAIPUR DISTILLERY & COMPANY LTD., REPORTED AT 260 ITR 305. IT HAS BE EN HELD BY THE HON BLE RAJASTHAN HIGH COURT AS UNDER: THE EXPRESSION USED IN S. 43B(A) IS TAX, DUTY, CESS OR FEE OR BY WHATEVER NAME CALLED . IT DENOTES THAT ITEMS ENUMERATED CONSTITUTE SPECIES OF THE SAME GENUS AND THE EXPRESSION `BY WHATEVER NAME CAL LED WHICH FOLLOWS PRECEDING WORDS TAX, `DUTY , `CESS OR `FEE HAS BEEN USED EJUSDEM GENERIS TO CONFINE THE APPLICATION OF THE PROVISIONS NOT ON THE BASIS OF MERE NOMENCLATURES, BUT NOTWITHSTANDING NAME, THEY MUST FALL WITHIN THE GENUS `TAXATION TO WHIC H EXPRESSION `TAX , `DUTY , `CESS , OR `FEE AS A GROUP OF ITS SPECIE BELONG VIZ., COMPULSORY EXACTION IN THE EXERCISE OF STATE S POWER OF TAXATION WHERE LEVY AND COLLECTION IS DULY AUTHORIZED BY LAW AS DISTINCT FROM AMOUNT CHARGEABLE ON PRINCIPLE AS CONSI DERATION PAYABLE UNDER CONTRACT. THE PRINCIPLE OF STATUTORY INTERPRETATION IS WELL KNOWN AND WELL SETTLED THAT WHEN PARTICULAR WORDS PERTAINING TO A CLASS, CATEGORY OR GENUS ARE FOLLOWED BY GENERAL WORDS, THE GENERAL WORDS ARE CONSTRUED AS LIMITED TO THIN GS OF THE SAME KIND AS THOSE SPECIFIED. THIS RULE IS KNOWN AS THE RULE OF EJUSDEM GENERIC, -- AMAR CHANDRA VS. COLLECTOR OF EXCISE, TRIPURA AIR 1972 SC 1863 AND HOUSING BOARD OF HARIYA VS. HARYANA HOUSING BOARD EMPLOYEES UNION AIR 1996 SC 434 APPLIED. TH E RATIO OF THE AFORESAID DECISION OF SQUARELY APPLICABLE FOR INTEREPRETING THE WORD REMUNERATION AS APPEARING U/S 40(BA) OF I.T. ACT 1961. THE WORD REMUNERATION HAS TO BE OF THE NATURE OF SALARY. CONSIDERING THE FACT AND CIRCUMSTANCES IN THE CASE OF ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 6 APPE LLANT AND TRANSACTION BEING OF EXECUTION OF PROJECT, PAYMENTS MADE BY APPELLANT CANNOT BE CONSIDERED AS REMUNERATION AS ENVISAGED U/S 40(BA) OF I.T. ACT 1961. 5.7 IT IS FURTHER SEEN, THE PAYMENT MADE TO BOTH THE COMPANIES ARE IN RESPECT OF EXECUTION OF WO RK FOR VALUE OF AMOUNT THAT IS RECEIVED FROM NHAI. THE PAYMENTS ARE FOR EXECUTION OF WORK AND NOT IN RESPECT OF ANY REMUNERATION IN THE NATURE OF SALARY. THE REGULAR ASSESSMENT OF M/S. ARTEFACT SOFTWARE & FINANCE LTD HAS BEEN COMPLETED U/S 143(3) ON 29.1 2.2008 BY ADDL. COMMISSIONER OF INCOME TAX RANGE 1, NAGPUR, DETERMINING TOTAL INCOME AT RS.1,30,19,440/ - . THE PAYMENTS RECEIVED FROM THE APPELLANT HAVE BEEN SHOWN AS BUSINESS RECEIPTS IN THE PROFIT AND LOSS ACCOUNT OF THE SAID COMPANY. THE AO HAS OBSERVE D IN PARA 15 THAT IN THE INDIVIDUAL ASSESSMENT OF COMPANIES THE MEMBER COMPANIES ARE DEBITING THE EXPENSES. THE EXPENSES AS CLAIMED IN THE CASE ARTEFACT PROJECT HAVE BEEN ACCEPTED BY REVENUE AS IS EVIDENT FROM ITS ASSESSMENT ORDER. THE SAID COMPANY, APAR T FROM EXECUTING THE WORK OF NHAI, HAS ALSO BUSINESS RECEIPTS FOR EXECUTING SIMILAR WORK FOR OTHER PARTIES. THE PAYMENTS MADE TO ARTEFACT SOFTWARE & FINANCE LTD. ARE THUS PAYMENT MADE IN THE COURSE OF CARRYING ON BUSINESS FOR EXECUTING THE WORK AND IS NOT THE PAYMENT OF ANY SALARY OR REMUNERATION AS ENVISAGED U/S 40(BA) OF I.T. ACT 1961. IN THE CASE OF ARTEFACT SOFTWARE & FINANCE LTD. A MOUNT RECEIVED FOR EXECUTION OF WORK IS ASSESSED AS BUSINESS RECEIPT AND THUS IT COULD NOT HAVE BEEN CONCLUDED THAT THE P AYMENT IS IN THE NATURE OF REMUNERATION OR SALARY AS PROVIDED U/S 40(BA) OF I.T. ACT 1961. THE AMOUNT PAID BY THE APPELLANT HAS ALREADY BEEN SUBJECTED TO TAX AT THE HANDS OF THE MEMBER COMPANY AND COULD NOT HAVE BEEN ASSESSED AGAIN AT THE HANDS OF APPELLA NT. THE ADDITION MADE AT THE HANDS OF APPELLANT HAS RESULTED INTO DOUBLE TAXATION OF THE SAME AMOUNT WHICH IS IMPERMISSIBLE. THE ADDITION MADE BY ASSESSING OFFICER IS THUS UNSUSTAINABLE. 5.8 THE PROVISIONS OF SEC. 40(B) ENVISAGE DISALLOWANCE OF INTEREST , SALARY AND REMUNERATION WHILE DETERMINING INCOME OF FIRM. FROM ASSESSMENT YEAR 1993 - 94 ONWARDS THE PROVISIONS OF SEC. 40(B) ARE AMENDED TO ALLOW THE REMUNERATION AND INTEREST TO PARTNERS SUBJECT TO CERTAIN CEILINGS AS PROVIDED UNDER THE PROVISIONS ITSEL F. THE PERUSAL OF PROVISIONS INDICATES THAT FIRST THE NET PROFIT HAS TO BE COMPUTED WITHOUT DEDUCTIONS ON ACCOUNT OF INTEREST AND REMUNERATION AND THEREAFTER THE INTEREST AND REMUNERATION HAVE TO BE REDUCED. IN THIS CASE PAYMENTS MADE ARE TOWARDS THE EXE CUTION OF WORK AND ARE NOT CLAIMED AS DEDUCTION OUT OF BUSINESS INCOME COMPUTED. THIS CLEARLY IMPLIES THAT REMUNERATION TO PARTNER U/S 40(B) IS TO BE ALLOWED ONLY AFTER FIRST COMPUTING THE BUSINESS INCOME OF THE FIRM. THE PROVISIONS OF SEC. 40(BA) ARE AL SO SIMILAR. THUS REMUNERATION TO MEMBER FOR THE PURPOSE OF SEC. 40(BA) IS TO BE OF THE NATURE WHICH IS PAID AND CLAIMED AFTER COMPUTING BUSINESS INCOME OF AOP. IN THE FACTS OF PRESENT CASE GROSS RECEIPTS ITSELF ARE PAID TOWARDS THE EXECUTION OF WORK. TH US THE PAYMENTS MADE FOR EXECUTION OF WORK ARE HELD TO BE NOT IN THE NATURE OF REMUNERATION AS ENVISAGED U/S 40(BA) OF INCOME TAX ACT, 1961. 5.9 THE PROVISIONS OF SECTION 40(BA) ARE APPLICABLE IN RESPECT OF PAYMENT AS SPECIFIED U/S 40(BA) AND NOT TO EACH AND EVERY PAYMENT MADE TO MEMBER OF THE ASSOCIATION. THERE IS NO PROHIBITION TO HAVE BUSINESS TRANSACTIONS WITH THE MEMBER OF THE ASSOCIATION. THE PAYMENT MADE FOR THE EXECUTION OF WORK IS IN REALM OF ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 7 TRADING TRANSACTION WITH MEMBERS AND CANNOT BE ROPED INTO AS PAYMENTS TOWARDS SALARY OR REMUNERATION. IN VIEW OF ABOVE ADDITION MADE BY ASSESSING OFFICER IS UNSUSTAINABLE. 5.10 CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES AND FOR THE DETAILED REASONS INDICATED HEREINABOVE, I HOLD THAT ADDITION MAD E BY AO U/S 40(BA) OF INCOME TAX ACT 1961 IS UNSUSTAINABLE. IN VIEW OF ABOVE THE ADDITION MADE BY THE ASSESSING OFFICER U/S 40(BA) AT RS.3,72,67,302/ - IS DIRECTED TO BE DELETED. GROUNDS OF APPEAL ARE ALLOWED. 3. THE REVENUE BEING AGGRIEVED HAS COME BEF ORE US. THE LD. D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER WHILE THE LD. A.R. CONTENDED AS UNDER: 1. NHAI IS A GOVERNMENT AUTHORITY WHICH IS EXECUTING NATIONAL HIGHWAY DEVELOPMENT PROGRAMME OF GOVERNMENT OF INDIA FOR CONSTRUCTION OF 4 LANE, 6 LANE AND EXPRESS WAY ETC. THE NHAI IS IMPLEMENTING THIS PROGRAMME AND IT ENGAGES SERVICES OF VARIOUS PERSONS FOR IMPLEMENTING THE PROJECT. THE PROJECT BEING OF THE NATURE OF LARGE INFRASTRUCTURE REQUIRES VERY HIGH LEVEL OF COMPETENCY AND SKILLS. THE SELECTION F OR THE CONSTITUENTS IS MADE THROUGH GLOBAL PRE - QUALIFICATION PROCESS. THE NHAI HAD PERMITTED THE FIRM AND ENTITIES TO ENHANCE AND POOL THEIR CAPABILITIES, SKILLS, COMPETENCY TO CATER TO THEIR NEEDS FOR IMPLEMENTATION AND DEVELOPMENT OF WORLD CLASS INFRAST RUCTURE IN THE HIGHWAY SECTOR. THE TWO MEMBERS OF THE ASSOCIATION HAVE INDEPENDENT TECHNICAL CAPABILITIES TO EXECUTE THE WORK OF DEVELOPMENT OF INFRASTRUCTURE BY NHAI. 2. THE MEMBERS OF THE APPELLANT ASSOCIATION HAD EXECUTED THE WORK OF INFRASTRUCTURE PROJE CT AS DECIDED AT THE TIME OF OBTAINING WORK FROM NHAI. THE APPELLANT ASSOCIATION HAS PARTED WITH THE RECEIPT IN RESPECT OF WORK EXECUTED BY RESPECTIVE MEMBER AS RECEIVED FROM NHAI. 3. GENUINENESS OF TRANSACTIONS ARE NOT IN DISPUTE. 4. THE SPIRIT OF DISALLOWAN CE U/S 40(B) & 40(BA) IS THAT THE NATURE OF PAYMENTS REFERRED TO IN SEC. 40(B) ARE IN THE NATURE OF APPROPRIATION OF PROFITS BY PARTNERS/MEMBERS. THE PAYMENTS WHICH ARE IN THE NATURE OF APPROPRIATION OF PROFITS WOULD ONLY ATTRACT THE PROVISIONS OF SEC. 40 (BA) OF INCOME TAX ACT, 1961. 5. THE BARE PERUSAL OF PROVISIONS OF SEC. 40(B) AND 40(BA) WOULD INDICATE THAT IT REFERS TO ANY PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED. IT WOULD MEAN THAT THE PAYMENT TO THE PARTN ER AND OR MEMBER SHOULD BE IN THE NATURE OF RENDERING OF ANY SERVICES WHICH ARE OF PERSONAL NATURE. 6. THE PROVISIONS OF SEC. 40(BA) CAN BE APPLIED ONLY TO PAYMENTS OF NATURE AS REFERRED TO IN SEC. 40(BA) AND NOT TO EACH AND EVERY PAYMENT MADE TO MEMBER. TH E ADDITION THUS MADE IN THE CASE OF APPELLANT IS UNJUSTIFIED. ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 8 7. THE EXECUTION OF THE PROJECT IS BY THE MEMBERS OF THE APPELLANT ASSOCIATION AND JOINT VENTURE IS VEHICLE FOR THE EXECUTION OF WORK. THE RECEIPTS ITSELF ARE PARTED WITH TO THE RESPECTIVE MEMBER S OF THE APPELLANT ASSOCIATION FOR THE JOB EXECUTED. IT IS A PURE COMMERCIAL TRANSACTION WHICH DOES NOT FALL FOR CONSIDERATION WITHIN THE MEANING OF REMUNERATION AS PROVIDED U/S 40(BA) OF INCOME TAX ACT, 1961. THE PAYMENT MADE BY THE APPELLANT IS OUTSIDE THE SWEEP OF PROVISIONS OF SEC. 40(BA) OF INCOME TAX ACT, 1961. 8. THE PAYMENT MADE BY APPELLANT TO M/S. ARTEFACT PROJECTS HAS BEEN ASSESSED AS BUSINESS RECEIPTS IN THE CASE OF ARTEFACT SOFTWARE & FINANCE LIMITED BY ADDL. COMMISSIONER OF INCOME TAX, RANGE - 1 , NAGPUR. 9. THE PERUSAL OF THE DETAILS OF RECEIPTS WOULD INDICATE THAT THE PAYMENT DISALLOWED AT THE HANDS OF APPELLANT HAS BEEN TAKEN BY THE REVENUE AS BUSINESS RECEIPT IN THE HANDS OF SAID COMPANY AND THE INCOME ARISING THEREFROM HAS BEEN ASSESSED TO TAX IN THE CASE OF SAID COMPANY AS BUSINESS INCOME. THE REVENUE HAVING ASSESSED THE RECEIPTS IN THE HANDS OF SAID COMPANY AS BUSINESS RECEIPT CANNOT HOLD CONTRARY IN THE CASE OF APPELLANT ASSOCIATION THAT IT IS SALARY OR REMUNERATION. IN VIEW OF ABOVE, DISAL LOWANCE MADE BY THE A.O. IS UNSUSTAINABLE. 10. THE RECEIPTS HAVING BEEN ALREADY ASSESSED TO TAX IN THE CASE OF M/S. ARTEFACT SOFTWARE & FINANCE LTD. ON 29.12.2008 THE A.O. OUGHT NOT TO HAVE ASSESSED AGAIN THE SAME RECEIPT AT THE HANDS OF APPELLANT. THE ASSES SMENT OF PAYMENTS MADE TO ARTEFACT PROJECTS IN THUS RESULTING INTO DOUBLE TAXATION. IT IS SETTLED POSITION OF LAW THAT THE SAME INCOME CANNOT BE ASSESSED TWICE. 11. THE WORK WHICH IS EXECUTED BY ARTEFACT PROJECT IS BILLED TO JOINT VENTURE AOP AND AT THE SAME VALUE THE BILLS ARE RAISED BY JOINT VENTURE TO NHAI. 12. THE SHORT QUESTION IN THE PRESENT APPEAL IS WHETHER PAYMENT MADE BY THE APPELLANT TOWARDS EXECUTION OF WORK WOULD FALL FOR CONSIDERATION AS REMUNERATION AS PROVIDED U/S 40(BA) OF I.T. ACT 1961. IT IS NOT THAT EACH AND EVERY PAYMENT MADE TO MEMBER IS NOT ALLOWABLE DEDUCTION. THE DISALLOWANCE IS ONLY WITH RESPECT TO SPECIFIED NATURE OF PAYMENTS PROVIDED U/S 40(BA) OF INCOME TAX ACT, 1961. IN THE FACTS OF PRESENT CASE, PAYMENTS TO MEMBERS IS NOT IN THE NATURE OF REMUNERATION. 13. THE HON BLE BOMBAY HIGH COURT HAS OBSERVED THAT WE AGREE WITH THE VIEWS EXPRESSED BY THE MADRAS AND ANDHRA PRADESH HIGH COURTS IN THAT THE PROVISIONS OF SEC. 40(B) ARE INTENDED TO PREVENT THE SIPHONING OFF OF THE FIRM S INCOME TO PARTNERS IN ORDER TO REDUCE THE TAX LIABILITY IN THE HANDS OF THE FIRM. 14. PAYMENT MADE IS NOT OUT OF THE INCOME OF JOINT VENTURE AND NEITHER IT CAN BE SAID THAT IT IS APPROPRIATION OF PROFITS OF JOINT VENTURE. THE PAYMENT IS FOR WORK EXECUTED BY MEMBER. ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 9 15. T HE WORD REMUNERATION HAS TO BE OF THE NATURE OF SALARY. THE PAYMENTS ARE FOR EXECUTION OF WORK AND NOT IN RESPECT OF ANY REMUNERATION IN THE NATURE OF SALARY. 16. THE ADDITION MADE AT THE HANDS OF APPELLANT HAS RESULTED INTO DOUBLE TAXATION OF THE SAME AMOUNT WHICH IS IMPERMISSIBLE. THE ADDITION MADE BY ASSESSING OFFICER IS THUS UNSUSTAINABLE. RELIANCE WAS PLACED ON 258 ITR 717 (DEL.) ITO VS. VINOD KUMAR SONI 17. THE PAYMENT MADE FOR THE EXECUTION OF WORK IS IN REALM OF TRADING TRANSACTION WITH MEMBERS AND CANN OT BE ROPED INTO AS PAYMENTS TOWARDS SALARY OR REMUNERATION. ADDITION MADE BY ASSESSING OFFICER IS UNSUSTAINABLE. 18. THE WORD REMUNERATION IS PRECEDED BY WORDS SALARY AND COMMISSION. THE MEANING OF WORD REMUNERATION HAS TO TAKE COLOUR IN THE NATURE OF SALA RY. THIS PROPOSITION IS AS PER RULE KNOWN AS RULE OF EJUSDEM GENERICS. RELIANCE WAS PLACED ON 314 ITR 167 (SC) CIT VS. MCDOWELL & CO. LTD. 4 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE VARIOUS CASE LAWS AS HAS BEEN RELIED BEFORE US. THE LD. A.R. ALSO RELIED ON THE FOLLOWING CASE LAWS. 1. 298 ITR 325 (MAD.) CIT VS. RAJAM RAMASWAMY & SONS 2. 169 ITR 678 (AP) CIT VS. CHITRA KALAPANA 3. 191 ITR 261 (BOM.) CIT VS. DHARTI FILMS 4. 222 ITR 482 (MP) CIT VS. D.M. BHATIA INDUSTRY 5. 58 ITD 309 (HYD.) N.T. RAMA RAO VS. ACIT 6. 7 ITD (BOM.) 9 ITO VS. THAKUR VAIDYANATH AIYER & CO. 7. 20 TTJ (HYD.) 425 TARAKARAMA FILM UNIT VS. ITO 5 . I T IS AN UNDISPUTED FACT THAT TWO CORPORATE ENTITIES FORM THE AOP, THE IMPUGNED ASSESSEE. THE ASSESSEE OBTAINED THE CONTRACT FROM NATIONAL HIGHWAY AUTHORITY FOR CONSTRUCTION OF 4 LANE, 6 LANE AND EXPRESS WAY, ETC. THE MEMBERS ENTERED INTO AGREEMENT WITH THE AOP F OR THE EXECUTION OF THE WORK AND THEY THE MEMBER EXECUTED THE WORK AND BUILT THE AOP. ACCORDING TO THE BILL RAISED, THE ASSESSEE MADE THE PAYMENT TO THE CORPORATE ENTITIES. THE AOP RAISED THE BILL TO THE NHAI. THUS, WHATEVER WERE PAID TO THE CORPORATE E NTITY, THEY WERE AGAINST THE BILLS ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 10 BEING RAISED BY THEM FOR THE EXECUTION OF THE WORK. THIS FACT IS NOT DENIED BY THE REVENUE. THE BILLS SO RECEIVED ARE THE CONSIDERATION PAID FOR THE WORK EXECUTED BY THE CONSTITUENTS OF THE JOINT VENTURE. THE ASSESSING OFFICER DISALLOWED THE PAYMENT U/S 40(BA). 6 . WE HAVE GONE TH ROUGH THE PROVISION OF SECTION 44(BA). IT PROVIDES THAT IN THE CASE OF AN AOP , ANY PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED PAID BY SUCH ASSOCIATION TO THE MEMBER OF SUCH ASSOCIATION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE PROFIT AND GAINS OF BUSINESS OR PROFESSION. NOW THE QUESTION BEFORE US IS WHETHER THE PAYMENT MADE BY THE ASSESSEE TOWARDS THE EXECUTION OF TH E WORK FALLS WITHIN THE PURVIEW OF SECTION 40(BA) OF THE INCOME - TAX ACT. THIS SECTION IS PARALLEL TO SECTION 40(B) , WHICH IS APPLICABLE IN THE CASE OF THE PARTNERSHIP FIRM. SECTION 40(B) OF THE INCOME - TAX ACT WHICH IS APPLICABLE TO A PARTNERSHIP FIRM RESTRICTS THE DEDUCTION OF THE PAYMENT IN RESPECT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED. THE PROVISION OF SECTION 40(BA) WERE INSERTED BY THE DIRECT TAX AMENDMENT ACT, 1989 W.E.F. 1.4.1989 WHILE THE PROVISION OF SE CTION 40(B) WERE ALSO THERE ALTHOUGH THEY HAVE BEEN AMENDED FROM TIME TO TIME. IN RESPECT OF THE PROVISION OF SECTION 40(B), WE HAVE GONE THROUGH THE VARIOUS CASE LAWS AND WE NOTED AS UNDER: 1. IN THE CASE OF CIT VS. RAJAM RAMASWAMY & SONS 298 ITR 325 (MAD) OF HON BLE MADRAS HIGH COURT, IT WAS CONCLUDED THAT PAYMENTS MADE TO PARTNERS BY THE ASSESSEE FIRM FOR SPECIFIC SERVICES RENDERED BY THEM CANNOT BE DISALLOWED UNDER S. 40(B). 2. IN THE CASE OF CIT VS. CHITRA KALAPANA 169 ITR 678 (AP) OF ANDHRA PR ADESH HIGH COURT IT WAS CONCLUDED THAT AN AMOUNT PAID TO A PARTNER BY A FIRM, OTHERWISE THAN IN THE CAPACITY OF A PARTNER, IS NOT CAUGHT BY THE PROVISIONS CONTAINED IN S. 40(B). 3. IN THE CASE OF CIT VS. DHARTI FILMS 191 ITR 261 (BOM.) THE JURISDICTION AL BOMBAY HIGH COURT RELYING ON THE AFORESAID DECISION TOOK THE VIEW AS FOLLOWS: DISALLOWANCE UNDER S. 40(B) COMMISSION TO PARTNER IF A PAYMENT IS MADE TO A PARTNER FOR SOMETHING ALTOGETHER UNCONNECTED WITH THE PARTNERSHIP BUSINESS AND HS NO RELATIO N OR CONNECTION WITH THE ROUTINE OBLIGATIONS OF PARTNERS INTER SE, SUCH A PAYMENT IS NOT HIT BY THE PROVISIONS OF S. 40(B) SEC. 40(B) IS APPLIED ONLY IF IT CAN BE ESTABLISHED THAT IT IS A PAYMENT BY THE FIRM TO A PARTNER OUT OF, ITS INCOME ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 11 IF THE PAYME NT IS NOT OUT OF THE FIRM S INCOME, THE QUESTION OF DISALLOWANCE CANNOT ARISE THEREFORE, THE COMMISSION RETAINED BY THE PROPRIETARY CONCERN, OF S CANNOT BE ADDED BACK IN ASCERTAINING THE FIRM S INCOME UNDER S. 40(B). 4. IN THE CASE OF CIT VS. D.M. BHAT IA INDUSTRY 222 ITR 482 (MP) OF MADHYA PRADESH HIGH COURT TOOK THE VIEW THAT COMMISSION PAID TO A PROPRIETARY CONCERN OF A PARTNER DOES NOT FALL U/S 40(B) OF THE INCOME - TAX ACT. 5. HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF N.T. RAMA RAO VS. ACIT 58 I TD 309 TOOK THE VIEW THAT THE SUM CREDITED TO ASSESSEE S ACCOUNT FOR ACTING IN FILM PRODUCED BY FIRM COULD NEITHER BE SUBJECTED TO DISALLOWANCE UNDER S. 40(B) NOR UNDER S. 67(1)(B) AND SAME WOULD BE TAXABLE ONLY IN YEAR OF RECEIPT WHERE ASSESSEE MA INTAINE D ACCOUNTS ON CASH BASIS. 6. MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. THAKUR VAIDYANATH AIYER & CO. 7 ITD (BOM) 9 TOOK THE VIEW THAT FIRM PAYING INSURANCE PREMIA ON THE LIFE OF THE PARTNERS AS PER TERMS OF PARTNERSHIP DEED STIPULATI NG THAT IN CASE A PARTNER RETIRED OR WAS REMOVED, HE WOULD HAVE TO RETURN A SPECIFIED PERCENTAGE OF THE PREMIA PAID, IS ALLOWABLE AS REVENUE EXPENDITURE AND CANNOT BE DISALLOWED EITHER AS CAPITAL EXPENDITURE OR UNDER 40(B). 7. SIMILARLY, HYDERABA D BENCH OF THIS TRIBUNAL IN THE CASE OF TARAKARAMA FILM UNIT VS. ITO 20 TTJ 425 TOOK THE VIEW THAT THE REMUNERATION RECEIVED BY N IS NOT FROM OUT OF THE INCOME OF THE FIRM. SUFFICE IT TO SAY THAT THE REMUNERATION PAID TO HIM IS NOT DISALLOWABLE UNDER S. 40(B) AS S. 40(B) HAD NO APPLICATION IN THE CIRCUMSTANCES STATED ABOVE CIT VS. K. KRISHNAIAH CHETTY & SONS (1981) 131 ITR 410 (AP) FOLLOWED. 7 . IT IS NOT DISPUTED THAT THE PAYMENT HAS BEEN PAID BY THE ASSESSEE TO THE CONSTITUENTS OF THE JOINT VENTURE O N ACCOUNT OF THE WORK EXECUTED BY THEM. IN OUR OPINION, PROVISION OF SECTION 40(BA) CANNOT BE APPLIED TO THIS PAYMENT. THIS PAYMENT CANNOT BE REGARDED TO BE THE INTEREST O R THE REMUNERATION PAID BY THE ASSESSEE TO THE MEMBER OF THE ASSOCIATION. THE DECI SION AS RELATED TO THE PROVISION OF SECTION 40(B), IN OUR OPINION ARE EQUALLY APPLICABLE IN RESPECT OF THE PROVISION U/S 40(BA) FOR INTERPRETING WHETHER THE PAYMENT MADE FOR EXECUTING THE WORK IS THE PAYMENT MADE FOR SALARY OR REMUNERATION. THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DHARTI FILMS 191 ITR 261 (MUM.) IS BINDING ON US. 8 . THE LD. D.R. EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE ASSESSING OFFICER BUT COULD NOT BROUGHT TO OUR KNOWLEDGE ANY DECISION TAKING A CON TRARY VIEW. IN VIEW OF THIS FACT, WE ARE OF THE OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) AND THIS IS NOT A CASE WHICH WARRANT OUR INTERFERENCE AS THE ITA NO.177/NAGPUR/2009 ZAIDUN LEENG SD N. BHD ARTEFACT PROJECTS (JV), NAGPUR 12 CIT(A), IN OUR OPINION HAS RIGHTLY DELETED THE ADDITION MADE IN THE CASE OF THE ASSESSEE. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 18.10. 20 1 2 SD/ - SD/ - ( D.T. GARASIA ) (P.K. BANSAL) JUDICIAL MEMBER ACCOUN TANT MEMBER VG/SPS NAGPUR DATED 18 TH OCTOBER , 20 1 2 COPY TO 1 THE ACIT, CIRCLE - 1, NAGPUR 2 M/S. ZAIDUN LEENG SDN. BHD ARTEFACT PROJECTS (JV), 1 ST FLOOR, BHIWAPURKAR CHAMBERS , DHANTOLI, NAGPUR 3 CIT - 1, NAGPUR 4 THE CIT (A) , NAGPUR 5 THE DR, ITAT, NAGPUR 6 GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL NAGPUR