9911796707
TMI Blog2006 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 2 As noticed by the learned Commissioner of Income-tax the assessments for the assessment years 1996-97 and 1997-98 have been completed under section 143(3) originally on March 31, 1999., and March 31, 2000, respectively. For the assessment year 1996-97 claim under section 35AB had been allowed which was held in the impugned order as erroneous and prejudicial to the interests of the Revenue. For the assessment year 1997-98 there was no reference of allowance of the said claim under section 35AB, hence the order under section 154 dated June 30, 2000, was passed through which it was specifically mentioned that the claim of deduction under section 35AB was not considered inadvertently and following the past history the mistake was rectified being apparent from record and the income of the assessee was recomputed after allowing the deduction under section 35AB. This rectification under section 154 for the assessment year 1997-98 was also considered by the learned Commissioner of Income-tax in the impugned order under section 263 as prejudicial to the interests of the Revenue. After this background of the assessment made in the past, the facts on the basis of which the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of technical know-how by the foreign company to the Indian company only represented a mode of discharging its capital contribution in the floatation of Indian company and therefore, the same can not involve in any expenditure allowable under the Income-tax Act, the learned Commissioner of Income-tax has proceeded thereupon on the same reasoning, show-cause notice was issued, the submissions from the side of the assessee were made, duly incorporated in the impugned order under section 263, several other case law from either side were discussed in the impugned order. Vide paragraph 11 the learned Commissioner of Income-tax has opined as follows: "I have given a careful consideration to the submissions and arguments made on behalf of the assessee-company and have also gone through the relevant facts of the assessee's case vis-a-vis the facts of the case of Eimco-K. C. P. Ltd. [1984] 147 ITR 603, decided by the Madras High Court and affirmed by the Supreme Court. As already mentioned above before the assessee-company was incorporated on November 22, 1994, a contribution agreement was executed on June 17, 1994. The relevant portion of Part I of this contribution agreement may be reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred, the further question as to whether the expenditure is capital or revenue is, apparently futile, quoted by the learned Commissioner of Income-tax. An argument was raised that the technical know-how was provided by Mercedes Benz AG whereas capital was contributed by Daimler Benz AG but the same was held as fallacious on the ground that Mercedes Benz AG was only a subsidiary of Daimler Benz AG and the assessee did not make any payment for acquiring technical know-how and the substantial portion of the cost of acquiring such technical know-how was adjusted by way of contribution of share capital. Discussing the alternative argument it was mentioned that if the deduction under section 35AB was not permissible on the whole amount then the disallowance could not be made in respect of payment of expenditure in cash. This argument of the assessee company was acceptable to the Commissioner of Income-tax. No disallowance could be made in respect of the second instalment of technical know-how which was paid in cash as the same was paid after one year of incorporation of the company but the learned Commissioner of Income-tax has thereafter reiterated the previous observations that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Daimler Chrysler India Ltd. for the assessment year 1995-96 dated March 26, 2004, wherein the proposed action of reopening under section 147 in the relevant assessment year on the ground of the same order, the Madras High Court decision in the case of CIT v. Eimco-K. C. P. Ltd. [1984] 147 1TR 603 was made the basis, however, the said proceedings under section 147 were quashed. The reasons assigned by the learned Commissioner of Income-tax (Appeals) was that all the material facts about the contribution pertaining to the technical know-how fees were very much before the Assessing Officer and it was wrong to hold that the assessee had not disclosed fully and truly all the material facts necessary for the completion of the assessment. He has held that the reassessment proceedings as initiated were a change of opinion and following several judicial pronouncements, he has held that a mere change of opinion was not enough to initiate reassessment proceedings. So, the impugned order in that appeal was annulled. The learned authorised representative clarified that the purpose of record of this order of the learned Commissioner of Income-tax (Appeals) was to establish that the Revenue autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riel India Ltd. [1993] 203 ITR 108 (Bom), CIT v. Arvind Jewellers [2003] 259 ITR 502 (Guj), CIT v. Mehsana District Co-operative Milk Producers Union Ltd. [2003] 263 ITR 645 (Guj). Then he has placed reliance on certain case law in support of his argument that in substantive order ordinary provision should be construed liberally and for this proposition he has relied upon the decisions of the Supreme Court in the case of CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149, CIT v. Cellulose Products of India Ltd. [1991] 192 ITR 155 and CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 etc. Few more aspects have also been touched such as meaning of consideration, meaning of expenditure and the manner in which the precedent has to be relied upon. However, we are concerned about the main issue, hence for the sake of brevity all the connected arguments of the learned authorised representative are considered not to be discussed in details in this order. 8 From the side of the Revenue, the learned Departmental representative has supported the order of the Commissioner of Income-tax passed under section 263 and argued that once the hon'ble Supreme Court has held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the hon'ble Supreme Court has firstly held that the Commissioner of Income-tax has power to interfere with the order of the Income-tax Officer. On the issue of nature of expenditure, the observation of the hon'ble court was, (headnote) "It was not a case where after the incorporation, the appellant-company in the course of carrying on its business, spent the said amount for acquiring any asset. The High Court had rightly concluded that allotment of equity shares by the appellant to Eimco, in the circumstances of the case, could not be termed as expenditure, much less revenue expenditure. In our considered opinion, the basic question in that case and as in the case of the assessee is the date of incorporation. The hon'ble court has very specifically mentioned that the amount was not paid after the incorporation. Had the fact was that the amount would have been paid after the incorporation, then there was a possibility of a decision favourable to the taxpayer. Now, if we compare the facts of the appeal in keeping in mind the said basic distinction, we have found that the company was incorporated on November 22, 1994, and the production has started, as stated before us, on Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company has to discharge its liability of payment towards acquisition of know-how and that liability was discharged either by cash payment or by allotment of shares. 10 Though these are the basic difference as enumerated hereinabove but still the primary question which is yet to be answered is whether the learned Commissioner of Income-tax can exercise his jurisdiction under section 263 in such cases where there are two possible opinions. The two major events i.e. the order under section 154 passed by the Assessing Officer through which the claim under section 35AB was allowed and the other event of quashing of an order passed under section 147 when questioned before the Commissioner of Income-tax (Appeals) would definitely indicates that some of the Revenue authorities were in the opinion that the deduction was admissible under section 35AB and contrary to that the learned Commissioner of Income-tax in. the impugned order was under the impression that the claim under section 35AB was erroneous. In such a situation, when the Revenue authorities are of two opinions, or two views are possible, the hon'ble courts have held that such an action of the Assessing Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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