1995 (8) TMI 98 - AT - Income Tax

Summary

Issues Involved:

1. Taxability of fees received by GFA and ETC.
2. Assessability of 10% down payment received by GFA and ETC.
3. Jurisdiction of the CIT to invoke provisions of sec. 263.

Issue-wise Comprehensive Details of the Judgment:

1. Taxability of Fees Received by GFA and ETC:

The assessees, GFA and ETC, were appointed as major contractors under agreements with RINL for setting up various mills. The fees received by the assessees were claimed as exempt under Article III of the Agreement for Avoidance of Double Taxation (AADT) between India and the Federal Republic of Germany. However, the Assessing Officer taxed the fees as "fees for technical services" u/s 9(1)(vii) of the IT Act read with Explanation 2.

2. Assessability of 10% Down Payment Received by GFA and ETC:

The Commissioner of Income-tax (CIT) observed that only 90% of the fees were assessed, and the 10% down payment received earlier was not taxed. The CIT directed the inclusion of the entire consideration in the assessment, considering the 10% down payment as part of the income for the years when the invoices were raised. The CIT (Appeals) deleted the addition, agreeing with the assessee that the down payment was income for the earlier years and considered as such by the ITO in granting No Objection Certificate.

The Tribunal held that the 10% down payment was an advance payment for services to be rendered in future and not income of the year of receipt. The income accrued when the services were rendered and the invoices raised. The Tribunal upheld the CIT's order for including the entire amount in the income of the years when the services were rendered.

3. Jurisdiction of the CIT to Invoke Provisions of Sec. 263:

The assessee challenged the jurisdiction of the CIT to reopen the issue, arguing that a final decision was taken by the CBDT exempting the down payment in the earlier year. The Tribunal rejected this contention, stating that the CBDT's decision was based on the provisions of AADT then prevailing, and the CIT was right in considering the down payment as part of the income of the years when the services were rendered.

Conclusion:

The Tribunal allowed the department's appeals and dismissed the assessee's appeals, holding that the entire invoiced amount accrued to the assessees when the services were rendered, and the 10% down payment was an advance payment. The CIT was justified in invoking sec. 263 and directing the inclusion of the entire consideration in the assessment.