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TMI Blog1985 (7) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... would, therefore, uphold the order of the CIT (A)on this point. 4. As regards the profit worked out by invoking the provisions of s. 41(2) of the Act, the ld. counsel for the assessee stated that he reiterate the submissions which were made before the IT authorities. The ld. Representative for the Department, on the other hand, supported the action of the IT authorities. 5. On due consideration of the rival submissions of the parties as well as the material already available on record, we do not find any infirmity in the order of the CIT (A) on this point. We have, therefore, no hesitation in upholding his order in this regard. 6. The ld. counsel for the assessee very seriously objected to the directions issued by the IAC under s. 144B of the Act, whereby he charged the head of income under which ₹ 1,40,000 was brought to tax. 7. The facts in this regard as summarised by the ITO in his draft assessment order read as under ; "2. In the earlier years and for a period of one month this year, the assessee had proprietary business in the name of "VASTUSHILPA" as practising architects, and planners. The proprietary business is run by him as such for a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. As discussed above, at the close of business on 30th April 1977 certain entries were made in the books of accounts of the assessee's proprietary business. The assessee was carrying on profession as an architect and planner. Even earlier, the source of income of the assessee were to "sell" to his clients his expertise and skill. It is to be noted that the assessee was not dealing in the business of purchase and sales of any commodity but was engaged, so to say, in the sale of his professional skill. The assessee joined the firm as a working partner (Clause 7 of the Partnership Deed). In other words, the assessee has agreed to use his expertise and skill for the benefit of the other partners in addition to himself. As per cl. 15 of the partnership deed, all the assists belong equally to the partners. It means that by agreeing to utilise his expertise and skill which he valued at ₹ 1,40,000 the assessee agreed to transfer part of the benefit in favour of the other partners. It is well settled that the technical know-how is a capital asset. This aspect stood in the business of the assessee as on 30th April 1977. The assessee by transferring it to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduce below the said letter of the IAC : Sub :' Proceedings under s. 144-B'Asst. Yr. 1978-79. Please refer to the discussion in the above case on 3rd Sept. 1981. After considering the arguments advanced by you and the material on record, I am of the opinion that the sale technical know-how is a revenue receipt, which has no cost of acquisition and it is taxable under the provisions of IT Act. While the ITO has treated the sum of ₹ 1,40,000 as capital receipt. Since the change in approach will result in enhancement of income assessee the proportionate basis exemption and the deduction of 40 per cent will not be available. You are requested to state your case before me at 3.00 P.M. on 21st Sept. 1981. This letter is by way of show cause notice under the provision of s. 144B of the Act. 11. Vide his letter dt. 25th Sept. 1981, the assessee resisted the proposal made by the IAC in the following manner : "2. We object to your proposal and we submit that on facts of the case and as explained to you in person, ₹ 1,40,000 the sale proceedings of technical know-how is a capital receipt not liable to capital gains tax and it cannot be treated as income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are provided. Since such specific provisions are not to be found in s. 144B of the Act, the IAC could not have issued directions to the ITO to treat ₹ 1,40,000 as revenue receipt in the hands of the assessee. In this connection, he strongly relied on the decision of the Hon'ble Calcutta High Court in the case of Bengal Assam Investors Ltd. vs. CIT (1983) 142 ITR 156(Cal) more particularly, the last head note appearing at p. 158 of the report, which reads as under : "Having regard to the provisions of s. 144B of the IT Act, because of an enhancement of an assessment as a result of directions issued by the IAC under s. 144B(4) on items not covered by a draft assessment order, the assessment will be invalid to the extent "it was not covered by the draft", even thought he enhancement has been deleted on appeal by the CIT (A)". He, therefore, urged that the order of the ITO in this regard should be struck down. 14.1. Anticipating an argument on behalf of the Revenue that the directions issued by the IAC could be considered under s. 144A of the Act, the ld. counsel for the assessee placed before us a copy of the order of the Tribunal (to which one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous House of Lords decisions considered by him. 14.4 He, therefore, urged that ₹ 1,40,000 cannot be included in the total income of the assessee either under the head "income from business of profession" or under the head "Capital Gains." 15. The ld. Representative for the Department on the other hand, strongly supported the action of the IT authorities. Inviting our attention to s. 144B (4) of the Act and the proviso thereto, he vehemently argued that the IAC was perfectly justified in issuing directions to be manner he did. In this connection, he stated that since "Gross total Income" did not change even after treating ₹ 1,40,000 as revenue receipts, there was no enhancement as contended on behalf of the assessee. Thereafter, he invited our attention to s. 292B of the Act and strongly argued that the directions issued by the IAC should be upheld treating the same as issued under s. 144A of the Act. Inviting our attention to the aforesaid orders of the Tribunal in the case of Shagoon Emporum and Kashiram Textile Mills Ltd. (supra) the ld. Representative for the Department submitted that we should no follow the said orders of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. If we were to keep in mind, the circumstances under which the provision of s. 144B of the Act, were brought on the statute, it is quite clear to us that in s. 144B proccedings the IAC has no power either to change the Head or Income or to enhance the assessment in the manner he did, in the instant case. A draft order under s. 144B of the Act, is supplied to the assessee with view to minimise litigation and unnecessary harassment at the hands of the assessing authorities. The assessee is invited to give his objections in respect of various items contained in the draft assessment order. if the assessee does not avail of this opportunity of placing his objections of the proposals made in the draft assessment order, it is obligatory on the part of the ITO to complete the assessment on the basis of the draft order (See-sub-s. (3) of s. 144B). If, however, the assessee gives his objections to the proposals made in the draft assessment order, the ITO is required to send a copy of the draft assessment order together with the objections of the assessee to the IAC and the IAC after considering the same issues directions to the ITO with a view to enable the latter to complete the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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