TaxTMI 
TaxTMI 
2010 (3) TMI 894
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.... derived income by way of distributing films and advertising accessories and trailers. The return was filed declaring an income of Rs. 2,50,52,770 including long-term capital gains of Rs. 10,22,571. However, the assessment was completed at an income of Rs. 4,07,89,082 including capital gain after determining income from business Rs. 2,58,66,900 and adjustment under section 92CA(3) Rs. 1,27,65,461 vide order dated 22-3-2006 passed under section 143(3) of the Income-tax Act, 1961 ('the Act'). On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A) the revenue and the assessee both are in appeal before us. 4. Ground No. 1 in Revenue's appeal reads as under : "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to compute income as per books of account by applying section 145(1) of the Income-tax Act." 5. The brief facts of the above issue are that the assessee offered income on film rentals including rental of accessories and trailers as its profits of such business amounting to Rs. 2,40,30,200 as per computation of income filed along with return of income. H....
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....unts, rejected the books for no reason and estimated business income at 25 per cent of the rental income based on the return filed by the assessee for the assessment year 2002-03 where the income was estimated at 25 per cent of the gross film rental. He further submits that though the income of the assessee from assessment year 1987-88 onwards was less than 25 per cent of the gross film rental but it had filed returns on presumptive rate of 25 per cent to avoid litigation. However, the department did not follow the Board's letter (supra ), and assessed the income after making substantial additions by following net income basis . On appeal, the ld. CIT(A) decided the issue in favour of the assessee and held that the assessment of income at 25 per cent of the gross film rental was appropriate. On further appeal by the department, the Tribunal dismissed the departmental appeals by upholding the order of the ld. CIT(A) for the assessment years 1986-87, 1988-89, 1990-91, 1991-92, 1992-93 and 1994-95. He further submits that recently the Hon'ble Jurisdictional High Court has dismissed the revenue's appeals on the ground of delay. 8. On the estimate of income he submits that over the p....
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....e assessee without making any addition. He therefore, submits that the order passed by the ld. CIT(A) in this regard be upheld. 10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is not in dispute that the assessee has shown its income for assessment year 2002-03 by applying 25 per cent of gross film rental as stated by the Board in its letter dated 3-3-1987 (supra ). However, in the year under consideration, as observed by the Assessing Officer, the assessee has offered income on film rental including rental of accessories and trailers as its profits of such business amounting to Rs. 2,40,30,200 in its computation of income filed along with return of income. The claim of the assessee is that the said profit has been shown as per books of account regularly maintained by it and the Assessing Officer without examining the books of account rejected the same and applied net rate of profit at 25 per cent of gross film rental as per Boards letter (supra). We further find that the ld. CIT(A) without considering the decision of the Special Bench of the Tribunal in Wa....
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....), has also considered the said order of the Tribunal in the case of Columbia Pictures Industries Inc. (supra) and after considering the same has observed at placitum 39 at page 108 of 282 ITR(AT) as under : "Therefore, we find that there is a real substance in the argument of the assessee that even after March 31, 1987, the Revenue has followed the "principles of settlement" for determining the income of member companies of MPA, in a conscious and consistent manner. The Revenue has relied on the decision of the Income-tax Appellate Tribunal, Mumbai Bench "I", in the case of Columbia Picture Industries Inc. dated October 23, 2003 to support its arguments. As pointed out by learned counsel, one of the reasons stated by the Tribunal in taking a different view from the earlier Tribunal decisions and deciding the matter in favour of the Revenue was that the Tribunal while passing the earlier decisions has not taken into consideration the subsequent clarifications issued by the Central Board of Direct Taxes through letters dated January 6, 1992 and February 19, 1998. But, as rightly pointed out by learned counsel, the above clarification issued by the Central Board of Direct Taxes ha....
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....87 should not be taken as light-hearted. It should be accepted as a practical way of collecting taxes from non-resident companies engaged in film distribution in India. In the case of domestic taxation, usually larger principles of welfare economics are preached as the underlying priorities of taxation policy. This is what the canons of taxation propounded in the study of public finance always stated. But, in the case of taxation of income of transnational companies operating in India, the principles of welfare economics are to be replaced by priorities of hard money economics. The collection of revenue in the form of money is the crucial motto in any scheme of taxation of transnational companies. Therefore, what is to be considered is a practical method to collect reasonable amount of tax on the income earned by such non-resident companies operating in India with least collection cost and less litigation. This is the spirit of the agreement entered into by the Central Board of Direct Taxes on March 3, 1987. We do not find that the Revenue has invented any better method to replace the agreement/settlement entered into by the Central Board of Direct Taxes on March 3, 1987. In ....
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..... On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the TPO was not justified in directing the adjustment of Rs. 1,27,65,461." 15. The brief facts of the above issue are that the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act who vide order under section 92CA(3) dated 7-3-2006 has directed that the amount of Rs. 1,27,65,461 being the difference is required to be added to the income of the assessee and accordingly the Assessing Officer added the same to the income of the assessee. On appeal, the ld. CIT(A) while observing that there can be no comparable uncontrolled transaction providing a fair basis of income generated from distribution of different films held that the TPO was not justified in directing the adjustment of Rs. 1,27,65,461 and accordingly, deleted the same. 16. At the time of hearing the ld. DR supports the order of the Assessing Officer. 17. On the other hand the ld. Counsel for the assessee while relying on the order of the ld. CIT(A) in this regard further submits that the Assessing Officer has wrongly made the addition without providing any oppor....
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....rongly made the addition without providing him opportunity of being heard as per section 92C(3) of the Income-tax Act, 1961. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that the provisions of section 92B and Chapter-X are applicable to the appellant." 20. After hearing the rival parties and perusing the material available on record and keeping in view of our finding recorded in Ground No. 2 of Revenue's appeal in para -18 of this order we are of the view that in the interest of justice the matter should go back to the file of Assessing Officer and accordingly, we set aside the orders passed by the revenue authorities on this account and restore the issue to file of the Assessing Officer who shall decide the same afresh and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are therefore partly allowed for statistical purposes. 21. Ground No. 3 reads as under : "3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in not reducing the amount of Rs. 6,97,448 included in the computation of income by the appellant because the said amo....