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TMI Blog1985 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.L.V. at Rs. 9,000 by the income-tax authorities. We would, therefore, uphold the order of the Commissioner (Appeals) on this point. 4. As regards the profit worked out by invoking the provisions of section 41(2), the learned counsel for the assessee stated that he reiterate the submissions which were made before the income-tax authorities. The learned representative for the department, on the other hand, supported the action of the income-tax 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 Commissioner (Appeals) on this point. We have, therefore, no hesitation in upholding his order in this regard. 6. The learned counsel for the assessee very seriously objected to the directions issued by the IAC under section 144B whereby he changed the head of income under which Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of the various aspects involved, it is necessary to go into the facts leading to the accrual of credits in favour of the assessee. As discussed above, at the close of business on 30-4-1977 certain entries were made in the books of account 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 was 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 or sale 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 clause 15 of the partnership deed, all the assets belong equally to the partners. It means that by agreeing to utilise his expertise and skill which he valued at Rs. 1,40,000, the assessee agreed to transfer part of the benefit in favour of other partners. It is well settled that the technical know-how is a capital asset. This aspect sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we rely to our detailed letter of 2nd March, 1981 and 6th March, 1981. 3. We also rely very heavily on the judgment of the Gujarat High Court in the case of Jayantilal Bhogilal Desai v. CIT [1981] 130 ITR 655 dated 25th August, 1980 a copy of which will be supplied to you if so desire. 4. We also invite your attention to the recent judgment of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294. 5. The principles laid down in the above two judgments are applicable to the facts of the case of our above client and both the goodwill and technical know-how being self-created assets for which no payment has been made capital gain is not attracted. 6. We very strongly submit that the judgment relied by you in V.R. Sonti v. CIT [1979] 117 ITR 838 (Cal.) is on different facts of the case and does not apply to the facts of our abovementioned client's case." Vide his letter dated 3-9-1981 addressed to the IAC, the assessee once again objected to the taxability of Rs. 1,40,000 as proposed by the ITO. 10. On 14-9-1981, the IAC invited the assessee's objections as he was of the opinion that the sale of technical know-how was revenue receipt. It is necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case that Rs. 1,40,000 cannot be treated as revenue receipt. Since the assessee had parted with the capital asset and since the asset was self-generated one, Rs. 1,40,000 cannot be taxed even as capital gains. The Commissioner (Appeals), however, negatived various submissions made on behalf of the assessee and by adopting the reasonings of the IAC contained in his directions issued under section 144B upheld the action of the ITO. 14. The learned counsel for the assessee once again vehemently argued that while issuing the directions under section 144B, the IAC had no jurisdiction to change the head under which Rs. 1,40,000 could be brought to tax. He further submitted that under section 144B, the IAC does not have power of enhancement, since such power was not given to him in section 144B proceedings. In this connection, the learned counsel for the assessee invited our attention to section 251(1)(a) of the Act, sections 23(5) and 24(5) of the Wealth-tax Act, 1957, sections 22(5) and 23(5) of the Gift-tax Act, 1958 and sections 62(5) and 63(5) of the Estate Duty Act, 1953, with a view to impress upon us that whenever the Legislature want to give power of enhancement to an authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [1984] 149 ITR 29, wherein relying on the decision in the case of B.C. Srinivasa Setty, the Hon'ble High Court has held that no capital gains arose on the sale of tenancy right for which the assessee had not paid any price. Similarly, the Hon'ble Bombay High Court in the case of CIT v. Modiram Laxmandas (P.) Ltd. [1983] 142 ITR 702, held that no capital gains arose on the sale of import licence for which no price was paid by the assessee. The Hon'ble Calcutta High Court in the case of CIT v. Satya Paul [1983] 13 Taxman 235, has held that no capital gains tax could be attracted on the sale of import entitlements for which no price was paid by the assessee. In this view of the matter, he submitted that even the capital gains worked out by the ITO on the transfer of technical know-how by the assessee cannot be included in the total income of the assessee. 14.3 Finally, the learned counsel for the assessee took us through the directions issued by the IAC under section 144B, with a view to impress upon us that the IAC has not properly appreciated the ratio of various House of Lords decisions considered by him. 14.4 He, therefore, urged that Rs. 1,40,000 cannot be included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hon'ble Bombay High Court in the case of CIT v. Chandan Bharat Enterprises [1983] 15 Taxman 435. 17. The learned counsel for the assessee, in his reply, strongly objected to the submissions made on behalf of the revenue that we should substitute section 144A in place of section 144B, wherever it is found in the draft assessment order, in the show-cause notice issued by the IAC, in the assessee's reply to the IAC, in the directions issued by the IAC to the ITO and in the final assessment order framed by the ITO, with a view to protect the interests of the revenue even though the IAC had no power to enhance the assessment while giving directions under section 144B. In this connection, he relied on the decision of the Hon'ble Supreme Court in the cases of CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 and CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443. 18. We have carefully considered the rival submissions of the parties and we find considerable force in the submissions made on behalf of the assessee. If we were to keep in mind, the circumstances under which the provisions of section 144B, were brought on the statute, it is quite clear to us that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order, the assessee's objections to the said draft assessment order, show-cause notice issued by the IAC under section 144B, the assessee's reply thereto and various remarks appearing in the final assessment order, we have no doubt in our mind that the IAC had issued directions under section 144B only and not under any other section including section 144A, as contended on behalf of the revenue. We have, therefore, no hesitation in holding that the directions issued by the IAC under section 144B, in respect of Rs. 1,40,000, are invalid and bad in law. In this view of the matter, addition of Rs. 1,40,000 cannot be sustained. The same is, therefore, deleted from the total income of the assessee. 18.2 In view of our aforesaid decision, it is not necessary to go into the merits of the case. Suffice it to say that the IAC has failed to comprehend the ratio laid down in various decisions of the House of Lords mentioned in his directions issued under section 144B. In our view, the ITO had rightly concluded that the technical know-how is a capital asset. Since the assessee had not paid anything to acquire such capital asset, even the provisions of section 45 cannot be attracted in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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