9911796707
TMI Blog1982 (5) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... erved on the assessee on 30-3-1979 under section 144B of the Income-tax Act, 1961 ("the Act"). Since there was variation in the income returned and the income proposed to be assessed by more than a lakh of rupees, the assessee by its letter dated 3-4-1979 requested for extension of time of two weeks for submission of objections and the ITO allowed the time. However, no objections were filed by the assessee. The ITO, therefore, completed the assessment under section 144B(3), read with section 143(3) of the Act. The assessee filed an appeal before the Commissioner (Appeals) and inasmuch as objections against the assessment were accepted, the revenue has come up in appeal before the Tribunal. At the time of hearing of the appeal by the Division Bench, the learned departmental representative filed an additional ground stating that the assessee's appeal before the Commissioner (Appeals) was not maintainable, since the assessee did not file any objections after having received the draft assessment order. The additional ground was admitted. But when the question was sought to be decided the Bench bearing the matter found conflict between the decisions of different Benches of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order. There is no express provision in the statute barring an appeal. The scheme of section 144B itself does not contemplate foregoing of a right of appeal in a case where no objections are filed. Finally, it is pointed out that even if there is an admission it can be explained away and an appeal could be filed and more so in a case where there is no admission expressly or by implication. The learned counsel also pointed out that the issue that was involved in the assessment was contested and the assessee produced all the evidence that it was capable of. 4. Before we look to the provisions of section 144B, we may initially point out that the provisions of section 144B were enacted for the purpose of reducing the mounting arrears of appeals in tax cases. This is what has been stated by the Finance Minister while introducing the amendment by way of section 144B. When finally the amendment came into statute book, the relevant provisions of the section reads as follows : "144B. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjections raised by the assessee to the IAC. The IAC will then looking to the draft order as well as the objections and after going through the entire records will give such directions as he feels fit. The IAC will have to hear the assessee before any directions are given which are prejudicial to the assessee. In other words, before the IAC accepts the draft assessment order overruling the objections raised by the assessee, he will have to give an opportunity of hearing to the assessee. In this case the assessee having initially thought of filing objections took time which was granted by the ITO, but for reasons unknown (reasons being not on record) objections were not filed. The question, therefore, to be considered is whether in these circumstances the assessee can be precluded from filing an appeal or that the assessee's appeal before the first appellate authority is not maintainable. This question can be answered naturally by looking to the provisions of section 246 which gives the right of appeal along with the provisions of section 144B. The interaction of these two provisions will give us a clue to the controversy raised in this appeal. At this stage, it will be relevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected that where the additions made by the ITO are more than a lakh of rupees, the appeals would lie to the Commissioner (Appeals) and that is the reason why in this case the Commissioner (Appeals) heard the appeal. We have given these details only to make the matter clear, as some doubts arose in the course of hearing as to why and how the Commissioner (Appeals) heard the appeal. Be that as it may, we will have to come to the basis and real issue raised before us. 5. On a careful analysis of section 144B in conjunction with section 246, we have no doubt, in our mind, that appeal lies to the first appellate authority and consequently appeal to the Tribunal. It is well known that a right of appeal is a statutory right. Once that right is conferred, it cannot be whittled down or taken away unless by express provisions or by necessary implication. We neither find within the four corners of section 144B or elsewhere nor under section 246 that the right of appeal given to an assessee against an assessment order passed under section 143(3) is taken away or abrogated. By merely not filing objections to the draft assessment order, it cannot be said that the assessee is deemed to have acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that silence amounts to acceptance but for construing a fiscal law such an inference is totally unwarranted and unjustified. Non-filing of objections cannot also mean an acquiscence so as to treat the conduct of the assessee as a person not aggrieved. 6. Shri Joshi's contention based on the legislative history as regards the enactment of section 144B also does not throw any light on the question. The idea in enacting section 144B may be quite laudable and the purpose is definitely to reduce the arrears of appeals, if possible. When the assessments are to be made by big variations between the income returned and the proposed assessment, the Legislature thought fit that a higher authority would look into the matter and find out if really the variation would be justified or not. The higher authority is supposed to apply his mind to the problem with a matured thinking and experience and if he finds that the assessment suggested by the ITO cannot be supported, he may give direction to the ITO not to make such an assessment. The result may be that the assessee is saved of the trouble of going to the appellate authority against the assessment. This idea is definitely achieved to a large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances the Court ruled that an assessee cannot be said to be an aggrieved person. The position before us is completely different. There is no such positive acceptance or agreement, nor is there any agreement by necessary implication as discussed above. Similarly, in the decision of the Allahabad High Court in the case of Sterling Machine Tools v. CIT, there is a positive agreement and, therefore, the Court held that such a person who has agreed to such a particular matter is not an aggrieved person to file an appeal. 7. In view of the above discussion and the conclusion arrived at by us it is unnecessary to look to the definitions of "aggrieved person" given in the judicial dictionary or to refer to several decisions which are really not relevant for the purpose of deciding the issue on hand before us. We, accordingly, hold that the appeal before the Commissioner (Appeals) filed by the assessee was maintainable and the additional ground taken by the revenue has no substance. This leads us to the decision on merits. 8. So far as the merits of the case are concerned, the matter is very simple. However, we have to give a few facts necessary for deciding the grounds raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to pay him remuneration of Rs. 10,00,000. Paragraph 10 of the agreement, which is relevant for our purpose, may be extracted as under: "(10) For the services rendered by the said Shri Ramesh Sippy, the party of the second part hereto, the firm agreed to pay him a remuneration of Rs. 10 lakhs for the invaluable services rendered by the retired partner after his retirement in helping to salvage the multi-million rupees production of the firm and in helping to obtain for the film a certificate for unrestricted public exhibition of the film 'Sholey'." The remuneration was, however, agreed to be paid in five equal instalments at Rs. 2 lakhs per annum beginning from 31-12-1976. 9. The total cost of the film 'Sholey' amounted to Rs. 3,02,92,771. In arriving at the cost of the film the assessee included the amount of Rs. 10 lakhs which the assessee-firm agreed to pay to Shri Ramesh Sippy as per the agreement dated 15-8-1975. The ITO determined the cost of the film which is inclusive of the aforesaid sum of Rs. 10 lakhs. He then determined the cost of amortisation at 46 per cent based on the collections of the first year. Consequently he gave a deduction of Rs. 4,60,000 towards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the tremendous success after its release. 3. The amount of remuneration paid to Shri Ramesh Sippy has to be considered in the context of the total cost of the film which is not disputed by the ITO." Accordingly, be held that the sum of Rs. 10 lakhs paid to Ramesh Sippy was of the nature of remuneration given to him during the period when he was not a partner and as such cannot be treated as profit qua partner. Obviously the Commissioner (Appeals) had in mind that section 40(b) is not attracted. 11. In appeal the learned departmental representative, Shri Srinivasan, wanted us to restore the order of the ITO. Prefacing his arguments, he pointed out that the assessee having not filed objections, prevented the IAC to go into the various matters regarding the proposed addition and, therefore, even if the ITO's order is not fool-proof, the Commissioner (Appeals), in the circumstances should have directed a fresh assessment by taking all the facts into account and applying the correct provisions of law. He further pointed out that the agreement entered into by the partnership firm cannot be said to be for the purpose of paying remuneration after the former retired but was really mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e altogether 14 modifications and cuts suggested in a number of reels. Their main objection seems to be that the film was not suitable for unrestricted public exhibition unless the suggestions given by them are carried out. Thereafter the suggestions were mostly carried out and the assessee-firm wrote a letter on 29-7-1975 to the Chairman, Central Board of Film Censors. On 2-8-1975 again the partnership firm received a letter from the Board of Film Censors asking them to make further modifications and cuts. These suggestions were again carried out and it appears that it involved reshooting of the film in several scenes. The entire task was entrusted to Ramesh Sippy who is the main man in regard to the film production. There are two other partners left to continue the business. The partner Shri Vijay Sippy is mainly looking to the financial part, while Miss Suki is only a young lady. In the very nature of things, therefore, Shri Ramesh Sippy was the only person who had connections with the film and who directed the film earlier was entrusted with the job of clearing the matter with Censors. It was, therefore, stated by the assessee all through that Shri Ramesh Sippy looked to the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, whether section 40(b) in the facts and circumstances could be brought into play by the ITO. First of all, the agreement to pay for the services rendered, which has been found to be genuine, came into existence only after Shri Ramesh Sippy retired. Therefore, it is not possible to link up the payment made to Shri Ramesh Sippy as a partner. The second aspect of the matter is that the ITO himself did not compute the income of the first period in which Shri Ramesh Sippy was a partner by including the income arising from 'Sholey'. A little clarification may be needed here. The firm is admittedly having income from different sources. For the period during which Shri Ramesh Sippy remained as a partner, the income was computed and separately allocated. After Shri Ramesh Sippy's retirement, i.e., from 12-6-1975, the income was computed separately. In this the ITO has included the income from 'Sholey'. There the cost of the film included the sum of Rs. 10 lakhs and the amortisation was given by the ITO to the extent of Rs. 4,60,000. This shows that while computing the income of the second period in which Shri Ramesh Sippy was not a partner, the deduction towards amortisation was given. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstalments from the respective dates mentioned in clause 2 of the agreement, there was no liability incurred by the assessee. This argument is devoid of any merit, inasmuch as we are concerned, with the cost of the film and not whether the liability in respect of the payment to be made to Shri Ramesh Sippy is incurred. Undoubtedly the liability has been incurred by the assessee. The cost of the film included various items of expenses and obviously the payment to be made to Shri Ramesh Sippy for his services is also includible in the cost. It is well settled that in order to determine the cost of a particular asset all the expenses relating to the acquisition thereof are includible. It is more so, in the case of a film the cost of which has to be determined by including the cost incurred in connection with the release. There cannot be any doubt that the liability for the services rendered by Shri Ramesh Sippy in the facts and circumstances of this case is includible in the cost of the film. Once the cost is arrived at, the assessee would be entitled to the amortisation allowance according to the accepted principles. What we are, therefore, concerned with is to determine the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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