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Issues Involved:
1. Assumption of jurisdiction under section 263 of the Income-tax Act by the Director of Income-tax (International Taxation) [DIT]. 2. Classification of receipts as business income versus fees for technical services under section 44D of the Income-tax Act. Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction under Section 263: The primary contention revolves around whether the DIT legally erred in assuming jurisdiction under section 263 of the Income-tax Act. The assessee argued that the DIT was unjustified in invoking section 263 as the Assessing Officer (AO) had followed the Tribunal's orders from previous assessment years (1981-82, 1982-83, and 1987-88). The Tribunal had previously ruled that the income should be classified as business income, not fees for technical services, based on the ratio of purchased labor and materials to gross receipts. The DIT, however, contended that the AO's order was erroneous and prejudicial to the interest of the revenue because the ratio of purchased labor and materials was less than 50% for the assessment years in question (1994-95 and 1997-98). The DIT argued that this warranted a reclassification of the income as fees for technical services under section 44D. The Tribunal found that the DIT wrongly included Base Operating Costs in calculating the ratio for the assessment year 1987-88, which led to an incorrect percentage of 70.65%. The correct ratio, excluding Base Operating Costs, was only 21.38%. For the assessment years 1994-95 and 1997-98, the ratios were higher (25.41% to 45.60%), indicating no lack of application of mind by the AO. The Tribunal held that the AO's order was neither erroneous nor prejudicial to the interest of the revenue and quashed the DIT's order for both assessment years. 2. Classification of Receipts: The second issue concerns the classification of receipts from three Indian companies (Essar Gujarat, Damodar Valley, and Worldwide Personnel Inc.) as either business income or fees for technical services. The AO had treated these receipts as business income, applying the Tribunal's earlier rulings, which were based on the expenditure ratio on purchased labor and materials. The DIT disagreed, arguing that the receipts should be classified as fees for technical services under section 44D, as the expenditure ratio was below 50%. The Tribunal, however, found that the AO had correctly followed the Tribunal's earlier orders and had properly considered the expenditure ratios. The Tribunal noted that the AO's view was a possible view and that the DIT could not substitute his opinion for that of the AO. The Tribunal also referenced several legal precedents, including decisions from the Calcutta High Court, Allahabad High Court, Orissa High Court, and the Supreme Court, to support its conclusion that the AO's order, based on the Tribunal's previous rulings, could not be revised under section 263. Conclusion: The Tribunal concluded that the DIT had wrongly assumed jurisdiction under section 263 and that the AO's order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal quashed the DIT's orders for both assessment years 1994-95 and 1997-98, thereby allowing the assessee's appeals. The remaining grounds of appeal were not addressed, as the primary issues had been resolved in favor of the assessee.
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