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TMI Blog2014 (9) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... ertains to quantum addition made in the assessment order. ITA No. 182/2002 3. By order dated 24th September, 2002, the following substantial question of law was framed:- "Whether, in the circumstances of the case and on the true and correct interpretation of tripartite agreement dated 14.7.1995, the Tribunal was correct in law in concluding that the entire licence fee of Rs. 15,68,50,000/-,received by the appellant company, for granting the right to use technical know how, could be taxed in the assessment year 1996-97?" 4. The facts are that (a) in 1969 Escorts Limited (Escorts, for short) and Ford Motor Company entered into a joint venture and established a company, i.e. Escorts Tractors Limited (ETL, for short), in India. (b) In 1990, the entire shareholding of Ford Motor was transferred to New Holland North America, U.K. (NHNA, for short), (c) By virtue of the joint venture relationship, technology for various Ford tractor models, including technology for Ford tractor model 3610 was to be made available to ETL till the termination of the joint venture, (d) Subsequently, NHNA transferred their rights in various engineering component and technical services, including the techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 10, wherein earlier judgments of the Supreme Court in E.D. Sassoon and Company Limited versus Commissioner of Income Tax, (1954) 26 ITR 27 and Calcutta Company Limited versus Commissioner of Income Tax, West Bengal (1959) 37 ITR 1 were elucidated and explained. In Dinesh Kumar Goel (supra), the respondent-assessee, a coaching institute, following mercantile system of accounting had received the total fee for the entire course on enrolment or at the time of admission, which could be for a two years duration. Question answered was, whether the entire fee on receipt should be treated as income of the current year or could be spread over/divided, depending upon the tenure or period of the course for which payment was made? The question was decided in favour of the assessee but for reasoning and findings, which do not support the appellant-assessee in the present case. In fact the ratio is contrary and against the appellant-assessee. 7. Section 5(i) of the Act on the scope of total income of an resident states that it includes income of any previous year of a person, from all sources derived; (a) received or deemed to be received in India, (b) accrues or arises or is due to accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speaking 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks (1888) 21 Q.B.D. 52 , [this part of the decision not having been affected by the reversal of the decision by the House of Lords (1889) 14 App. Cas. 493 that both the words are used in contradistinction to the word "receive" and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate.' One oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceive the income or that income had accrued to him." 8. In the said case, the students were required to make deposit of the whole fee for the entire course, but it was held that the amount deposited also included "deposit" or "advance" and it cannot be said that the entire fee had become "due" at the time of deposit. The fee was paid in advance presumably as there should not be any default in payment by the students during the term of the course. The Assessing Officer had used the term "deposit" and "due" but the said words did not mean that the income had accrued at the time of deposit itself. The said deposit was only an advance as all services were not to be rendered in the year in question but were to be rendered in the subsequent years. Referring to Calcutta Company Limited (supra) it was observed that advance should not be treated as income, as otherwise an anomalous situation would arise, as expenses were required to be deducted to arrive at net income but such expenses were yet to be incurred in the assessment year for they had to be incurred in future years. Taxation of the entire receipt in such situations would lead to a highly derogatory situation for the assessee. Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee prior to 14th July, 1995 had already incurred expenditure to create the said technology, which was being used by ETL for manufacture of tractor model No. 3610. As the appellant-assessee and Escorts/ETL were parting ways with termination of their joint venture, ETL had agreed to pay Rs. 15,68,50,000/- in order to enable ETL to use the said technology for a period of three years or upto 31st December, 1996. Clearly and certainly no services or know-how/technology was to be supplied during the next three years. It is not a case where technical services or other services were to be provided during the period of three years. 11. Appropriate, would be to reproduce the relevant clauses of the agreement dated 14th July, 1995, which read:- "WHEREAS, New Holland's related company New Holland U.K. Limited has assigned the right to the design engineering component of Technical Services, which includes technology used in the tractor model 3610 developed between 1991 and 1994, to NH India which will extend to Escorts the right to use such design engineering component hereinafter referred to as "Design Engineering Services"); and ARTICLE 1 DISENGAGEMENT 1.01 XXXXX 1.02 Assignment of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to distinguish the colour of products manufactured by EL, ETL or any affiliated company from those to be manufactured by New Holland and its affiliates, EL, ETL and its affiliated companies shall only use colours which are not blue; or Bureau of Indian Standards (September 1994) ISC nos. 101, 102 or 174; or Bureau of Indian Standards (September 1994) blue colours with a Munsell value between 0 and 2.5 or with a Munsell value between 7.5 and 10 (included within these two preceding ranges of blue shades are Bureau of Indian Standards (September 1994) ISC nos. 105, 106, 108 and 177 which are permitted). In the preceding specifications of blue colours, they are mutually exclusive; id est the permitted shades of blue cannot be mixed with any other colour or shade of blue to form a colour which would fall within the range of colours defined by Bureau of Indian Standards (September 1994) as a blue colour with a Munsell value of greater than 2.5 and less than 7.5. (iii) Series Identification: Neither Escorts nor ETL nor any of their affiliated companies shall use the same series identification as those used on Ford tractors. (iv) Styling i.e. Grill: The tractors produced by ETL/Escorts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue and not the submissions of the appellant-assessee. The income had duly accrued or arising during the assessment year in question. The appellant-assessee did not have any obligation or responsibility to carry out further activity or perform any new task, after the agreement dated 14th July, 1995, towards know-how or technology and on account of receipt of the licence money of Rs. 15,68,50,000/-. The assessee did not have to perform any future obligation or task. Thus, unlike the factual matrix in Dinesh Kumar Goel (supra) where only advance deposit was received, but in the present case the appellant-assessee had received the entire consideration and not an advance deposit. The amount paid was not an advance relating unperformed obligation which had to be performed or undertaken. What the agreement postulated was that the ETL could use the technology already made available to them for a period of three year. This would not make the payment or deposit an advance. Neither was the payment inchoate nor made subject to final decision on appropriation. There was no stipulation to return or refund. A payment would be an advance or deposit if the said amount was repayable or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4.04 relied upon by the learned counsel for the appellant-assessee does not justify or merit the said argument. The said clause reads as under:- "4.04 Release and Hold Harmless As from the date the transfer of Shares and the payments of money to New Holland and/or NH India have been effected, Escorts for itself and in the name of and on behalf of ETL shall release any and all claims they have or may ever have against New Holland, NH India or any of their related companies arising out of or in connection with New Holland's investment in ETL and any other agreement entered into between or among New Holland or any of its related companies and Escorts, ETL or any of its related companies. Similarly, as from the date the transfer of Shares and the payments of money to New Holland and/or NH India have been effected, New Holland shall release any and all claims it has or may ever have against ETL, Escorts and its related companies arising out of or in connection with its investment in ETL and any other agreement entered into between or among New Holland or any of its related companies and Escorts, ETL and any of its related companies. These releases do not include any claims that may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission, therefore, does not have any merit as it relates to unascertained liability, the happening of which was dependent on a doubtful and uncertain contingency in future. It could have never happened. Indeed it never happened. 20. Another contention raised before us was that the amount received was inchoate receipt as there was an obligation on the part of the appellant-assessee that the technology so made available remained capable of being used for a period of three years. The amount received was not an inchoate amount depending upon any contingency before it could be appropriated. The appellant-assessee was not under an obligation to refund the said amount under any of the clauses. Liability to pay damages under the law of contract for breach of a contract does not make the receipt an inchoate receipt. 21. Similarly, the contention that in the books of account the amount so received had been bifurcated and divided into four assessment years does not carry any force. A wrong treatment given in the books of accounts contrary to the accountancy principles could be corrected. Income earned should be taxed in the right year and should not be diverted or treated as income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the assessee was wrong in not offering the whole or entire amount of the technical fee for tax in the year of receipt. But, it does not follow that penalty for concealment must be imposed as the quantum appeal is decided against the assessee. The findings in the assessment proceedings cannot be considered as conclusive and final for the purpose of imposition of penalty under section 271(1)(c) of the Act. As per opinion expressed by the Supreme Court in Commissioner of Income Tax, West Bengal I, and Anr. Vs. Anwar Ali [1970] 76 ITR 696 (SC) such findings may constitute good evidence in the penalty proceedings but it does not follow that penalty for concealment under Section 271(1)(c) is mandatory whenever an addition or disallowance is made. The language of Section 271(1)(c) has undergone substantial changes since the pronouncement of the aforementioned judgment, but the said legal position, still hold good. In assessment proceedings, we are primarily concerned with the assessment of income i.e. quantification and computation of total income as per the provisions of the Act, whereas in penalty proceedings we are primarily concerned with the conduct of the assessee. Penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; means detail or details of a claim or separate items of an account [see Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158(SC)]. Thus the words "furnished inaccurate particulars" is broader and would refer to inaccuracy which would cause under-declaration or escapement of income. It may refer to particulars which should have been furnished or were required to be furnished or recorded in the books of accounts etc. [See CIT vs. Raj Trading Co. (1996) 217 ITR 208 (Raj.)] Inaccuracy or wrong furnishing of income would be covered by the said expression, though there are decisions that adhoc addition per se without other or corroborating circumstances may not reflect "furnished inaccurate particulars". Lastly, at times and it is fairly common, the charge of concealment and "furnishing of inaccurate particulars" may overlap. 27. The present case is not of concealment of income, but furnishing of inaccurate particulars for assessment year 1996-97, as the entire receipt was not declared and accounted for in the return of income of the said assessment year. Rather, it was declared in the returns of the subsequent assessment years. 28. As per clause (A) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome had been disclosed. As far as latter part is concerned, it cannot be doubted or even questioned that the appellant assessee had disclosed or stated all facts relating to the explanation and material for the computation of their total income. The quantum of receipt as mentioned by the appellant assessee has not been doubted. Tripartite agreement was not concealed and it is not case of the Revenue that any undisclosed income was received. Further, the amount received has been shown as taxable in the returns filed for the four assessment years. Therefore, the amount received was offered for tax, though not in the right or correct assessment year. 31. Primary issue which arises for consideration is whether the conduct of the assessee was bonafide. We have used very strong words like erroneous, fallacious, untenable etc. with reference to various contentions and submissions made by the assessee in the quantum appeal, but we do not think we will be contradicting ourselves when we hold that the conduct of the assessee was bonafide and the onus to show and establish bonafides has been discharged. The observations and adjectives used by us in the quantum appeal rejecting the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned counsel for the Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. 11. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf be furnishing inaccurate particulars. 14. It was further held in Dilip N. Shroff [(2007) 6 SCC 329] that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. 15. It was only on the point of mens rea that the judgment in Dilip N. Shroff v.CIT [(2007) 6 SCC 329] was upset. In Union of India v. Dharamendra Textile Processors [(2008) 13 SCC 369] after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with the Explanations indicated with the said secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature." 33. In view of the legal position, when we examine the question of bonafide, we find that the assesee had discharged the said onus for the reasons set out above. We also record that while examining the question of bonafides, we have taken into account the conduct of the appellant assesse in disclosing full and true particulars in return of income as well as before the Assessing Officer at the time of assessment proceedings. In the present case, as noticed above, there is no allegation that full details with regard to the agreement, quantum of receipt, the factum why the payment was made and also the fact that the receipts had been offered for taxation in four separate assessment years, were duly disclosed and stated. We have noted that the appellant assessee had claimed that technical know-how would be used for three years and, therefore, consideration received was relatable to three years. We have rejected the said contention but in case the terms of payment and the agreement had been worded differently, the assessee may well have succeeded. In fact the assessee did not try t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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