2018 (6) TMI 1621 - HC - Income Tax

Applicability of the monitory limit in filing appeals - subject matter of the questions of law raised have a cascading effect in the general application of the Income Tax Act and the question also is one which arises periodically in the case of other assessee too - Claim the benefit u/s 35AB - whether 1/6th amount paid by the assessee for know-how for the purpose of setting up of modern plant is allowable under Section 35AB when the assessee had not commenced business in the relevant assessment year? - HELD THAT - FAA had found that the expenses, being incurred for the purpose of know-how, definitely, the same is allowable. The Tribunal refused to entertain the appeal relying on the circular of the CBDT restraining the Department from filing appeals where the tax effect is less than ₹ 2 lakhs. It was found that the circular applies equally to old cases and new cases. The learned Counsel appearing for the assessee also submits that the tax effect, in the subject year and the succeeding years was NIL for reason of the assessee having continuosly suffered loss in all the years. There can be no cascading effect atleast in the case of the assessee. In such circumstances, we are of the opinion that the question of law arising from the First Appellate Authority's order can be left open for consideration in an appropriate case. The Income Tax Appeals would stand rejected answering the questions raised against the Revenue and in favour of the assessee finding that the appeal before the Tribunal was not maintainable.

Summary

Issues:
1. Entitlement to claim benefit under Section 35AB of the Income Tax Act, 1961.
2. Applicability of monetary limit in filing appeals under the Income Tax Act.
3. Consideration of appeals on merits despite CBDT directions.
4. Allowability of expenses incurred for know-how under Section 35AB.
5. Interpretation of circulars and previous court decisions in relation to the case.
6. Tax effect considerations in appeal cases with continuous losses.

Analysis:
1. The primary issue in this case was the entitlement of the assessee to claim the benefit under Section 35AB of the Income Tax Act, 1961. The Department contended that such benefit could only be claimed from the commencement of the business. However, the focus shifted to the applicability of the monetary limit in filing appeals under the Income Tax Act, raising questions of law that have a broader impact on the general application of the Act. The Tribunal's reliance on a Circular to reject appeals without considering merits was a key point of contention.

2. The Court considered whether the Tribunal should have decided the case on merits, especially in light of previous court decisions and the applicability of circulars to the facts of the case. The Counsel for the Revenue presented a decision where another appeal was directed to be considered on merits despite CBDT directions on monetary limits. The specific issue revolved around the allowance of 1/6th amount paid by the assessee for know-how, even though the business had not commenced in the relevant assessment year.

3. The First Appellate Authority had deemed the expenses incurred for know-how as allowable, but the Tribunal refused to entertain the appeal based on the CBDT circular restricting appeals where the tax effect is less than a certain amount. The Counsel for the assessee highlighted that the tax effect was nil due to continuous losses suffered by the assessee in all years, indicating no cascading effect. The Court acknowledged that the question of law could be left open for consideration in a suitable case.

4. Ultimately, the Income Tax Appeals were rejected, favoring the assessee and finding the appeal before the Tribunal as not maintainable. The judgment emphasized the importance of considering appeals on their merits and the impact of monetary limits on the filing of appeals, especially in cases with continuous losses. No costs were awarded in this decision.