TaxTMI 
TaxTMI 
2013 (3) TMI 9
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....r. On 18.10.2000 a company, i.e. Remfry & Sagar Consultant Pvt. Ltd. was incorporated and one of its objects was that the goodwill of the firm Remfry & Sagar would vest in it in perpetuity. 3. On 01.06.2001, Dr. Sagar executed a gift deed by which the goodwill of the name "Remfry & Sagar" was transferred to the private limited company. For stamp duty purposes the gift was valued at Rs.45 crores. Since a limited company cannot practice the legal profession, on 05.06.2001 Dr. Sagar entered into partnership with four other partners for carrying on legal practice. On the same day i.e. 05.06.2001 an agreement (hereinafter referred to as "licence agreement") was entered into between the company and the firm constituted by Dr. Sagar and four others, which is known as Remfry & Sagar and which is the petitioner in all the writ petitions, under which a licence was granted to the petitioner for use of the goodwill and name of Remfry & Sagar subject to payment of licence fee @ 25% of the amount of the bills raised. The agreement would later appear to have been amended on 14.01.2002 but that is inconsequential for our purpose. 4. In the return of income filed by Remfry & Sagar, the petiti....
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....lowability of the deduction of Licence Fee payment to M/s Remfry & Sagar Consultants Pvt. Ltd. for the use of goodwill of "Remfry & Sagar" and to practice in this name examined vide order sheet entry during assessment. Neither did the assessee suo motu furnish information nor did the assessee suo motu furnish reasons as to why the said claim is allowable. So the issue was not examined at all in AY 2003-04, reasons as to why the said claim is allowable were neither asked for nor supplied. On the other hand, in AY 2007-08, matter has been deeply scrutinized and claim found wrong. Assessee has not disclosed all material facts correctly and fully during assessment for the AY 2003-04. Merely making a claim does not amount to disclosure of all material facts correctly and fully during assessment. Had assessee disclosed all material facts correctly, claim would not have been allowed as discovered in assessment proceedings for AY 2007-08. The facts and the issues for the AY 2003-04 are the same as AY 2007-08 and the decision is applicable. Hence there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment on the part of the ass....
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....ment was totally unwarranted and the assessee did not derive any benefit out of the same and that therefore the notices issued under Section 148 of the Act were valid. He accordingly directed the petitioner to respond to the hearing notices so that he could proceed with the reassessments. It is at that stage that the petitioner approached this Court by way of the present writ petitions. 9. The main contentions raised on behalf of the petitioner before us for the assessment years 2003-04 and 2004-05 can be summarised as under: - (a) There was full and true disclosure of all the primary facts at the time of the original assessment. The profit and loss account in which the licence fees were debited, the tax audit report along with Annexure-III thereto which showed the particulars relating to payments made to connected persons as specified under section 40A (2)(b), the month-wise summary of several items of expenses and income including licence fees for use of goodwill, the confirmation from the company for receipt of the secretarial support fees, infrastructure usage fees, interest on loan and licence fees for use of goodwill, the supporting vouchers for the licence fee a....
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....nce to show that the licence agreement was filed. Initially while addressing arguments before us in support of the writ petition, the only document on which reliance was placed on behalf of the petitioner in support of the above claim was the letter dated 1st November, 2007 ( page 178 of WP(C)No.8376/10), which is a letter written by the respondent under Section 133(6) of the Act to M/s Remfry & Sagar Consultants Pvt. Ltd. calling for information in relation to the petitioner‟s claim for deduction of the amounts paid to that company under the licence agreement. It is necessary to reproduce the entire letter: "F No.ACIT Cir.37(1)/2007-08/ Office of the Assistant Commissioner of Income Tax, Circle 37(1), New Delhi Dated : 1.11.2007 To, M/s Remfry & Sagar Consultants, Remfry House at the Millenium Plaza, Sector-27, Gurgaon - 122002. Sir, Subject :- Calling for information u/s 133(6) of the Income Tax Act, 1961 in the case of M/s Remfry & Sagar, PAN- AAEER6753P - A.Y.2005-06-reg. During the course of assessment proceedings in the case of assessee M/s Remfry & Sagar, it has been found that as per the agreement between M/s Remfry & Sagar Consultants Pvt. Ltd....
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....e written submissions that the petitioner has stated that it furnished a copy of the licence agreement to the AO on 10.10.2007 and the said agreement was considered by him before passing the original assessment order. Since no such averment was made in the affidavit or in the objections filed before the AO to the reasons recorded, and in the absence of any evidence adduced before us to show that the copy of the licence agreement was filed before the AO on 10.10.2007, we are unable to accept the claim as proved. It remains a mere claim. We, therefore, proceed on the basis that even for the assessment year 2005-06, there is no evidence to show that the petitioner filed a copy of the licence agreement in the course of the original assessment proceedings. 11. The argument for the assessment year 2006-07 is somewhat different. It is contended that in respect of this year the assessing officer was fully aware of the fact that the assessee had claimed a larger amount as licence fee and that the only reason why he did not issue a notice under section 143(2) was because in the preceding three assessment years the assessments had been completed originally under section 143(3), including t....
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....ssessment year 2007-08 in which the licence fee was disallowed. Reliance was also placed on paragraph 39 of the majority judgment in the case of CIT Vs. Usha International Ltd.(2012) 348 ITR 485. It was submitted that in the order sheet dated 18.10.2005 relating to the assessment proceedings for the assessment year 2003-04 the assessee was asked to furnish details relating to "licence fee and official fees-unvouched" and despite the specific request the petitioner did not file the licence agreement. Again our attention was drawn to the letter written by the assessing officer on 9th March, 2005 (page 177 of the writ petition) by which the petitioner was, inter alia, directed to furnish the nature of the licence fee expenses of Rs.98.60 lakhs. The learned standing counsel thus contended that despite being asked, the petitioner did not furnish the primary fact i.e. the licence agreement and the failure to do so justified the reassessment proceedings. 14. So far as the assessment year 2005-06 is concerned, where the reassessment proceedings were initiated within the period of four years from the end of the assessment year, the argument of the standing counsel was that the informatio....
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....r the only reason on which the assessment can be reopened, if more than four years have elapsed from the end of the relevant assessment year. This is the combined effect of section 147 and the first proviso thereto. The first proviso refers to the failure on the part of the assessee to make a return or "to disclose fully and truly all material facts necessary for his assessment, for that assessment year". Explanation 1 below the section is in the following terms: - Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. 16. It is in the light of the statutory language that we have to examine the reasons recorded under section 148(2) of the Act in the present case. A perusal of the reasons recorded shows that the respondent has clearly stated therein that the assessee has not disclosed all material facts correctly and fully and there was failure on its part to disclose fully and truly all material facts necessary for his assessment as per the proviso to sectio....
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....of the petitioner specifically to file the licence agreement (in the reasons recorded) is fatal to the validity of the reassessment proceedings. 17. We now proceed to a consideration of the question whether the licence agreement dated 05.06.2001 is a primary fact which ought to have been placed by the petitioner before the assessing officer in the course of the original assessment proceedings. In Calcutta Discount Co. Ltd. v. Income-tax Officer (1961) 41 ITR 191 a constitution Bench of the Supreme Court held that it was the duty of the assessee to furnish all the primary and material facts fully and truly before the assessing authority and failure to do so would invite action for reassessment. It was further held that the duty ends there and it is for the assessing authority to draw the appropriate inferences from those primary facts and it is not the duty of the assessee to advise him as to what inferences may be drawn, both of fact and law. In Kantamani Venkata Narayana and Sons Vs. First Additional Income-Tax Officer, (1967) 63 ITR 638, the Supreme Court held as under: - ".......... It is clearly implicit in the terms of sections 23 and 34 of the Income-tax Act that the as....
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....ation of the total income, and if the claim is based on the terms and conditions of a document or documents, it is the duty of the assessee to place before the assessing officer the document or documents; the document would constitute the primary fact. The word "primary" means "that which is first in order, rank or importance; anything from which something else arises or is derived" (P. Ramanatha Aiyar's The Major Lexicon, IVth Edition 2010). In the petitions before us, it is an admitted position that the petitioner did not furnish the licence agreement dated 05.06.2001 before the assessing officer in the course of the original assessment proceedings for any year. The claim for deduction of the licence fee payment undeniably was based on the terms and conditions of the licence agreement. Only an appraisal of the various clauses of the agreement would have enabled the assessing officer to arrive at a conclusion regarding the allowability of the payment as business expenditure. Since the primary document, that is, the primary fact was not furnished, there was in our opinion such failure on the part of the petitioner as would attract the provisions of section 147 of the Act; it is a c....
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.... 20. The profit and loss account, the tax audit report and the annexures thereto and the replies to the questionnaire issued by the assessing officer in the course of the original assessment proceedings do not contain anything with regard to the licence fee agreement. The annexure to the tax audit report only explains item No.18 of the report which requires particulars of payment made to the persons specified under Section 40A(2)(b) to be given. In the annexure III to the tax audit report what has been disclosed is that Remfry & Sagar Consultants Pvt. Ltd. was a company in which partners of the petitioner or their relatives were substantially interested and payments by way of licence fees, infrastructure usage fees, secretarial accounting and other support services were paid. This disclosure is only for the purpose of Section 40A(2)(b) which permits the assessing officer to disallow such payments to the extent they are found to be unreasonable having regard to the various factors spelt out in the Section. Furnishing of these particulars can in no way be considered as furnishing the primary facts in relation to the allwability of the payment of the licence fees which, as noted ear....