1991 (2) TMI 185 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on aircraft.
2. Accrual of consultancy fee.
3. Interest on remitted consultancy fees.
4. Share application money.
5. Application of Rule 115 of the IT Rules.
6. Consultancy fee from OCP, Morocco.

Detailed Analysis:

1. Depreciation on Aircraft:
The assessee had claimed and was allowed depreciation on aircraft at 40% of the written down value, whereas the prescribed rate was only 30% after the amendment w.e.f. 2nd April, 1983. The jurisdiction under s. 263 was rightly assumed by the learned Commissioner, as the assessment orders were erroneous and prejudicial to the interests of the Revenue.

2. Accrual of Consultancy Fee:
The consultancy fee was to be remitted by Sumitomo Corporation (SC) to Eljay Consultants' account in London. The learned Commissioner held that the consultancy fee accrued in the three assessment years in question. However, the Tribunal found that the right of the assessee to the consultancy fee was inchoate and imperfect until SC confirmed the successful completion of the contracts on 1st Sept., 1987. The accrual of income thus occurred in the assessment year 1988-89, not in the earlier years. Therefore, the learned Commissioner erred in his finding regarding the accrual of consultancy fee.

3. Interest on Remitted Consultancy Fees:
The learned Commissioner held that no enquiry was made to determine the amounts of interest that had accrued to the assessee company till the date of repatriation. The Tribunal found that there was no material indicating that interest was demanded, earned, or received by the assessee. Therefore, the facts did not provoke any enquiry on the point of accrual of interest.

4. Share Application Money:
Share application money of Rs. 1,98,68,081.75 had been shown by the assessee as having been received from Eljay Consultants. The learned Commissioner held that no enquiry was made regarding the real identity, creditworthiness, and source of investment made by Eljay. The Tribunal found that Eljay was a separate legal entity and had applied for shares in the assessee company with necessary approvals from the Reserve Bank of India. Therefore, the learned Commissioner was not right in holding that due enquiry was not made on this point.

5. Application of Rule 115 of the IT Rules:
The learned Commissioner found that the conversion of amounts receivable in Japanese Yens first to U.S. Dollars and then to Indian Rupees resulted in the under-assessment of income. The Tribunal held that Rule 115 did not apply as the consultancy fee accrued in India on 11th Sept., 1987, and not on the various dates in London when remittances were made by SC to Eljay. Therefore, the indirect mode of conversion was correct, and the learned Commissioner's finding was erroneous.

6. Consultancy Fee from OCP, Morocco:
The learned Commissioner found an under-assessment to the tune of Rs. 2,79,037 for the assessment year 1986-87. The Tribunal noted that complete facts were not available, and it did not appear that due enquiries were made by the Assessing Officer. Therefore, the learned Commissioner's order on this aspect was upheld.

Conclusion:
The Tribunal partly allowed the appeals filed by the assessee. The jurisdiction under s. 263 was validly assumed by the learned Commissioner, and the assessments were set aside to be made afresh, but with modifications based on the Tribunal's findings regarding the accrual of income, interest, share application money, and Rule 115.