1980 (1) TMI 138 - AT - Income Tax

Summary

Issues:
1. Whether the payment towards patent right to foreign collaborators should be allowed as revenue expenditure for the assessment year 1973-74.
2. Validity of reopening the assessment under section 147(b) of the Income Tax Act based on information obtained from internal revenue audit.
3. Permissibility of raising the point of law regarding the validity of reassessment before the Appellate Tribunal.

Analysis:
1. The appeal before the Appellate Tribunal concerned the CIT (A)'s decision to allow the payment of Rs. 21,983 towards patent rights to foreign collaborators as revenue expenditure for the assessment year 1973-74. The CIT (A) found that the assessee was not the owner of the patents but merely used them under an agreement with the foreign collaborators. The payment was considered an additional cost of borrowing technical know-how, and no enduring benefit was acquired by the assessee. The Tribunal upheld the CIT (A)'s decision, citing the terms of the Patents Act, 1970 and relevant legal precedents supporting the assessee's position.

2. The validity of reopening the assessment under section 147(b) was also challenged. The reassessment was based on information from internal revenue audit regarding the nature of the expenditure. Initially, the reassessment was considered valid based on the prevailing legal view. However, a subsequent Supreme Court judgment clarified that information from revenue audit on a matter of law would not justify reopening the assessment under section 147(b). The Appellate Tribunal allowed the assessee to raise this point, even though it was not raised before the lower authorities, as the issue was purely a legal one and the facts were already on record. Citing relevant High Court rulings, the Tribunal held the reassessment invalid and upheld the CIT (A)'s decision to allow the expenditure as revenue.

3. The permissibility of raising the point of law regarding the validity of reassessment before the Appellate Tribunal was also considered. The departmental representative objected to allowing the assessee to raise this point, arguing that it was not raised before the lower authorities. However, the Tribunal allowed the assessee to raise the issue, noting that the law had changed since the reassessment was done. The Tribunal held that the reassessment was invalid based on the new legal interpretation and dismissed the appeal, upholding the CIT (A)'s decision to allow the expenditure as revenue.