Addl.CIT, Special Range 9, New Delhi vs. VLCC Health Care Ltd.

Parties Involved

Facts Summary

The assessee, VLCC Health Care Ltd., filed its return of income for the Assessment Year 2009-10 declaring an income of Rs.14,34,56,042. The case was processed under section 143(1) of the Income-tax Act, 1961. The case was selected for scrutiny, and notices under sections 143(2) & 142(1) along with a questionnaire were issued. The assessee submitted relevant information in response. The assessee is engaged in the business of slimming and beauty services and has not disclosed any other source of income during the year. During the assessment proceedings, the Assessing Officer (AO) observed that the assessee was carrying substantial credit balances as current liabilities under the head 'Advance from customers'. The assessee submitted that the receipts from clients for various services are assessable as a part of profit and gains from business and profession and not directly as income. The AO rejected the submissions made by the assessee that the method of accounting adopted by the assessee is accepted by the Revenue over the years. The AO observed that the assessee follows three types of business models which are: (a) Joint Venture (JV) with a Joint Venture Partner (JVP), (b) Franchise agreement with a JVP, and (c) Partnership firm with a JVP. The assessee claimed huge expenses of Rs.2,39,80,342/- under the head 'Share of profit of collaborators'. The AO observed that the nature and details of such expenses were not furnished by the assessee and it furnished a copy of one agreeme…

Legal Issues

• 1. Whether the assessee has paid to the collaborators for expenses on services/ premises which are clearly covered under the ambit of TDS provisions.
• 2. Whether the assessee did not form any partnership firm with any of the collaborators and accordingly payments made to them/ revenue shared with them cannot be treated as share of profits in the absence of partnership firm.

Judgment Outcome

Decided in favour of Partly Assessee / Partly Revenue.

Precedents Relied Upon

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