2018 (4) TMI 1482 - HC - Income Tax

Conduct of the advocates before the High Court on behalf of the revenue - advocate being retired Officers - The learned ASG appearing on behalf of the Revenue points out that there was a misunderstanding on the part of its Counsel Mr. Chhotaray, on instructions received from the Assessing Officer. The ASG fairly states that it was a mistake which should not have happened. - Held that - it appears that the Officers of the Revenue believe that once the matter is in Court, it is the sole responsibility of the Counsel for the Revenue to protect the interest of the State and their responsibility comes to end. This cannot be. The conduct and role of an Advocate is much more than that of being an expert in tax matters. This has to be realized by the domain expert Advocates. An Advocate must have a broader vision and look upon themselves as Officers of the Court, assisting the Court to do justice and not right or wrong, my client is correct as now done by some of the Advocates for the Revenue. The responsibility of an Advocate appearing for the State is much greater to ensure that justice is done and common people/ citizens are not harassed. This conduct on the part of the Revenue s Counsel of not taking proper instructions and arguing matters as they perceive a debatable point involved, does lead to undue harassment of the tax payers-Respondent. We understand that while appointing panel Advocates for the Revenue, the requirement of having practiced for some number of years is not insisted upon in case a person has domain expertise, such as retired Officers of Revenue. If this indeed be the practice, it would, in our view, need revisiting the same. This is so, as the skill and conduct required to appear as an Advocate, are honed by working in the chambers of an experienced Advocate, particularly that he is part of a system which seeks to ensure that Justice is achieved, beyond the cause of the client. It is indeed for the CBDT to decide and take appropriate action. Undoubtedly, these retired Officers do have domain expertise and do render assistance.

Issues Involved:

1. Classification of technical knowhow expenditure as revenue or capital expenditure.
2. Taxability of profits from US and UK branches in India.
3. Taxability of sales tax exemption benefits availed by the assessee.

Issue-wise Detailed Analysis:

1. Classification of Technical Knowhow Expenditure:
The primary issue was whether the technical knowhow expenditure (technical assistance fees) should be classified as revenue expenditure or capital expenditure. The Tribunal had held that the technical knowhow expenditure is revenue expenditure. The Revenue challenged this, arguing that under the amended provisions of Section 32 of the Income Tax Act, technical knowhow is considered an intangible asset, and the fee for obtaining it should be treated as capital expenditure. The Tribunal’s decision to classify it as revenue expenditure was under scrutiny.

2. Taxability of Profits from US and UK Branches:
The second issue concerned whether the profits earned by the assessee’s branches in the US and UK should be taxable in India. The Tribunal had ruled that these profits are not taxable in India and should be excluded from the taxable profit of the assessee. The Revenue contested this decision, seeking to include the foreign branch profits in the taxable income in India.

3. Taxability of Sales Tax Exemption Benefits:
The third issue involved the taxability of sales tax exemption benefits amounting to ?58 crores availed by the assessee. The Tribunal had restored this issue to the file of the Assessing Officer for fresh consideration. The Revenue had not accepted this decision and argued against the Tribunal’s order. During the hearing, it was revealed that the Assessing Officer had already passed an order on 29th July 2015, giving effect to the Tribunal’s order dated 22nd October 2014. This contradicted the initial statement made by the Revenue’s Counsel, leading to confusion and unnecessary waste of judicial time.

Court’s Observations and Directions:

The Court expressed its displeasure over the incorrect instructions given to the Revenue’s Counsel, which led to a waste of time. It emphasized the need for fairness and accuracy in presenting facts before the Court. The Court directed the Assessing Officer to file an affidavit explaining the circumstances that led to the incorrect information being provided. The Court also highlighted the importance of proper briefing and instruction by the Revenue officers to their Counsel.

The Court noted the recurring issue of Revenue’s Counsel arguing matters without proper instructions or knowledge of the facts, leading to unnecessary arguments and wastage of judicial time. It emphasized that Advocates should act responsibly and not argue for the sake of arguing, especially when the issue is already settled or when they lack proper instructions.

The Court suggested that the Central Board of Direct Taxes (CBDT) should consider holding training programs for domain-expert Advocates to educate them on the ethics, obligations, and standards expected of Advocates. It also recommended that the CBDT lay down a standard procedure for the manner in which Departmental Officers assist the Revenue’s Counsel during hearings.

The Court directed the learned Additional Solicitor General (ASG) and the Registry to forward a copy of the order to the Chairman of the CBDT, hoping that appropriate steps would be taken to ensure proper representation by Advocates on behalf of the Revenue.

In conclusion, the Court adjourned the hearing to 26th February 2018, to enable the filing of the affidavit by the Assessing Officer and directed the Revenue’s Counsel to serve a copy of the order to the jurisdictional Chief Commissioner of Income Tax and other Chief Commissioners within the Court’s jurisdiction.

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