1985 (1) TMI 127 - AT - Income Tax

Issues Involved:
1. Quantum of license fee taxable.
2. Applicable tax rate.
3. Protective assessment basis.
4. Credit for tax paid by HAL.
5. Interest charged under section 215/217.
6. Enhancement of income.
7. Grossing up of income.

Detailed Analysis:

1. Quantum of License Fee Taxable:
The primary issue was whether the license fee taxable should be 14 million FF or 11.9 million FF. The assessee argued that the 2.1 million FF withheld by the Government should not be treated as part of the income, as it was contingent upon certain conditions. The Commissioner (Appeals) upheld the ITO's decision to treat the entire 14 million FF as income, stating that the withholding of 15% was a method to settle tax liabilities and did not change the nature of the income accruing to the assessee.

2. Applicable Tax Rate:
The assessee contended that the tax rate should be 20% under section 115A of the Income-tax Act, as the fee received was a part of the lump sum consideration. The Commissioner (Appeals) agreed with the assessee, stating that the payment was fixed and payable over a period of time, thus qualifying as a lump sum consideration. The ITO was directed to apply a 20% tax rate.

3. Protective Assessment Basis:
The Commissioner (Appeals) allowed the assessee's ground, stating that the amount due and received during the year should be taxable in the assessment year 1979-80 and not on a protective basis.

4. Credit for Tax Paid by HAL:
The Commissioner (Appeals) allowed the assessee's claim for credit of Rs. 57,49,122 for tax paid by HAL, which the ITO had initially not credited.

5. Interest Charged Under Section 215/217:
The Commissioner (Appeals) deleted the interest charged under sections 215/217, agreeing with the assessee that there was no liability for payment of advance tax.

6. Enhancement of Income:
For the assessment year 1980-81, the Commissioner (Appeals) enhanced the income by 4.2 million FF, which was 15% of the two installments withheld by the Government. The Commissioner reasoned that the withholding was for tax purposes and did not change the nature of the income. The assessee's argument that the amount was contingent and should not be taxed until received was rejected.

7. Grossing Up of Income:
The Tribunal upheld the grossing up of the income at 20%, as per section 115A, agreeing with the Commissioner (Appeals) that the taxes arising in India were to be borne by the Government of India. The Tribunal noted that the withholding of 15% was for tax liabilities and did not affect the grossing-up requirement.

Final Conclusions:
1. The taxable income for both assessment years is the amount paid by the Government of India to the assessee in the relevant accounting period.
2. The grossing up of income is warranted at 20%, as per section 115A.

This comprehensive analysis covers all the relevant issues involved in the judgment, maintaining the legal terminology and significant phrases from the original text.

← Previous Next →