TaxTMI 
TaxTMI 
1992 (9) TMI 61
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....ent year 1964-65 ? " Shortly stated, the facts are that the assessee is a company which is a " non-resident ". The " previous year " is the financial year preceding the relevant assessment year. The assessee is a member of the Iscon Consortium. The consortium had taken contracts for construction work from M/s. Hindusthan Steel Ltd. Apart from the contracts given to the Consortium, the assessee, in its individual capacity, was given contracts by the Hindusthan Steel Ltd. in their 1.6 million " expansion " programme. In the appeals before the Tribunal, the only contracts which fell for consideration, whether given by the Hindusthan Steel or others, were those awarded to the assessee in its individual capacity. The accounts of the assessee are made up on completed contract basis and thus the income resulting from completed contracts alone was offered for assessment in each year. Most of the contracts undertaken by the assessee had a rupee portion and sterling portion. The method of computing the income in respect of completed contracts, as adopted by the Income-tax Officer in respect of the rupee portion, was to deduct from the rupee portion, the prime cost which gave the gross profi....
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....shall sell and the company shall purchase the goodwill of the said business of the vendor in India with the right to use the name of Simon-Carves as part of the name of the company and represent the company as carrying on such business in continuation of the vendor's business in India and in succession thereto and all trade marks and patent rights connected therewith. 2. Notwithstanding anything contained in clause 1 above the vendor shall be entitled to carry out and complete all pending contracts, engagements and orders in India in the name of the vendor and on its account and to retain all benefits in connection therewith subject however to the payment and discharge of all liabilities in connection therewith. 3. It is hereby declared to be the intention of the parties that all contracts to be performed in India in the future will be taken by in the name of and carried out and performed on account of the company and it is also agreed that if there are any contracts to be performed in India which may not suitably be taken up in the name of the company and which the parties consider to their mutual interests should be taken up in the name of the vendor, such contracts may with th....
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.... was assessed by the Income-tax Officer as capital gains for the assessment year 1965-66 and he had also considered, in making the assessment, a profit of Rs. 3,88,717 on the transfer of the other assets. The Additional Commissioner reviewed the assessment orders and he was of the view that they were prejudicial to the Revenue. He considered eight contracts particulars of which have been set out in paragraph 7 of the Tribunal's order. The Additional Commissioner mentioned that, in respect of these eight contracts, which were completed subsequently, there was a profit of Rs. 48,34,717 on contract receipts of Rs. 4,71,02,420. The entire profits, it was stated, was accounted for only by the Indian company and not by the assessee. It was stated in the order under section 263 that it was never the assessee's case that the contracts were not profitable and that was why they were given by the assessee to the Indian company on sub-contract without taking any profit. According to the interpretation placed by the Additional Commissioner on the terms of clause 2 of the agreement, the assessee was entitled to complete the eight contracts which, according to the Additional Commissioner, were p....
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....n for that matter the right to perform the contracts was a " capital asset " within the meaning of section 2(14) of the Income-tax Act, 1961, and there was a " transfer" of such assets within the meaning of section 2(47) and as no consideration was taken by the assessee, there was already avoidance of capital gains and the provisions of sections 52(1) and 52(2) applied and, therefore, the Additional Commissioner was justified in cancelling the order of assessment. The Tribunal examined the legal aspects and held that, in the abstract, the right to perform a contract may fall within the definition of " capital asset " and, in appropriate circumstances, the extinguishment of such right may fall to be regarded as a " transfer " . The Tribunal, however, made it clear that acceptance of the legal principle did not imply that there was " transfer " of any " capital asset " under the terms of the contract in the present case or any assumption that the provisions of section 52(1) or 52(2) applied. The Tribunal also proceeded to examine whether it could be said that the provisions of section 52(1) or 52(2) were applicable. The Tribunal held that there is nothing to suggest that the transf....
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.... with a view to facilitating speedy and efficient execution of the above contract. The letter also referred to the Indian company stationing sufficient experts for the work, and that the assessee in consideration for the work done would pay the Indian company the full contract price of the rupee portion. It was also clarified that regardless of the sub-contract, the assessee undertook the full responsibility for the execution of the entire contract work. The letter also set out details of incorporation, etc., of the Indian company, forwarded copies of its articles and memorandum of association, and further stated that the assessee was to hold 60 per cent. of the equity share capital of the Indian company. The Hindusthan Steel Ltd. replied, vide its letter of November 2, 1963, that they had no objection to the proposed sub-contract. The letter, thereafter, stated "However, notwithstanding the permission to sublet the contract, you will be held fully responsible for the proper execution of the entire contract in accordance with the terms and conditions agreed upon by yourselves and Hindusthan Steel Ltd. The performance by the sub-contractor shall be entirely at your risk and respons....
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....dusthan Steel Ltd. without retaining, at that stage, any portion thereof for themselves. It may also be mentioned that it is not as if any benefit eventually came to the assessee out of the revenue profits made by the Indian company. All the eight contracts were completed only subsequent to December 31, 1963. The Indian company was incorporated on December 11, 1963. As on December 31, 1963, the assessee did not hold any shares, but on December 31, 1964, the shareholding was 86.03 per cent. and on December 31, 1965, and December 31, 1966, was 78.31 per cent. In the latter two years, out of dividends declared by the Indian company in each year of Rs. 4,20,000, Rs. 3,28,888 in each year fell to the assessee's share. In our view, the assignment of the contract work to the Indian company did not constitute any transfer of the right under the contract work, but merely amounted to a sub-contract, the assessee, however, undertaking the liability for the performance of the contract with the Hindusthan Steel Ltd. Where the principal contractor appoints a sub-contractor to perform the contract work and continuing to bear the liability under the contract to the contractee, it cannot be said ....