2005 (11) TMI 29 - HC - Income Tax

In the course of the assessment, the assessee claimed that the amounts received by it from M/s. Brooke Bond Lipton India Limited were not exigible to tax. The Assessing Officer declined to accept that contention and declared the receipt exigible to tax in the hands of the assessee. Aggrieved, the assessee filed an appeal before the Commissioner of Income-tax and, inter alia, relied upon the instructions issued by the Central Board of Direct Taxes, according to which, receipts of the kind referred to above could be brought to tax only from the assessment year 1998-99 onwards in view of the amendment made in section 55 of the Income-tax Act, 1961. The Commissioner upheld the claim and the contention urged by the assessee. Relying upon the decision of the Supreme Court as also the instructions issued by the Central Board of Direct Taxes, the Commissioner held that the receipts in question were not exigible to tax for the periods they were actually received. - In the light of the authoritative pronouncements of the Supreme Court regarding the binding nature of the instructions issued under section 119 of the Act, as also the fact that the appellate authority, has while allowing the appeal filed by the assessee, placed reliance upon the instructions, we see no substantial question of law arising for our consideration in this appeal

Summary

Issues:
Taxability of amounts received from trade mark assignment and non-competition agreement in manufacturing ice cream.

Analysis:
During the assessment year 1996-97, the respondent-assessee entered into agreements with another company for the assignment of its trade mark and a non-competition agreement in the ice cream sector. The assessee claimed that the amounts received were not taxable, relying on instructions from the Central Board of Direct Taxes. The Assessing Officer disagreed, but the Commissioner of Income-tax and the Tribunal upheld the assessee's claim based on the instructions issued by the Board, stating that such receipts were capital receipts and not exigible to tax.

The Revenue appealed the Tribunal's decision, arguing that the instructions from the Central Board of Direct Taxes did not align with the actual provisions of the Income-tax Act. However, the court cited a Supreme Court decision stating that the Revenue is bound by the instructions issued by the Board and cannot take a stand contrary to them. The court emphasized that as long as a circular remains in operation, the Revenue must adhere to it.

The court acknowledged certain inconsistencies in previous apex court decisions regarding the binding nature of circulars issued by the Board when they conflict with the law declared by the Supreme Court. However, it was noted that in cases where there is no contrary pronouncement from the apex court, the circulars and instructions issued by the Board under section 119 of the Act are binding.

Based on the above legal principles and the fact that the appellate authorities had considered the issue in light of the Supreme Court's pronouncements and the Board's instructions, the court found no substantial question of law to consider in the appeal. Therefore, the court dismissed the appeal, affirming the decision that the amounts received by the assessee were not exigible to tax as they were capital receipts exempt from capital gains tax.