1985 (7) TMI 372 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the IAC to change the head of income under Section 144B.
2. Treatment of Rs. 1,40,000 as income from the evaluation of technical know-how.
3. Treatment of Rs. 42,071 as income under Section 41(2).
4. Adoption of ALV of the SO property at Rs. 9,000 instead of Rs. 6,000 declared by the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of the IAC to Change the Head of Income under Section 144B:
The assessee contended that the IAC had no jurisdiction to change the head of income under which Rs. 1,40,000 was brought to tax while issuing directions under Section 144B. The IAC had directed the ITO to treat Rs. 1,40,000 as a revenue receipt, which the assessee argued was beyond the IAC's power under Section 144B. The Tribunal agreed with the assessee, stating that Section 144B proceedings are meant to minimize litigation and not to enhance the assessment or change the head of income. The Tribunal cited the Calcutta High Court's decision in Bengal Assam Investors Ltd. vs. CIT, which held that enhancement of an assessment as a result of directions issued by the IAC under Section 144B on items not covered by a draft assessment order is invalid. The Tribunal concluded that the IAC's directions under Section 144B were invalid and bad in law, and thus, the addition of Rs. 1,40,000 could not be sustained.

2. Treatment of Rs. 1,40,000 as Income from the Evaluation of Technical Know-How:
The assessee argued that the Rs. 1,40,000 received for technical know-how was a capital receipt and not taxable as revenue. The ITO had initially treated it as a capital asset but later, under the IAC's direction, it was treated as a revenue receipt. The Tribunal found that technical know-how is a capital asset and since the assessee had not paid anything to acquire it, the provisions of Section 45 could not be attracted, referencing the Supreme Court's decision in CIT vs. B.C. Srinivasa Setty. The Tribunal agreed with the assessee that the technical know-how was similar to goodwill, which was self-generated and not subject to capital gains tax. Therefore, the Rs. 1,40,000 was deleted from the total income of the assessee.

3. Treatment of Rs. 42,071 as Income under Section 41(2):
The assessee reiterated the submissions made before the IT authorities regarding the treatment of Rs. 42,071 as income under Section 41(2). The Tribunal, upon due consideration of the rival submissions and the material on record, found no infirmity in the order of the CIT (A) on this point and upheld it.

4. Adoption of ALV of the SO Property at Rs. 9,000 Instead of Rs. 6,000 Declared by the Assessee:
At the hearing, the assessee's counsel stated that he would not press the determination of the ALV at Rs. 9,000 by the IT authorities. Consequently, the Tribunal upheld the order of the CIT (A) on this point.

Conclusion:
The appeal was partly allowed. The Tribunal held that the IAC had no jurisdiction to change the head of income or enhance the assessment under Section 144B, and thus, the addition of Rs. 1,40,000 was deleted. The Tribunal upheld the CIT (A)'s orders regarding the treatment of Rs. 42,071 under Section 41(2) and the adoption of the ALV of the SO property at Rs. 9,000.