2018 (4) TMI 1482 - HC - Income Tax

Court admonishes Revenue's Counsel for inaccurate info, stresses need for accuracy. Orders explanation, training programs for Advocates.

The Pr. Commissioner of Income Tax Central-I Versus M/s. Grasim Industries Ltd.,

The Pr. Commissioner of Income Tax Central-I Versus M/s. Grasim Industries Ltd., - TMI Issues Involved:1. Classification of technical knowhow expenditure as revenue or capital expenditure.2. Taxability of profits from US and UK branches in India.3. Taxability of sales tax exemption benefits availed by the assessee.Issue-wise Detailed Analysis:1. Classification of Technical Knowhow Expenditure:The primary issue was whether the technical knowhow expenditure (technical assistance fees) should be classified as revenue expenditure or capital expenditure. The Tribunal had held that the technical knowhow expenditure is revenue expenditure. The Revenue challenged this, arguing that under the amended provisions of Section 32 of the Income Tax Act, technical knowhow is considered an intangible asset, and the fee for obtaining it should be treated as capital expenditure. The Tribunal’s decision to classify it as revenue expenditure was under scrutiny.2. Taxability of Profits from US and UK Branches:The second issue concerned whether the profits earned by the assessee’s branches in the US and UK should be taxable in India. The Tribunal had ruled that these profits are not taxable in India and should be excluded from the taxable profit of the assessee. The Revenue contested this decision, seeking to include the foreign branch profits in the taxable income in India.3. Taxability of Sales Tax Exemption Benefits:The third issue involved the taxability of sales tax exemption benefits amounting to Rs. 58 crores availed by the assessee. The Tribunal had restored this issue to the file of the Assessing Officer for fresh consideration. The Revenue had not accepted this decision and argued against the Tribunal’s order. During the hearing, it was revealed that the Assessing Officer had already passed an order on 29th July 2015, giving effect to the Tribunal’s order dated 22nd October 2014. This contradicted the initial statement made by the Revenue’s Counsel, leading to confusion and unnecessary waste of judicial time.Court’s Observations and Directions:The Court expressed its displeasure over the incorrect instructions given to the Revenue’s Counsel, which led to a waste of time. It emphasized the need for fairness and accuracy in presenting facts before the Court. The Court directed the Assessing Officer to file an affidavit explaining the circumstances that led to the incorrect information being provided. The Court also highlighted the importance of proper briefing and instruction by the Revenue officers to their Counsel.The Court noted the recurring issue of Revenue’s Counsel arguing matters without proper instructions or knowledge of the facts, leading to unnecessary arguments and wastage of judicial time. It emphasized that Advocates should act responsibly and not argue for the sake of arguing, especially when the issue is already settled or when they lack proper instructions.The Court suggested that the Central Board of Direct Taxes (CBDT) should consider holding training programs for domain-expert Advocates to educate them on the ethics, obligations, and standards expected of Advocates. It also recommended that the CBDT lay down a standard procedure for the manner in which Departmental Officers assist the Revenue’s Counsel during hearings.The Court directed the learned Additional Solicitor General (ASG) and the Registry to forward a copy of the order to the Chairman of the CBDT, hoping that appropriate steps would be taken to ensure proper representation by Advocates on behalf of the Revenue.In conclusion, the Court adjourned the hearing to 26th February 2018, to enable the filing of the affidavit by the Assessing Officer and directed the Revenue’s Counsel to serve a copy of the order to the jurisdictional Chief Commissioner of Income Tax and other Chief Commissioners within the Court’s jurisdiction.