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2016 Supreme(Del) 2745
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. MURALIDHAR & NAJMI WAZIRI, JJ.
COMMISSIONER OF INCOME TAX-IX – Appellant
Versus
AMAN KHERA – Respondent
I.T.A. No. 653 of 2012 & I.T.A. Nos. 19, 21, 326 of 2015
Decided On : 03-08-2016
For the Appellant :Mr. Zoheb Hossain, Senior Standing Counsel with Mr. Deepak Anand, Advocate.
For the Respondent:Mr. M.P. Rastogi with Mr. K.N. Ahuja, Advocates.
The main legal point established in the judgment is that the entire amount received by the Assessees should be taxed in the year of receipt, as they followed the cash system of accounting and failed to provide evidence to support spreading the income over several years.
Headnote:
Income Tax - Revenue Appeals - Income Tax Act, 1961, Section 260A - Summary: The court considered the appeals by the Revenue under Section 260A of the Income Tax Act, 1961, pertaining to quantum and penalty proceedings. The court analyzed the agreements between the Trust and UGHPL, the nature of services rendered, and the tax treatment of the lump sum payments received by the Assessees. The court found that the entire amount received by the Assessees should be taxed in the year of receipt, as they followed the cash system of accounting and failed to provide evidence to support spreading the income over several years. The court also set aside the penalty appeals and remanded them for a fresh decision.
Fact of the Case:
The appeals by the Revenue under Section 260A of the Income Tax Act, 1961, involved quantum and penalty proceedings related to lump sum payments received by the Assessees from UGHPL. The Assessees claimed the amount as advance for professional/management consultancy, but failed to provide evidence to support their claim.
Finding of the Court:
The court found that the entire amount received by the Assessees should be taxed in the year of receipt, as they followed the cash system of accounting and failed to provide evidence to support spreading the income over several years. The penalty appeals were set aside and remanded for a fresh decision.
Issues: The main issue was whether the lump sum payments received by the Assessees should be spread over several years for tax purposes, and whether the penalties imposed by the AO should be upheld.
Ratio Decidendi: The court held that in the absence of evidence to support spreading the income over several years, the entire amount received by the Assessees should be taxed in the year of receipt. The penalty appeals were remanded for a fresh decision.
Final Decision: The court upheld the appeals by the Revenue, set aside the penalty appeals, and remanded them for a fresh decision.
1. These are five appeals by the Revenue under Section 260A of the Income Tax Act, 1961 (Act). Three of them i.e. ITA Nos. 653 of 2012, 19 of 2015 and 326 of 2015 pertain to quantum proceedings and two of them i.e. ITA Nos. 476 of 2014 and 21 of 2015 pertain to penalty proceedings.
Background facts
2. The background facts are that an agreement was entered into on 31st October 2005 between Dr. B.L. Khera Charitable Trust (hereafter 'the Trust'), a society incorporated under the Societies Registration Act, 1860 and Heart Institute, Noida represented by Dr. Purshotam Lal, the Director of Metro Hospital and Heart Institute.
3. The agreement noted that the Trust was the owner of a hospital situated on a plot of approximately 1.5 acres in Pandav Nagar, Naraina Road, New Delhi with a building consisting of a basement, ground floor and four floors known as Khera Hospital. The agreement noted that the Khera Hospital had not been functioning except for an Out-Patient Department and that too on a small scale. The hospital was stated to be ill-equipped and facing financial problems.
4. The agreement noted that the Trust had approached the management of Metro Hospital, Noida to run and manage the Khera Hospital and that the Metro Hospital had agreed to the proposal. The clauses of the agreement relevant for the present purposes read as under:-
1. Khera society will allow Metro Hospital to make necessary changes, alterations or additions and/or demolitions, renovations accordingly in Khera Hospital building and other places.
2. Khera Society shall facilitate and empower Metro Hospital in sorting out the legal and other disputes relating to Khera Hospital.
3. Khera Hospital shall make available all records, deeds, writings, files and documents to Metro hospital to facilitate proper day to day working in Khera Hospital within seven days of signing of this agreement.
4. Metro Hospital shall pay a monthly lump sum amount as mutually decided to Khera Society and all receipts of monthly in cash or by cheque shall belong to Metro Hospital.
5. Metro Hospital shall have full freedom in fixing rates for various medical procedures, consultation and treatment procuring medicines, consumables equipments, recruiting staff, maintenance of buildings, equipments etc.
6. Metro Hospital has to manage Khera Hospital to the best of its ability and capability.
7. Metro Hospital shall be entitled to use all the assets existing and to be procured in future for Khera Hospital to run and manage the Hospital for all purposes, intents and externs exclusively.
8. This managing agency agreement shall remain valid for twenty five years:-
This agreement may be terminated by giving 12 months notice in writing to the other party provided consideration, if any, in any form and interest accruing thereon from the day it was taken from Metro Hospital or its nominees is cleared and discharged by Khera Hospital at the time of serving of notice. No notice of termination will be valid if the financial involvement is not discharged.
5. The agreement could be terminated by either party by giving 12 months notice to the either party. Interestingly, the agreement provided that in the event of such termination, the consideration taken from Metro Hospital and interest accruing thereon should be discharged by Khera Hospital at the time of serving of notice. It was stipulated that no notice of termination will be valid if "the financial involvement is not discharged."
6. The agreement was signed on behalf of the Trust by its Trustees Dr. Krishan Khera, Dr. Raman Khera (the Respondent Assessee in ITA Nos. 476/2014 and 326/2015) and Ms. Jyoti Khera (the Respondent Assessee in ITA No. 19 of 2015).
7. The case of the Assessees/Respondents is that on 12th December 2005, UG Hospitals Pvt. Ltd. (UGHPL) which was running Metro Hospital and the Heart Institute issued a letter to Dr. Aman Khera in the following terms:-
We are glad to appoint you as a management consultant for the chain of hospitals run and ma
