1982 (3) TMI 104 - AT - Income Tax

Summary

Issues:
Interpretation of section 44D of the Income-tax Act, 1961 regarding the restriction of expenses for non-resident assessee receiving fees for technical services from an Indian concern.

Analysis:
The judgment by the Appellate Tribunal ITAT BOMBAY-B involved the interpretation of section 44D of the Income-tax Act, 1961, concerning the restriction of expenses for a non-resident assessee receiving fees for technical services from an Indian concern. The assessee, a non-resident, received fees for technical services from an Indian company during the relevant previous year. The Income Tax Officer (ITO) reduced the allowable expenditure to 20 percent under section 44D, which limits deductions to 20 percent of the gross amount of royalty or fees. The assessee challenged this decision before the Commissioner (Appeals), arguing that expenses should be allowed at 50 percent up to a certain date and reduced to 20 percent thereafter. The Commissioner (Appeals) rejected this argument, holding that section 44D was in force for the entire assessment year and expenses should be confined to 20 percent for the whole previous year.

The main contention of the assessee was that the law in force on the first day of April of any assessment year should govern the assessment for that year, subject to express provisions or necessary implications. The assessee relied on a ruling by the Madras High Court to support this argument. The departmental representative, however, argued that section 44D was effective from a specific date and should apply for the entire previous year. The Tribunal referred to various legal principles, including the cardinal rule that the law in force in the assessment year applies unless otherwise provided expressly or by necessary implication. The Tribunal also distinguished a previous case where an amendment clearly indicated a specific date of operation, unlike in the present case with section 44D.

The Tribunal ultimately held in favor of the assessee, stating that the section should apply only to expenditure incurred after its introduction date. The Tribunal reasoned that since the section was brought into force on a specific date in the middle of the year, it should govern expenses only for the period after its enactment. The Tribunal also cited a case from the Calcutta High Court to support this interpretation. Therefore, the Tribunal allowed the appeal in part, ruling that the assessee could claim expenses at 50 percent up to a certain date and reduce it to 20 percent from a specified later date.