9911796707
TMI Blog1982 (5) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... an a lac of rupee, the assessee by its letter dt. 3rd April, 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 u/s 144B(2) r/w s. 143(3). The assessee filed an appeal before the CIT (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 ld. Deptl Rep. filed an additional ground stating that the assessees appeal before the CIT (A) 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 hearing the matter found conflict between the decisions of different benches of the Tribunal on the issue arising out of the additional ground. That is why the President was pleased to constitute of a special bench for resolving the conflict. 3. The revenue was represented by Shri R.J. Joshi Standing Counsel for the department. At the outset he pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The ld. 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 s. 144B, we may initially point out that the provisions of s. 144B were enacted for the purpose of 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 s. 144B. When finally the amendment came into statute book the relevant provisions of the section read as follows: "144B (1) Nothwithstanding 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 returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (5), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee. (2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, 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 to the ITO, but for reasons unknown (reasons not being 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 s. 246 which gives the right of appeal along with the provisions of s. 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 refer to the provisions of s. 246 (which are necessary for our purpose). "246. (1) (Subject to the provisions of sub-section (2)). any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order: (a) xx xx xx (b) xx xx xx (c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal lies to the first appellate authority and consequently the 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 be express provisions or by necessary implication. We neither find within the four corners of s. 144B or elsewhere or u/s 246 that the right of appeal given to an assessee against an assessment order passed u/s 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 accepted the assessment. Here we have to deal with the particular aspect on which Shri Joshi emphasised, viz the construction of subs-s. (3) of s.144B. It contains two parts. The first one deals with a case where no objections are received and the second deals with a case where the assessee intimates the acceptance of a variation proposed by the ITO. In either of these cases, the ITO shall complete the assessment on the basis of a draft order. In such a situation the question of sending the draft order further to the IAC does not naturally arise. If the case falls within the second part of sub.s(3) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations 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 direction to the ITO not to make such an give assessment. The result may be that the assessee. 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 extent by the provision of s. 144B. But we fail to see how the idea behind the provision of s. 144B can be taken as a bar to the filing of an appeal against an assessment made by the ITO even if the assessee not filed any objections. Basically the assessment made by the ITO is an assessment u/s 143(23) and if an assessee is not satisfied with such an assessment he has a right to prefer an appeal as envisaged u/s 246 (C). As rightly pointed out by the ld. counsel for the assessee that s. 144B is intended to be an extra measure of precautio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is unnecessary to look to the definition of aggrieved person given in the judicial dictionary or to refer to several decision which are really not relevant for the purpose of deciding the issue on hand before us. We accordingly hold that the appeal before the CIT(A) 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 the revenue in this appeal. By a deed of partnership dt. 3rd Aug., 1965, three partner viz. Shri Ramesh G. Sippy, Shri Vijay G. Sippy and Miss Ruki P. Sippy entered into a partnership agreement under a name and style of M/s Sippy Films for the purpose of carrying on business of production, distribution and exhibition of films. Actually there was another partnership agreement under the same name and style as per partnership deed dt. 18th March, 1965 with another partner Shri Ajit Gopaldas Sippy as a partner but that partnership was dissolved on account of the retirement of Ajit Gopaldas Sippy w.e.f. 31st July, 1965. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per annum beginning from 31st December, 1976. 9. The total cost of the film 'Sholley' amounted to Rs. 3,02,92,771. In arriving at the cost of the firm the assessee included the amount of the firm the assessee included the amount of Rs. 10 lakhs which the assessee firm agreed to [pay to Shri Ramesh Sippy as per the agreement dt. 15th Aug., 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% based on the collections of the first year. Consequently he gave a deduction of Rs. 4,60,000 towards the amortisation while determining the income of the film Sholley. At the same time the ITO added back a sum of Rs. 4,60,000 in computing the income of the firm by invoking the provision of s. 40(B) of the IT Act. To put the matter in the words of the ITO it is better to extract what he stated in his order: "The payment has been shown after Shri Ramesh retired from the firm Shri Ramesh directed the firm right form its beginning to its completion. The huge amount paid to him could not be merely for making modifications in the firm. The remuneration is obviously in the firm for complete direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the IAC to go into the various maters regarding the proposed addition and, therefore, even if the ITO's order if not fool proof, the CIT(A) 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 meant as remuneration for his services as director of the film while he was a partner. The above arguments have been controverted by Mrs. Shobna Jagtiani, for the assessee, and she pointed out that payment of Rs. 10 lakhs to Shri Ramesh Sippy by 5 yearly instalments was quite justified and reasonable having regard to the services rendered by him to the partnership firm which was facing a serious trouble with the Censor. According to the ld. counsel, it was because of Shri Ramesh Sippy, efforts that the film could be cleared for universal exhibition otherwise the colossal cost in producing the film would have gone to drain if the film had not received a certificate or got a restricted certificate. It was also stated by her that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her partner 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 the things, therefore, Shri Ramesh Sippy was the only person who had connection with the firm 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 matter regarding the censorship reshooting and some of the scenes and made several adjustments cuts and modifications suggested by the Board of Film Censor so that the film could be certified for universal public exhibition. There can be no manner of doubt that the firm was really in a very chaotic situation when the Board of Film Censors objected to the certificate. A huge amount was invested. If it was not given public exhibition certificate there would have been loss of collections. The firm, therefore, was anxious to get the universal exhibition certificate for the film and consequently heavily relied on the Shri Ramesh Sippy. 13. Secondly, when the cost of the film was more than Rs. 3 crores payment of Rs. 10 lakhs to Shri Rames ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After Shri Ramesh Sippy's retirement, i.e., from 12th June, 1975, the income was computed separately. In this the ITO has included the income form 'Sholley'. 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. We, therefore, fail to see how s. 40(B) can at all be applied in this situation. 16. There was some argument at the bar as to whether any amount can be disallowed when the amount of Rs. 10 lakhs paid as remuneration was only taken towards the cost of the film and there was no deduction towards the remuneration as normally contemplated. But this argument need not detain us longer, since ultimately deduction by way of amortisation was involved and it is only in respect of that amount that the ITO made an attempt to bring it u/s 40(b). But we have already shown that the action of the ITO is untenable. 17. The Revenue has also taken up a ground which does not really arise out of the order of the CIT(A) and that ground reads as follows: "No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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