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TMI Blog1995 (3) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... er-vision of erection and commissioning, etc. ; (ii) Training of personnel ; (iii) Charges for the testing, repair and maintenance work. The matter had been brought to the notice of the Commissioner of Income-tax who issued a notice to the assessee inviting objections as to why action under section 263 be not taken and assessment made by the Assessing Officer set aside so that the amount received is taxed at 20% as per clause 2 under Article VIII-A of the Agreement for Avoidance of Double Taxation between India and Federal Republic of Germany. Assessee objected to the proposed action. However, the CIT, considering clause 4 of Article VIII-A of the Avoidance of Double Taxation Agreement between India and Federal Republic of Germany came to the conclusion that the amount received by the assessee was assessable as fee for technical services @ 20%. He further held that Assessing Officer had failed to cause any investigation looking into the nature of the payment or even examine the applicability of provisions of the tax treaty. According to the CIT, the Assessing Officer had simply accepted the contentions of the assessee. He accordingly held that the order of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the CIT was accordingly invalid. 6. The learned counsel further contended that since no finding had been recorded by the CIT regarding the taxability of the amount, his order under section 263 was invalid. According to Shri Ganeshan, the CIT was bound to record a finding regarding the taxability of the receipts and since the matter has been set aside by the CIT without recording a finding, his order under section 263 is contrary to law. In this connection, reliance was placed on the decision of the Punjab and Haryana High Court in the case of CIT v. Kanda Rice Mills [1989] 178 ITR 446 and that of the Delhi High Court in the case of CIT v. O.P. Seth 113 Taxation 128. 7. The third limb of the argument by the learned counsel for the assessee was that when two views are possible and one view is adopted by the Assessing Officer, the order passed by the Assessing Officer cannot be said to be erroneous. In this connection, reliance has been placed on the decision of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129, that of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the decision of the Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. In case the objection is accepted, remedial action is taken. In such circumstances, Shri Haldhar contended that it cannot be said that the CIT cannot act on the basis of the audit objection. According to the learned D.R., there is proper basis for initiating action. Referring to the decision of the Supreme Court in the case of R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537, the learned D.R. contended that their Lordships of the Supreme Court have even held that the audit objection shall constitute information for the purposes of re-opening of an assessment. It was accordingly contended that there was nothing wrong in the Commissioner of Income-tax having acted upon the audit objection, so long as the CIT has applied his mind and taken action on appreciation of the objection and on examination of the records. 11. With regard to the contention raised on behalf of the assessee that CIT should have recorded a finding on merits and should not have remanded the case, the learned D. R. contended that a finding has been recorded by the CIT that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. He has also expressed his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or not. It is humanly impossible. Therefore, setting up of a machinery known as internal audit which assists the Commissioner of Income-tax in this regard is not improper as the said machinery only brings to the notice of the Commissioner of Income-tax the acts of omission, errors and matters of prejudice caused to the revenue. It has to be borne in mind that opinion or the information of the internal audit is not binding upon the CIT. It is a mode for excluding such cases not requiring the attention of the Commissioner for the purposes of consideration of any action under section 263. Once the matter has been brought to the notice of the CIT, it is the Commissioner who has to exercise his powers under section 263 and for that purpose it is necessary for him to apply his mind to the facts of the case taking into account the objection raised by the internal audit. Such a consideration would not be contrary to the spirit of the scheme of the Act and the powers of the CIT under section 263. The learned D. R. has cited the decision of the Supreme Court in the case of Kasturbhai Lalbhai which as rightly pointed by Shri Ganeshan has been overruled by the Supreme Court in the case of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it undertook mainly to supply equipments, engineering, supervise of erection and commissioning, etc. It was also pointed out that the liability of the assessee in India had been determined in the preceding year in terms of the provisions of the agreement for the Avoidance of Double Taxation between the Government of India and Government of Federal Republic of Germany. With reference to section 90 of the Income-tax Act, it was claimed that the provisions of the Avoidance of Double Taxation would prevail over the provisions of the Indian Income-tax Act. It had also been claimed that in the preceding years though tax had been deducted at source in respect of similar payments, the same was refunded to the assessee on making regular assessments. Assessee had further stated that the liability to tax in India on business profits was attracted only If the permanent establishment as defined in the Avoidance of Double Taxation Agreement were maintained in India. Assessee had disclosed the amount received as royalty and offered the same for taxation in accordance with Avoidance of Double Taxation Agreement. In respect of other payments out of which tax had been deducted at source, the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook. In this letter assessee has given information in. respect of the nature of the payments received from various Indian companies during the previous year relevant to assessment year 1984-85. This was done as required by the Assessing Officer during the course of discussions. 16. A perusal of the letters filed before the Assessing Officer and in particular the note placed at pages 29 to 33 of the paper book, it is clear to us that Assessing Officer had made proper enquiries into the aspect of taxability of the receipts of the assessee at the time of making the assessment. The finding of the CIT that proper enquiry has not been made by the Assessing Officer in the light of the correspondence which is certified to be on the record of the Assessing Officer, we are unable to accept the finding recorded by the Commissioner of Income-tax that the Assessing Officer failed to make investigation into the assessability of the receipts of the assessee-company. The Assessing Officer was conscious of the amendments made in the Avoidance of Double Taxation Agreement between India and Federal Republic of Germany. The Assessing Officer had also enquired from the assessee as to how the amounts r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... training may well be ancillary and subsidiary to the sale of computer, but they are not inextricably and essentially linked to the sale. Without the updates, the computer will continue to accomplish the same functions. Acquiring the updates, cannot, therefore, be said to be inextricably and essentially linked to the sale of the computer." Thus taking into account the decision of the Andhra Pradesh High Court, the decision of the Tribunal referred to elsewhere In this order and the Memorandum of understanding between USA and India, the claim made by the assessee that the receipts in respect of services rendered which are connected with the sale of equipment were not liable to tax as 'fee for technical services', would be a possible view. We are not here to give our own view in respect of the taxability of the receipts of the assessee. It is sufficient for our present purpose to note that the view taken by the Assessing Officer regarding the taxability of the receipts in question is a possible view. In fact the Departmental Representative has also not refuted this proposition that the claim accepted by the Assessing Officer was a possibility on the basis of the views expressed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a kind that it can be said of it that it is prejudicial to the interest of the Revenue. In other words. merely because the officer's order is erroneous, the Commissioner cannot interfere. Again, merely because the order of the Officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the Commissioner to interfere in revision. These two elements must co exist." [Emphasis supplied] Merely there being a possibility of contrary view, the order of the Assessing Officer cannot be said to be erroneous. Though it might be prejudicial to the interest of revenue. In this case, the Assessing Officer had taken into account the past history of the case. He had made proper enquiries and had taken a view which is in consonance with the view expressed by the Andhra Pradesh High Court in the case of Hindustan Shipyard Ltd. and the several decisions of the Tribunal referred to elsewhere in the order. As already observed, the view expressed by the revenue is not supported by any decision of the High Court not to speak of the jurisdictional High Court or of the Supreme Court. Therefore, the decision of the Assessing Officer which is in consonanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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