ORDER
Rajendra, Accountant Member
1. Assessee is a partner with 17 per cent share in a leading firm of chartered accountants styled ‘C.C. Chokshi and Co.’, Bombay, and with 40 per cent share in firm of the same name at Ahmedabad.
2. WTO in making the assessment for assessment year 1979-80 (valuation dated 31-3-1979), 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 Ahmedabad firm. AAC has reduced this figure to Rs. 78,502 accepting valuation report of M/s. K.A. Pandit, actuaries dated 3-1-1983 in respect of Bombay firm. The said actuaries had also valued the assessee’s share at Rs. 5,663 in respect of Ahmedabad firm but the AAC’s order is silent in respect of the assessee’s share from the said Ahmedabad firm.
3. Revenue’s grievance is against the AAC reducing the assessee’s share of outstanding fees from Rs. 10,93,200 to Rs. 78,502. Assessee in the cross-objection claims that nothing was includible in the assessee’s net wealth on accoant of outstanding fees of the firm.
4. We may first deal with the assessee’s claim objecting to the includibility of his share in the outstanding fees of the firm. Dipti Kumar Basu v. CWT [1976] 105 ITR 450 (Cal.) which was approved by the Supreme Court in CWT v, Vysyaraju Badreenarayana Moorthy Raju [1985] 152 ITR 454 is a complete answer to the assessee’s case. Dipti Kumar Basu was a partner in a firm of solicitors, Orr Dignam and 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’s share in the outstandings at Rs. 2.50 lakhs, while 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 AAC’s order. High Court, while upholding the Tribunal’s order, rejected assessee’s claim (which was made on similar lines as before us), namely, that the partner might not remain in the firm at the time of realisation of the outstandings. The High Court held that WT Act was concerned with the net wealth of the assessee on the valuation date the outstandings were assets and wealth of the firm on the valuation date and the assessee was a partner of the firm on that date. Following the said decision, we reject the contention of the assessee before us that as per partnership deed of C.C. Chokshi & Co. the assessee-partner is not entitled to any share in the outstandings at the time he retires from the firm.
5. The next contention raised before us which is as per para of the actuaries’ report is regarding the income-tax payable by the firm on the outstandings. The Calcutta High Court categorically held in the abovecited case that no income-tax was payable on the outstandings on the valuation date in view of the cash system of accounting and therefore no question of deducting income-tax liability from the outstanding fees would arise. Same observations would apply to para 3(vi) of the actuaries’ report in respect of personal taxation of the partners.
6. We may now deal with the remaining grounds in the actuaries’ report for the scaling down the outstanding fees as on 31-3-1975 of Rs. 27,70,350 to Rs. 2,13,289. We may mention that the aforesaid report dated 18-2-1980 has been followed by the said actuaries for valuing the outstanding fees as oh 31-3-1979 of the Bombay firm of Rs. 59,97,881 to Rs. 4,61,776 and of the Ahmedabad firm of Rs. 18,39,992 to Rs. 1,41,584 for assessment year under consideration.
7. Reverting to the aforesaid report as on 31-3-1975 actuaries vide para 3(0 gave 5 per cent rebate in respect of outstanding fees on the ground that certain fees become irrecoverable. Revenue’s grievance (which would be common to all the deductions allowed by the actuaries) is that on details for scaling down the outstanding fees is given by the actuaries and the AAC has not examined the matter nor has he given any opportunity to the WTO to examine these aspects and therefore the AAC was not right to accept without any verification the actuaries’ report. The learned departmental representative pointed out that C.C. Chokshi & Co. was not a small firm of Chartered Accountants 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.
8. Revenue’s grievance is the same regarding para 3(ii) of the actuaries’ report that the average realisation period of outstanding fees is two years. It is urged that big business houses would not take even a month after the bill is submitted to them, more so when the Chartered Accountant’s certificate on the balance sheet is essential. Here again, revenue wanted the matter to be resorted to WTO to verify the position on the assessee furnishing required details for the preceding 5 years.
9. In para 3(iii) the actuaries have reduced establishment costs of 51 per cent from the receipts, revenue rightly contends before us that the establishment costs have already been debited in the relevant P & L account which have been incurred for rendering services to the clients and therefore no establishments costs would be relevant for recovering the outstanding debts. Shri P.A. Nair partner, who appeared on behalf of the assessee, conceded this position.
10. Regarding para 3(iv) of actuaries’ report about registered firm’s tax and para 3(vi) regarding partner’s taxation, we already discussed above in para 5 that no deduction on this account is allowable in view of observations of the Calcutta High Court in Dipti Kumar Basil’s case (supra).
11. In para 3(v), the actuary had discounted by 18 per cent gross or 5 per cent net realisable outstanding fees. We have not been told the difference between the gross and net rates and what rate has finally been taken by the actuary. We direct that the bank rate prevailing as on 31-3-1979 may be applied, after ascertaining the average period for which the outstanding fees would remain unpaid by the clients.
12. Shri P.A. Nair for the assessee relied on CWT v. Maharaja Kumar Kamal Singh [1984] 146 ITR 202 (SC) and CWT v. Raghubar Narain Singh [1984] 146 ITR 228 (SC) where, dealing with compensation receivable under Bihar Land Reforms Act on Abolition of Zamindari, Supreme Court observed that discount should be given for hazards in process of execution of decrees and other factors which hazard, clog or jeopardy the recovery of assets. We have already considered such factors while dealing with different items under which the actuary has allowed discounting of the outstanding fees.
13. In view of the above discussion, we restore this matter to the file of WTO to examine the actuaries’ report regarding item 3(0 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 of outstanding fees. WTO will thereafter determine assessee’s share of outstanding fees in the light of our observations above.
14. In the result, Revenue’s appeal is partly allowed.
15. Assessee’s cross-objection, so far it deals with inclusion of outstanding fees, stands rejected.
16. Assessee’s objection regarding the inclusion of credit balance in CDS account (which was not dealt by AAC) is also rejected following ITAT (Special Bench) Bombay’s decision in Smt. Sushila-ben A. Mafatlal v. WTO [1986] 18 ITD 189.
17. In the result, the cross-objection is rejected.