2004 (2) TMI 317 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 44BBB of the IT Act, 1961.
2. Timing and recognition of income under Section 44BBB.
3. Retrospective application of Section 44BBB.
4. Finality and treatment of prior assessments.
5. Impact of the assessee's letter dated 24th January 1995.

Detailed Analysis:

1. Applicability of Section 44BBB of the IT Act, 1961:
The core issue was whether Section 44BBB applied to the assessee, a non-resident foreign company, for the assessment year 1994-95. The assessee contended that Section 44BBB, which came into force from 1st April 1990, was not applicable as the last bills for erection and specialist services were raised before this date. The CIT(A) accepted this contention, but the Revenue appealed, arguing that the section was applicable as the contract was completed on 5th November 1993.

2. Timing and Recognition of Income under Section 44BBB:
The Revenue contended that 10% of the contract amount should be assessed for the assessment year 1994-95. The assessee argued that the income should be recognized in the years when the bills were raised and payments received. The Tribunal upheld the assessee's view, stating that Section 44BBB should be applied to each assessment year in which amounts were paid or payable. The Tribunal noted that the amounts received in earlier years had already been processed, and thus, the income for those years could not be taxed again in 1994-95.

3. Retrospective Application of Section 44BBB:
The Revenue argued that Section 44BBB, being procedural, could be applied retrospectively. The Tribunal disagreed, stating that the section introduced a new procedure for taxing foreign companies and affected the rights of the assessee. Thus, it could not be applied retrospectively without express enactment or necessary intendment. The Tribunal held that Section 44BBB was applicable from the assessment year 1990-91 onwards and could not be applied to earlier years.

4. Finality and Treatment of Prior Assessments:
The Tribunal examined the finality of prior assessments where losses were accepted for the assessment years 1988-89 and 1989-90. It rejected the Revenue's claim that all prior assessments were completed on a "No Income No Loss" basis. The Tribunal noted that the income from the project had already been processed and taxed in earlier years, and thus, could not be taxed again in 1994-95. The Tribunal emphasized that the Department could not reassess these amounts without following the proper procedures under the IT Act.

5. Impact of the Assessee's Letter Dated 24th January 1995:
The Revenue relied on the assessee's letter, which stated that the contract was completed in November 1993. The Tribunal found that the letter did not imply that the entire income was taxable in 1994-95. The Tribunal noted that the assessee had declared income in earlier years and that the letter should be considered in the context of the actions of both the Department and the assessee in earlier years. The Tribunal concluded that no amount was payable or accrued to the assessee in the assessment year 1994-95, and thus, the income could not be taxed in that year.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that Section 44BBB was not applicable to the assessment year 1994-95. The Tribunal emphasized that the income should be recognized in the years when it was paid or payable and that prior assessments where losses were accepted could not be reopened without following proper procedures. The Tribunal also rejected the retrospective application of Section 44BBB and found no basis for taxing the income in 1994-95 based on the assessee's letter.