GMR Hyderabad Airport Resource Management Ltd., Hyd, Bangalore V. ITO, Ward-2(2), Hyderabad, Bangalore

ITA 24/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6536 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: SUNIL JAIN
• Keywords: Gift
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 24/HYD/2016 ASSESSMENT YEAR: 2008-09 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD., HYDERABAD. PAN AACCG9225 E VS. INCOME-TAX OFFICER, WARD 2(2), HYDERABAD. (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI SUNIL JAIN REVENUE BY : SHRI M. SITARAM DATE OF HEARING 21-04-2016 DATE OF PRONOUNCEMENT 20-05-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) - 2 , HYDERABAD FOR AY 2008-09. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY, IN THE BUSINESS OF MANPOWER RECRUITMENT, WAS INCORPORA TED ON 18/07/2007 FILED ITS RETURN OF INCOME FOR THE AY 20 08-09 ON 30/09/2008 DECLARING LOSS OF RS. 1,33,070/-. ASSESS MENT WAS COMPLETED U/S 143(3) BY MAKING AN ADDITION OF RS. 5 ,00,000/- TOWARDS SERVICE FEES FOR THE SERVICES RENDERED BY THE ASSES SEE TO ITS HOLDING COMPANY I.E. GMR HYDERABAD INTERNATIONAL AIRPORT LT D. (GHIAL). 2 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. 2.1 THE ASSESSEE COMPANY AFTER INCORPORATION WAS EX PLORING VARIOUS BUSINESS OPPORTUNITIES AND IN THE MEANTIME IN THE MONTH OF OCTOBER 2007, THE HOLDING COMPANY M/S GMR HYDERABAD INTERNATIONAL AIRPORT LIMITED (GHIAL) REQUESTED IT TO RECRUIT MANPOWER SPECIALIZED IN VARIOUS FIELD TO WORK FOR ITS HOTEL DIVISION. IT WAS AGREED THAT GHIAL WILL REIMBURSE THE AMOUNT OF MANPOWER CO ST INCURRED BY THE ASSESSEE COMPANY FOR AND ON ITS BEHALF ON COST TO COST BASIS. THE ASSESSEE COMPANY ACCORDINGLY RECRUITED MANPOWER SPE CIALIZED IN VARIOUS FIELD DURING THE PERIOD FROM NOVEMBER 2007 TO MARCH 31ST 2008. 2.2 THE HYDERABAD INTERNATIONAL AIRPORT WAS INAUGUR ATED ON MARCH 14TH 2008 AND GHIAL COMMENCED OPERATION AT THE AIRP ORT W.E.F. MARCH 23RD 2008. AFTER THE HYDERABAD AIRPORT BECAME OPERATIONAL, GHIAL VIDE AGREEMENT DATED MARCH 31ST 2008 FORMALIZ ED THE AVAILING SERVICE OF THE ASSESSEE UNDER WHICH IT WAS AGREED T HAT GHIAL SHALL PAY SERVICE CHARGES BY WAY OF PROFESSIONAL FEE FOR THE SERVICES OF THE ASSESSEE COMPANY AT THE RATE OF RS 1,00,000/- PER M ONTH TOWARDS DEPUTATION OF UPTO 300 ASSOCIATES AND RS 2,00,000/- PER MONTH WHERE THE NO. OF ASSOCIATES ARE MORE THAN 300 NOS. IT WAS FURTHER AGREED THAT THE SAID AMOUNT OF PROFESSIONAL FEES SHALL BE PAYABLE W.E.F. APRIL 2008 ONWARDS. 2.3 ACCORDINGLY, THE ASSESSEE COMPANY HAD RAISED AN INVOICE DATED MARCH 31; 2008 UNDER THE COVER OF ITS LETTER NO GHA RML/2007-08/001 DATED MARCH 31, 2008 FOR THE AMOUNT OF RS.1,45,88,6 36/- PLUS SERVICE TAX OF RS 18,03,155/- BEING REIMBURSEMENT OF EXPENS ES INCURRED BY IT FOR AND ON BEHALF OF GHIAL DURING THE PERIOD FROM N OVEMBER 2007 TO MARCH 31ST, 2008. THE ASSESSEE HAS NOT RAISED ANY I NVOICE FOR SERVICE FEES SINCE THE SAME WAS PAYABLE FROM APRIL 01, 2008 ONWARDS AND NO SERVICE FEE BECOME DUE OR RECEIVABLE FOR THE PERIOD PRIOR TO MARCH 2008. 3 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. 2.4 THE SAID RE-IMBURSEMENT OF EXPENSES WHICH WAS I NCURRED FOR AND ON BEHALF OF GHIAL WAS CLAIMED AS PER THE PROVI SION OF ARTICLE 3 (COMMERCIAL) OF THE SERVICE AGREEMENT DATED MARCH 3 1, 2008 AND FURTHER SERVICE FEE (I.E. MONTHLY PROFESSIONAL FEE) WAS PAYABLE FROM THE PERIOD COMMENCING FROM APRIL 1, 2008 ONWARDS. R ELEVANT PROVISIONS OF THE SERVICE AGREEMENT ARE REPRODUCED BELOW:- '3. COMMERCIALS 3.1 REIMBURSEMENTS 3.1.1 GHARM ALONE SHALL BE RESPONSIBLE FOR PAYING S ALARY TO THE ASSOCIATES FOR THE SERVICES RENDERED BY THEM TO THE CLIENT (I.E. GHAIL) UNDER THIS AGREEMENT AS PER THE CTC AGREED B ETWEEN THE CLIENT (I.E GHIAL) AND GHARM; 3.1.2 GHARM SHALL RAISE AN INVOICE ON THE CLIENT (I .E. GHIAL) DETAILING THE SALARY PAYABLE BY IT TO THE ASSOCIATE S, WHICH SHALL BE PAID BY GHARM TO THE ASSOCIATES ON RECEIPT OF TH E REIMBURSEMENT AMOUNT FROM THE CLIENT AS PER INVOICE RAISED BY IT. THE INVOICE SHALL BE RAISED BY GHARM ON THE CLI ENT AS DETAILED IN THIS AGREEMENT 3.1.3. THE COST TO THE COMPANY (CTC) PAID BY GHARM TO ITS ASSOCIATES, STATUTORY AND INSURANCE AUTHORITIES COM PRISES OF VARIOUS FACTORS SUCH AS : - EMPLOYEE'S GROSS SALARY INCLUDING MONTHLY AND ANN UAL ALLOWANCES - EMPLOYER'S CONTRIBUTIONS TO PROVIDENT FUND, ESI C ONTRIBUTIONS, ETC - STATUTORY BONUS PAYABLE TO THE ASSOCIATES - PREMIUM FOR GROUP INSURANCE SCHEME & MEDICLAIM PO LICY - INCENTIVES PAYABLE TO THE DEPUTEES, WHEREVER APPL ICABLE. IF ANY. 3.2 . 3.3 SERVICE FEES: IN CONSIDERATION OF THE SERVICES PROVIDED BY GHARM TO THE CLIENT, THE CLIENT SHALL PAY TO GHARM SERVICE FEES AS DETAILED BELOW: 3.3. 1 MONTHLY FEES 4 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. A. FOR THE FIRST TWELVE MONTHS, COMMENCING FROM 1ST APRIL 2008, A MONTHLY PROFESSIONAL FEE OF RS 1,00,000/- (RUPEES ONE LAKH) SHALL BE PAID TOWARDS DEPUTATION OF UP TO 300 ASSOC IATES. IN CASE THE ASSOCIATES DEPUTED ARE INCREASED BEYOND 300, TH E MONTHLY FEE SHALL STAND REVISED TO RS 2,00,000-(RUPEES TWO LAKHS). B. FROM THE THIRTEENTH MONTH A MONTHLY PROFESSIONAL FEE OF RS 2,00,000/- SHALL BE PAID TOWARDS DEPUTATION OF UP T O 400 ASSOCIATES. IN CASE ASSOCIATES DEPUTED ARE INCREASE D BEYOND 400, THE MONTHLY FEE SHALL STAND REVISED TO RS 3,00 ,000/-(RUPEES THREE LAKHS). 2.5 THE ASSESSING OFFICER IN THE ASSESSMENT ORDER P ASSED U/S 143(3) HAS DETERMINED A TAXABLE INCOME OF RS.5,00,0 00/- UNDER NORMAL PROVISIONS OF THE ACT BY TAKING SERVICE FEE ON NOTIONAL BASIS. UPON COMPLETION OF ASSESSMENT, THE AO HAS DETERMINE D TAXABLE INCOME OF RS.5,00,000/- BY CONSIDERING SERVICE FEE OF RS.1,00,000/- PER MONTH ON NOTIONAL BASIS FOR FIVE MONTHS FROM NO VEMBER 2007 TO MARCH 2008 BY DISREGARDING THE TERMS OF ARRANGEMENT BETWEEN THE PARTIES THAT THE AMOUNT OF SERVICE FEES WAS TO BE P AID FROM APRIL 2008 ONWARDS. 2.7 THE ASSESSING OFFICER HAS NOT ALLOWED THE BUSIN ESS LOSS/ EXPENSES OF RS.1,16,014/- INCURRED AND CLAIMED IN T HE RETURN OF INCOME BY TAKING A STAND THAT ENTIRE EXPENSES INCUR RED BY THE ASSESSEE WERE REIMBURSEMENT BY GHIAL. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). 4. THE SUBMISSIONS OF THE AR OF THE ASSESSEE WERE E XTRACTED BY THE CIT(A) AT PARA 6 OF HIS ORDER, WHICH INCLUDES T HE CASES RELIED UPON BY THE AR ALSO. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE ASSESSEE HAS RENDERED SERVICES T O THE HOLDING COMPANY I.E. GMR HYDERABAD INTERNATIONAL AIRPORT LI MITED (GHIAL), 5 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. BY PROVIDING MANPOWER DURING NOVEMBER, 2007 TO MARC H,2008. HOWEVER, THE ASSESSEE HAS NOT SHOWN ANY INCOME IN T HE FORM OF SERVICE FEE, FOR THE SERVICES RENDERED. THE ASSESSE E SUBMITTED THAT FOR THE SAID PERIOD THE HOLDING COMPANY HAS REIMBUR SED THE EXPENDITURE INCURRED BY THE ASSESSEE ON COST TO COS T BASIS. FURTHER, THE ASSESSEE SUBMITTED THAT THERE WAS NO CONTRACTUA L OBLIGATION DURING THE SAID PERIOD ON PART OF THE HOLDING COMPA NY TO PAY SERVICE FEE TO THE ASSESSEE. ON THE OTHER HAND, DURING SCRU TINY, THE AO, AFTER ANALYZING THE FACTS, CONCLUDED THAT THE ASSESSEE HA S EARNED INCOME IN THE FORM OF SERVICE FEE AND THE SAME WAS COMPUTE D AT RS.5,00,000/- (RS.1,00,000/- PER MONTH, FOR THE PER IOD NOVEMBER, 2007 TO MARCH, 2008.) AGGRIEVED BY THE AO'S ACTION, THE ASSESSEE FILED THE APPEAL. DURING THE APPELLATE PROCEEDINGS ALSO, THE ASSESSEE'S AR REITERATED THE CONTENTIONS RAISED BEF ORE THE AO STATING THAT THE ACTION OF THE AO IS UNJUSTIFIED, AS THE AO HAS BROUGHT TO TAX 'NOTIONAL INCOME' I.E., THE INCOME WHICH WAS NOT EA RNED BY THE ASSESSEE. IN VIEW OF THE ABOVE OBSERVATIONS, THE CI T(A) CONFIRMED THE ACTION OF THE AO BY HOLDING AS UNDER: 8.1 AFTER HAVING GONE THROUGH THE ABOVE, I AM OF TH E CONSIDERED VIEW THAT THE ACTION OF THE AO IS JUSTIFIED IN BRIN GING TO TAX RS.5,00,000/- TOWARDS SERVICE FEE FOR THE SERVICES RENDERED BY THE ASSESSEE TO THE HOLDING COMPANY DURING NOVEMBER ,2007 TO MARCH,2008. I HAVE PERUSED THE AGREEMENT ENTERED IN TO BY THE ASSESSEE AND THE HOLDING COMPANY WHEREIN IT WAS AGR EED THAT THE HOLDING COMPANY WOULD PAY RS. 1,00,000/- PER MO NTH FOR THE SERVICES TO BE RENDERED FROM APRIL 2008 ONWARDS. IN THIS REGARD, IT MAY BE MENTIONED HERE THAT THE ASSESSEE HAS ALRE ADY RENDERED THE SAME SERVICES TO THE HOLDING COMPANY F OR THE PERIOD NOVEMBER, 2007 TO 2008. HOWEVER THE HOLDING COMPANY WAS NOT CONTRACTUALLY LIABLE TO PAY TOWARDS SERVICE FEE FOR THE SERVICES RENDERED SINCE THE AGREEMENT HAS COME INTO EFFECT FROM APRIL,2008. ON ANALYSIS OF THE ABOVE FACTS, IT IS C LEAR THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE AND THE HOLD ING COMPANY IS CLEARLY FAVOURING THE INTERESTS OF THE H OLDING COMPANY ONLY. IT IS STRANGE TO SAY THAT THE ASSESSE E IS ENTITLED FOR SERVICE FEE FROM APRIL, 2008 AND NOT ENTITLED F OR ANY SERVICE FEE FOR THE PERIOD NOVEMBER,2007 TO MARCH,2008 EVEN THOUGH THERE WAS NO CHANGE IN THE NATURE OF THE SERVICES R ENDERED. 6 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. THEREFORE, THE AGREEMENT ENTERED INTO IS ONE-SIDED AIMED TO SUIT THE INTEREST OF THE HOLDING COMPANY ONLY. 8.2 FURTHER, THE CONTENTIONS OF THE ASSESSEE ARE N OT ACCEPTABLE, AS THE ASSESSEE HAS BEEN FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING WHEREIN INCOME IS SHOWN ON ACC RUAL BASIS. AFTER GOING THROUGH THE ABOVE FACTS, IT CAN BE CONC LUDED THAT THE ASSESSEE HAS EARNED INCOME OF RS.5,00,000/- ON ACCR UAL BASIS, AS THE ASSESSEE HAS ACTUALLY RENDERED THE SERVICES TO THE HOLDING COMPANY FOR THE SAID PERIOD NOVEMBER,2007 T O APRIL,2008. AS A RESULT, THE GROUNDS RAISED ARE DIS MISSED. 6. DURING THE APPELLATE PROCEEDINGS, THE AR CONTEND ED THAT THE AO HAS ERRED IN COMPUTING THE TOTAL INCOME AT RS. 5,00 ,000/- ON NOTIONAL BASIS BY TAKING SERVICE FEE WITHOUT ALLOWING EXPEND ITURE OF RS.1,16,014/- AS CLAIMED IN THE RETURN OF INCOME. 7. THE CIT(A) OBSERVED THAT THE AO WHILE COMPLETING THE SCRUTINY, THE AO HAS NOT ALLOWED THE EXPENDITURE OF RS.1.16,0 14/- WHILE COMPUTING THE TAXABLE INCOME U/S.143(3). HE, THEREF ORE, DIRECTED THE AO TO ALLOW THE EXPENDITURE OF RS. 1,16,014/- AGAIN ST THE INCOME ARRIVED AT RS. 5,00,000/-. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE I S IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: GROUND 1: ADDITION OF RS.5,00,000/- ON NOTIONAL BAS IS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF ASSESSING OFFICER IN MAKING ADDITION OF RS.5,00,000/- TOWARDS SERVICE FEES FOR THE PERIOD FROM NOVEMBER 2007 TO MARCH 2008 WHI CH WAS NEVER RECEIVED OR PAID TO THE ASSESSEE. 2. THE CIT(A) ERRED IN NOT APPRECIATING THAT FOR TH E PERIOD PRIOR TO MARCH 31, 2008, THE ASSESSEE COMPANY HAS ONLY RECEI VED REIMBURSEMENT OF EXPENSES ON COST TO COST BASIS WHI CH WAS INCURRED FOR AND ON BEHALF OF GHIAL AND IN TERMS OF AGREEMENT NO SERVICE WAS NEITHER ACCRUED/PAID OR RECEIVED BY THE ASSESSEE. 7 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. 3. THE ASSESSEE THEREFORE PRAYS THAT THE ADDITION O F RS.5,00,000/- MADE IN THE NOTIONAL BASIS IN THE ASS ESSMENT ORDER PASSED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 BE D ELETED. 9. BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESSE E HAD ENTERED INTO SERVICE AGREEMENT WITH ITS HOLDING COMPANY GH IAL FOR SUPPLY OF MANPOWER TO THE EXTENT OF 300 ASSOCIATES FOR WHI CH IT IS ELIGIBLE TO CLAIM PROFESSIONAL FEES OF RS. 1 LAKH WITH EFFECT F ROM 01/04/2008. THE ASSESSEE HAD STARTED THE RECRUITMENT OF ASSOCIATES FROM 01/11/2007 SO THAT IT WILL BE IN A POSITION TO SUPPLY THE MANP OWER TO THE EXTENT OF 300 ASSOCIATES BY 01/04/2008. AS PER AGREEMENT, IT IS ELIGIBLE TO CLAIM THE PROFESSIONAL FEES STARTING FROM 01/04/200 8 ONLY. THERE IS NO RIGHT TO CLAIM THE FEES BUT IT WAS SUPPLYING THE AS SOCIATES TO HOLDING COMPANY ON COST TO COST BASIS WITHOUT ANY FEES. CON SIDERING THE AGREEMENT, THERE IS NO RIGHT TO RECEIVE THE FEES, T HERE CANNOT BE ANY ACCRUAL OF FEES DURING THE PERIOD 01/11/2007 TO 31/ 03/2008. LEARNED AR SUBMITTED THAT THE SUPPLY OF ASSOCIATES DURING T HIS PERIOD ARE AS BELOW: MONTH NO. OF EMPLOYEES NOV07 20 DEC07 45 JAN08 55 FEB08 79 MAR08 112 LD. AR RELIED ON THE FOLLOWING CASE LAWS: 1. RAMBHAI KALABHAI & CO VS. ACIT, [2004] 1 SOT 55 9 (AHD.) 2. CIT VS. SHANKER CONSTRUCTIONS, [2015] 60 TAXMAN N.COM 63 (AP) 3. ACIT VS. TRAVANCORE TITANIUM PRODUCTS LTD., [20 09] 121 ITD 513 (COCHIN) (TM) 4. ED SASSON & CO. LTD. VS. CIT [1954] 26 ITR 27 ( SC) 5. M/S SHOORJI VALLABHDAS & CO. 46 ITR 14 (SC) 6. CIT VS. M/S ARIHANT AVENUE & CREDIT LTD., 36 T AXMANN.COM 14 (GUJ.) 7. UNITED NILAGIRI TEA ESTATES CO. VS. DCIT 23 TAX MANN.COM 423 (MAD.) 8. CIT VS. M/S SAHARA INDIA MUTUAL BENEFIT CO. LTD ., ITA NO. 184/2005, ORDER DATED 09/10/2013 (ALL. HIGH COURT) 8 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. 9. HIGHWAYS CONSTRUCTION CO. PVT. LTD. VS. CIT, [1 993] 199 ITR 702 10. VOLTAMP TRANSFORMERS (P) LTD. VS. CIT, [1981] 129 ITR 105 (GUJ.); CIT VS. WALCHAND & CO., 6 5 ITR 381 11. KEWAL CHAND VS. CIT, 183 ITR 207, 211 (CAL.) 10. THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF ASSESSING OFFICER AND CIT(A). 11. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF T HE REVENUE AUTHORITIES. THE ASSESSEE HAD ENTERED INTO SUPPLY O F MANPOWER WITH ITS HOLDING COMPANY ON 31/03/2008 AND THE VALIDITY OF THE AGREEMENT AGREED WAS FOR THREE YEARS COMMENCING FROM 01/04/20 08. AS PER THE AGREEMENT, THE ASSESSEE IS ELIGIBLE TO CLAIM PROFES SIONAL FEES OF RS. 1 LAKH ONLY FROM 01/04/2008. THE ASSESSEE, NO DOUBT , COMMENCED THE RECRUITMENT SERVICE FOR HOLDING COMPANY FROM 01 /11/2007 BUT THE SERVICE AGREEMENT ENTERED IS FOR SUPPLY OF 300 ASSO CIATES OR MORE W.E.F. 01/04/2008. THE IMPORTANT THING TO CONSIDER IS THAT WHETHER THE ASSESSEE WAS ABLE TO SUPPLY THE ASSOCIATES AT THE L EVEL AGREED BETWEEN THE PARTIES. THE ASSESSEE WAS ABLE TO SUPPL Y THE MAN POWER STARTING FROM 20 NUMBERS IN NOV07 AND MANAGED TO I NCREASE THIS LEVEL TO 112 NOS. BY MAR08, NOT EVEN 50% MARK TO T HE AGREED LEVEL OF SERVICE. NO DOUBT ASSESSEE AGREED TO SUPPLY THE MAN POWER AND AS UNDERSTAND ASSESSEE IS A NEW ENTRANT TO THIS FIELD . THE ASSESSEE WAS IN THE PROCESS OF SETTING THE BUSINESS. OUR UNDERST ANDING IS THAT THE ASSESSEE WILL HAVE RIGHT TO CLAIM THE SERVICE CHARG ES ONLY WHEN HE REACHES THE LEVEL OF SERVICE AGREED AND AS PER THE AGREEMENT OR AS PER TERMS OF AGREEMENT WITH REGARD TO COMMENCEMENT OF THE AGREEMENT PERIOD. IN THE GIVEN CASE, THE ASSESSEE N EITHER REACHED THE LEVEL OF SERVICE EXPECTED NOR THE AGREEMENT HAS COMMENCED. HENCE, ASSESSEE IS NOT IN A POSITION TO CLAIM ANY P ROFESSIONAL FEES DURING THE PERIOD OF 01/11/2007 TO 31/03/2008. IT I S CLEAR THAT THE INCOME HAS NOT ACCRUED TO THE ASSESSEE. 9 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. 12. INCOME CAN BE RECOGNIZED ONLY WHEN IT IS EARNED OR ACCRUED I.E. THERE IS A RIGHT TO RECEIVE. IN THE PRESENT CASE, N EITHER THE ASSESSEE HAD ACHIEVED THE LEVEL OF SERVICE I.E. TO SUPPLY 30 0 MANPOWER NOR THE TERMS OF CONTRACT COMMENCED, RESULTING IN NO RIGHT TO RECEIVE. WE MUST INTERPRET THE SITUATION IN THE NORMAL COURSE O F BUSINESS I.E. IN A SITUATION WHERE THE HOLDING COMPANY HAS TO DEAL WIT H OUTSIDERS. JUST BECAUSE THE ASSESSEE IS DEALING WITH HOLDING COMPAN Y, IT WILL NOT GET A RIGHT TO RECEIVE. EVEN IN DEALING WITH THE OUTSID E PARTY, THE RIGHT TO RECEIVE WOULD NOT HAVE ARISEN SIMPLY BECAUSE THE A SSESSEE HAD NOT ACHIEVED THE EXPECTED SERVICE LEVEL NOR THE TERMS O F AGREEMENT HAS COMMENCED. THE BUSINESS DECISIONS ARE DONE PURELY O N COMMERCIAL BASIS. WHEN ASSESSEE HAS NOT ACHIEVED THE EXPECTED LEVEL OF SERVICES IT HAS NO RIGHT TO CLAIM ANY SERVICE CHARG ES. 13. CONSIDERING THE ABOVE DISCUSSION, WE REFER TO T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SH OORJI VALLABHADAS & CO., ]1962] 46 ITR 144 (SC), WHEREIN THE APEX COURT HAS HELD AS UNDER: INCOME-TAX IS A LEVY ON INCOME. NO DOUBT, THE IT A CT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATT RACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MAT TER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X, EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INC OME', WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FACT, BEEN RECEIV ED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE , HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS O BVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFF ECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. THE AGREEMENTS WITHIN THE PREVIOUS YEAR REPLACED THE EARLIER AGREE MENTS, AND ALTERED THE RATE IN SUCH A WAY AS TO MAKE THE INCOME DIFFERENT FROM WHAT HAD BEEN ENTERED IN THE BOOKS OF ACCOUNT. A MERE BOOK-KEEPING ENTRY CAN NOT BE INCOME, UNLESS INCOME HAS ACTUALLY RESULTED, AND IN THE PRESENT CA SE, BY THE CHANGE OF THE TERMS THE INCOME WHICH ACCRUED AND WAS RECEIVED CON SISTED OF THE LESSER AMOUNTS AND NOT THE LARGER. THIS WAS NOT A GIFT BY THE ASSESSEE FIRM TO THE MANAGED COMPANIES. THE REDUCTION WAS A PART OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE FIRM TO SECURE A LONG-TERM MANAGING AGENCY ARRANGEMENT FOR THE TWO COMPANIES WHICH IT HAD FLOATED. 14. IN THE CASE OF CIT VS. SHANKER CONSTRUCTIONS, [ 2015] 60 TAXMANN.COM 63 THE HONBLE JURISDICITONAL HIGH COUR T, HAS HELD AS UNDER: 10 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. 15. IN THE INSTANT CASE, THE CLAUSE IN THE CONTRAC T PROVIDED FOR DEDUCTION OF 7.5 PER CENT FROM EACH BILL. OUT OF TH IS, 5 PER CENT WOULD BE PAYABLE ON SUCCESSFUL COMPLETION OF THE WO RK AND BALANCE 2.5 PER CENT AFTER THE EXPIRY OF THE DEFECT -FREE PERIOD. FOR INSTANCE, IF THE VALUE OF THE CONTRACT IS RS. 1 CRORE AND THE AMOUNTS ARE PAID UNDER THE FOUR BILLS OF RS. 25 LAK HS EACH. FROM EACH OF THE FIRST 3 BILLS, SUMS REPRESENTING 7.5 PE RCENT ARE DEDUCTED. ON SUCCESSFUL COMPLETION OF THE WORK, THE AMOUNTS REPRESENTING 5 PER CENT DEDUCTED FROM THE FIRST THR EE BILLS, WOULD BECOME PAYABLE ALONG WITH THE FINAL BILL. HOWEVER, EVEN FROM THE FINAL BILL, 2.5 PER CENT WOULD BE DEDUCTED. THIS AM OUNT OF 2.5 PER CENT., WHICH STOOD DEDUCTED FROM ALL THE FOUR BILLS , BECOMES PAYABLE, ONLY ON EXPIRY OF THE DEFECT-FREE PERIOD. IF SUCH PERIOD IS ONE YEAR, THE AMOUNT BECOMES PAYABLE ONLY WHEN NO D EFECTS WHATEVER ARE FOUND OR NOTICED, DURING THAT PERIOD. 16. THE CONTROVERSY, IN THE INSTANT CASE, IS ABOUT THE YEAR IN WHICH THE AMOUNT REPRESENTING 2.5 PER CENT HAD ACCR UED TO THE RESPONDENT. IT IS, NO DOUBT, TRUE THAT IN ALL THE B ILLS, REFERENCE WAS MADE TO THESE AMOUNTS AND THE CORRESPONDING ENT RIES WERE MADE IN THE BOOKS OF ACCOUNT. HOWEVER, THE RIGHT TO RECEIVE THAT AMOUNT WAS CONTINGENT UPON THERE NOT BEING ANY DEFE CTS IN THE WORK, DURING THE STIPULATED PERIOD. IT IS THEN, AND ONLY THEN, THAT THE AMOUNT CAN BE SAID TO HAVE ACCRUED TO THE RESPO NDENT. IT IS REPRESENTED BY THE LEARNED COUNSEL FOR THE RESPONDE NT THAT THE AMOUNT WAS RECEIVED BY HIS CLIENT IN THE SUBSEQUENT ASSESSMENT YEAR ON EXPIRY OF THE DEFECT-FREE PERIOD AND THAT T HE AMOUNT HAS BEEN BROUGHT UNDER THE TAX. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT INCOME HAS TO BE REALIZED OR THERE HAS TO BE A RIGHT TO RECEIVE THE INCOME, I N ABSENCE OF SUCH RIGHT, INCOME CANNOT BE RECOGNIZED. HENCE, THE ADDI TION MADE BY THE ASSESSING OFFICER IN THIS CASE NEEDS TO BE DELETED. HENCE, THE ADDITION MADE BY THE ASSESSING OFFICER IS HEREBY DE LETED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 20 TH MAY, 2016 KV 11 ITA NO. 24/H/16 GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD. COPY TO:- 1) GMR HYDERABAD AIRPORT RESOURCE MANAGEMENT LTD., NO. 25/1, SKIP HOUSE, MUSEUM ROAD, BANGALORE 2) DCIT, CIRCLE 3(1)(2), 2 ND FLOOR, BMTC BUILDING, 6 TH BLOCK, KORAMANGALA, BANGALORE 560 095 3 CIT(A) - 2, HYDERABAD 4) PR. CIT 2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.