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Issues: Limitation issue regarding the completion of assessment under s. 153(1)(iii) for asst. yrs. 1979-80 and 1980-81; Taxation of royalty income on accrual basis; Accrual of income in the next year for specific contracts; Credit for tax deducted at source for royalty income.
Analysis: 1. Limitation Issue: The assessment for asst. yrs. 1979-80 and 1980-81 was completed under s. 143(3) r/w 144B. The primary contention was whether the assessment completed on 2nd July, 1982, was within the two-year time limit as per s. 153(1)(iii). The crucial aspect was determining the date of "forwarding" of the draft order to the assessee, as per Explanation 1(iv) to s. 153. The dispute revolved around whether the draft order was forwarded on 8th March, 1982, or 23rd March, 1982. The Tribunal ultimately relied on a letter dated 27th April, 1982, from the ITO to the IAC, which indicated that the draft order had been forwarded on 8th March, 1982. This evidence was deemed credible, leading to the conclusion that the assessment was completed within the prescribed time limit. 2. Taxation of Royalty Income: The issue of taxing royalty income on an accrual basis was also addressed. The CIT(A) determined that royalty income accrued under s. 5(2)(b) was taxable in the year of accrual, irrespective of actual receipt, subject to Reserve Bank permission. This decision aligned with precedents and established principles, emphasizing that income accrues when the right to receive it arises, even if payment is deferred pending certain conditions. The Tribunal upheld this finding against the assessee. 3. Accrual of Income in Next Year: Concerning specific contracts with Khatau Junker Limited and Universal Cables Ltd., the assessee argued that income should accrue in the subsequent year due to contractual terms allowing payment within ninety days after specific events. However, the Tribunal rejected this argument, emphasizing that the accrual of income is not halted by such payment terms, as the obligation to pay arises when income accrues. Therefore, the contention that income accrues in the next year was dismissed. 4. Credit for Tax Deducted at Source: The final issue pertained to granting credit for tax deducted at source for the royalty income assessed. The CIT(A) had directed the ITO to allow credit after verification for both assessment years. The Tribunal upheld this direction, emphasizing the importance of providing credit for tax deducted at source, ensuring the proper adjustment of tax liabilities. In conclusion, the appeals by the assessee were dismissed, affirming the decisions on the limitation issue, taxation of royalty income on an accrual basis, accrual of income in the relevant year, and granting credit for tax deducted at source.
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