TaxTMI 
TaxTMI 
2017 (2) TMI 1484
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....e, on the ground that the assessment was completed without proper enquiries on such issues. 1.2 That the CIT erred on facts and in law in exercising revisionary powers under section 263 of the Act without appreciating that the twin conditions in that section, viz, assessment order being (i) erroneous as well as (ii) prejudicial to the interest of Revenue, were not satisfied, in respect of each issue. 1.3 That the CIT erred on facts and in law in exceeding revisionary jurisdiction under section 263 by substituting his opinion with that of the assessing officer, formed after detailed examination / inquiries and proper application of mind at the time of passing assessment order under section 143(3) of the Act, which is not permissible in law. 1.4 That the CIT erred on facts and in law in exceeding revisionary jurisdiction under section 263 of the Act with respect to issues that are (i) debatable and, (ii) a possible view was formed by the assessing officer in respect of the same. 2 That the CTT erred on facts and in law in observing that total expenses on account of royalty and technical know-how fees paid to Honda Motor Co., Japan, are not revenue in nature and restoring the ....
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....enue expenses, claimed under section 35 of the Act, aggregating to Rs. 2,52,56,9447- on the ground that same are not allowable as deduction, without offering any reasons for such observation. 5.1 That the CIT erred on facts and in law in directing the assessing officer to re-examine whether computers, on which additional depreciation was claimed under section 32 of the Act, was covered under the head 'plant and machinery' or 'office appliances'." 3. Thought he assessee has raised in all five grounds however, they are raising an issue that the ld CIT erred in assuming jurisdiction u/s 263 of the Act with respect to five issues raised therein. 4. The brief facts of the case is that the assessee is a company engaged in manufacture and sale of motorcycle and spare filed its return of income on 28.10.2004 declaring income of Rs. 9800849030/-. Subsequently, the assessment u/s 143(3) of the Act was passed on 28.12.2006 at a total income of Rs. 10192782174/-. On examination of the records of the assessee the ld CIT issued notice u/s 263 of the Act holding as under:- 1. payment on account of royalty and technical guidance fee have been debited to P&L A/c. These payment....
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....07-08 by ITAT. With respect to the double disallowance of depreciation, he submitted that the AO himself has allowed this relief to the assessee vide order dated 26.10.2009 passed u/s 143(3) read with Section 263 of the Act. With respect to additional depreciation on computers he submitted that the query was raised vide Sl. No. 9 of the query letter by AO to whom reply was supplied on 01.12.2006 and identical issue has been decided by ld DRP in AY 2006-07 in favour of the assessee. Therefore, his main contention was that issue has been examined during the course of assessment proceedings and thereafter, the ld Assessing Officer has decided the issue. Therefore, in all the issues there is no error in order of the ld Assessing Officer and it is also not prejudicial to the interest of the revenue. He further stated that in all the cases the ld Assessing Officer has made detailed enquiry and therefore, it cannot be said that there is no application of mind by making an enquiry or it is also the case of that the issues have not at all examined by the Assessing Officer. He therefore submitted that the ld CIT has erred in assuming the jurisdiction u/s 263 of the Act. 6. Ld Departmental R....
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....us paragraphs of the order of ld CIT to defend that order. 7. The ld AR in rejoinder submitted as under:- i. In the subsequent years the issue has been decided in favour of the assessee by the various stages of appellate authorities therefore it cannot be said that the treatment given by the Assessing Officer to various issues is erroneous. He relied on the decision of the Hon'ble Supreme Court in case of CIT Vs. Max India 295 ITR 282. He further referred to page No. 129 of the decision of the Hon'ble Punjab and Haryana High Court in case of CIT Vs. Max India wherein it was argued by the revenue that on the basis of subsequent decision of the tribunal it could not be said that the view taken by the Assessing Officer was a possible view. ii. He further referred to the decision of Hon'ble Bombay High Court in CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bombay) to contend that when the AO has made disallowance on the estimate basis the ld CIT does not have power to enhance the estimate so made by the Assessing Officer. iii. With respect to the export commission he submitted that there is no error in the order of AO and stated that when the income of the recipient is not chargea....
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.... item No. 7 asking details of royalty, technical know-how, technical guidance fees, initial fees for new model paid to Honda Motor Co. LTD with the copy of agreement and related computation. It was further asked to explain how these are accounted for while determining the income and if these are claimed as revenue expenses why these are to be allowed. In response to this the assessee submitted letter dated 23.11.2006 wherein, vide Sl No. 2 the assessee has replied to this query as under:- 2. Point No. 7 and 10: Details of Royalty, Technical guidance fees and Know how fees for new models paid to Honda Motor Company Ltd, is attached at Annexure II. All these amounts have been claimed as revenue expenditure u/s 37(1) of the Income-tax Act, 1961. Regarding allowability of these expenses as revenue, ii is submitted as under; Technical Guidance Fee is being paid @ us $ 650 per diem in respect of services provided by technicians deputed by Honda from time to time under Amendment No. 1 to Memorandum for Exchange of Technicians dated 01.04.1099 (Cope enclosed at Annexure-III). Since expenditure on technical guidance fee is revenue in nature, without any enduring benefit to the assessee ....
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....o use exploit the know-how. The expenditure on model fee and royalty, it is respectfully submitted, did not result in acquisition of any capital asset or a benefit of enduring nature. The same would be clear on perusal of the rights obtained by the assessee under the aforesaid agreement. Your honour's kind attention is invited to the following clauses of the agreement in support of the aforesaid : Article 2 provides for the grant of an indivisible, non transferable and exclusive right and license by Honda to the assessee to manufacture, assemble, sell and distribute the products and the pails within,-the territory under the Intellectual Property Rights and by using the Technical information provided by Honda. Article 20 provides that the assessee shall, in accordance with the specification and standards set by Honda, keep proper control of the quality of the Products and the Parts and maintain the high standard of quality thereof. Article 17 provides that the know-bow, technical information and any other non-public technical or business information of Honda shall remain the sole exclusive property of Hondai and shall be held in trust and confidence wit....
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....reement as indicated in the preceding paras, it would be appreciated that the model fee and royalty payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not acquired any capital asset resulting in an enduring benefit so as to consider any part of the said expenditure to be as capita! expenditure. It will be appreciated that in the case of acquisition of the technical, know-how, etc., the acquirer is free to use the rights acquired in the manner he likes and has the right to dispose of such rights. There are no restrictions or obligations on the acquirer as to secrecy, disposal, inspection of facilities, returning the technical know how. etc. It is reiterated, at the cost of repetition, that the assessee did not have absolute ownership of the know-how / information and merely had a licence to use such technical information regarding the -manufacturing process and. therefore, there was no acquisition of asset and no enduring benefit in-capital field has accrued lo the assessee in order to treat the aforesaid expenditure as capital expenditure. On the facts as aforesaid, the Courts including the Supr....
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....trade marks and special processes of the collaborator to be revenue expenditure. The Supreme Court reiterated the same view in the case of Alembic Chemical Works Co. Ltd. v. CIT: 177 ITR 377. The Court in that case observed that the limitation placed in the agreement on the rights of the appellant in dealing with the know-how and the condition as to the non-partibility, confidentiality and secrecy of the know-how pertained more to (he use of the know-how than to its exclusive acquisition. The Court further observed that "it would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical know how at any particular sit tge in (his fast changing area of medical science. The state of the art in some of these areas of high priority research is constantly updated so that the know how could not be said to bear the element of the requisite degree of durability and non-ephemerality to share the requirements and qualifications of an enduring capita/ asset. The rapid strides in science and technology in the fief d should make us a little slow and circumspect in too readily pigeon-holdi....
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....royalty on net .vales effected by the exploitation of a technical know how patent for which a license wax granted for 14 years on a non- exclusive basis without the right of granting any sub licence. It wax held that the royalty payment wax deductible revenue expenditure as it was linked with turnover. In (he cave of CIT w. Gujarat Carbon ltd 1254 ITR 294} before the Gujarat High Court, royalty paid by the assessee to the collaborator wax based on sales, in return for service rendered by collaborator, and on factory price for supply of information of clay today development in range' of products. Tin- same was held allowable revenue expenditure. The Madras High Court in the of S.R. P Tools ltd. v. CIT; 237 ITR 684, after analyzing the terms of the agreement between the assessee find the foreign collaboration held that the technical know-how fee paid was deductible ax revenue expenditure. The court observed that the assessee had an existing business and from the mere fact that certain new product were sought to be manufactures, it could not be concluded that it has set up a new plant with a new technology and further the cumulative effect of the various terms of the agreement....
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....ined right to use the technical know-how for manufacturing of Radial Tyres, which was meant for improvisation in the process and technology far manufacture of tyres. It was on part of the existing line of business. The Agreement provided the conditions as to non transferability to others without the permission of the foreign company. it also contained clauses' relating to confidentiality and secrecy of the know-how, it contained prohibition for user of the know-how upon termination of the Agreement. It only provided a licence to the assessee to me such technical know-how for a limited period as provided in the Agreement. The reading of the Agreement at a whole in the light of the. aforesaid judgments of the Hon'ble Apex Court, Hon'ble. Jurisdictional High Court and other judgments referred above would make it crystal clear that the expenditure incurred by the assessee by way of lump xi/m consideration payable for obtaining technical know-how etc, for manufacture of Radial Tyres is clearly allowable as Revenue expenditure". The Ahmedabad Bench of Tribunal in the case of Indian Petrochemicals Corporation Ltd. vs. DCIT: 81 ITD 263 held the lump sum payment made by the as....
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....yalty 2.1 During the relevant year, the assessee company M/s Hero Honda Motors Ltd. ("HHML'3 had paid Rs. 896439331/- as royalty and Rs. S934922/- as technical guidance fee totaling Rs. 900374253/- to its Joint Venture partner M/s. Honda Motors Co. Ltd., Japan ("Honda"). An amount of Rs. 220878278/- was also paid as Model Fees in pursuance to the License and Technical Assistance Agreement. The assessee was asked to explain why part of the Royalty (and Technical fees) paid to M/s Honda Motors Co., Japan should not be disallowed in view of the decision of the Apex Court in the case of M/s Southern Switch Gears Ltd. Vs. CTT 232 ITR 359 as in the past. The Supreme Court had affirmed the decision of the Madras High Court in the said case (" .,SL"), wherein part of the royalty and technical know paid to its foreign collaborator , as per Collaboration Agreement, to the extend of 25% was treated as Capital Expenditure. 2.2 At this juncture, it may be mentioned that the Hero Group entered in to a License and Technical Collaboration Agreement on 24.01.1984 with the world's largest two wheeler manufacturer M/s Honda of Japan to set up M/s Hero Honda Motors Ltd (HHML). This agreeme....
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....developed project has also been transferred to licensee. 6. Over and above the transfer of the right of Intellectual Property right and Patent, the licensor has also agreed to set up manufacturing facilities for the licensee. 7. Other rights, exclusively handed over to the licensee inter alia are (a) know-how and technical information and any other non-pul-lic technical or business information being the sole and exclusive property i licensor to be held hi trust and confidence by licensee (b) use of trademark (c) the know-how is not limited to drawings, specifications, process manu etc. 8. The agreement to manufacture and sell, within the territory of India and assigned countries of export, is exclusive, which has to be enjoyed by licensee. 9. Consideration in the form of model fee and royalty is paid to licensor by the licensee. 10. The License and Technical Assistance Agreement is renewable, the brutial term being for ten years, since extended to another ten years, as on date. 2.4 From the above discussion, it is crystal clear that a capital asset in terms of Intellectual Property Rights and patents have been transferred in whole by the licensor to the assessee c....
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....thereof for the manufacture of products as in the case of SSL. The entire apparatus set up for manufacture of 'models' has been provided by Honda exclusively to the assessee, HHML. 2) On expiring of the former agreement dt. 24/01/84 (effective dt 21/06/1984), it was mutually agreed to enter the agreement for an additional period vide renewal dt. 02/06/95, effective from 21/06/94. Thus, the assessee was entitled to continue to use the know-how from inception to date. Agreements may be for a particular time period but if the same clauses are again & again renewed then, as in this case already for 20 odd years, it tantamount to "virtual ownership". The expression advantage of an enduring nature was evolved to emphasis die element of a sufficient degree of durability appropriate to the context. The time over which the things 'endures' is a matter of degree. Thus assessee, as in case of SSL, used and continues to use the know-how for a reasonable period of time as long as die 'agreements' are renewed again & again. 3) The Intellectual Properly Right/patent has been given for use by assessee within the territory specified/ assigned countries of exports. As an ....
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....ssessee a benefit which is of enduring nature and thereby constituting a capital asset. Following the same judgment, 25% of total royalty and technical guidance fee totaling Rs. 900374253/- which come to Rs. 225093565/- are treated as being spent towards acquisition of capital asset and therefore, is disallowed and added to the 'declared income of the assessee. Since the assessee has filed incorrect particulars of its income, penalty proceedings under section 271(l)(c) have been/initiated separately." c) The ld Assessing Officer has held that specifically in para No. 2.8 that the royalty paid by the assessee may be treated partly towards capital and partly towards revenue and therefore, relying on the decision of the Hon'ble Supreme Court in case of Southern Switchgear Ltd reported in 232 ITR 359 and the decision of the Hon'ble Madras High Court in case of that assessee reported in 148 ITR 272 held that 25% of such royalty expenses constitutes capital expenditure as it gives rise to the assessee a benefit which is of enduring nature and thereby constituting a capital asset. He, therefore, disallowed 25% of total royalty and technical guidance fees. d) The ld CIT has hel....
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....vant clauses of the "licence and technical assistance agreement" dated June 2, 1995, it would be punctilious to elucidate the difference between capital and revenue expenditure with reference to acquisition of technical information and know-how. A frequent and primary test adopted to differentiate between capital and revenue expenditure is the enduring nature test. When an assessee incurs expenditure which gives enduring benefit in the capital field, as distinct from expenditure of concurrent and reoccurring nature in revenue field, it is treated and regarded as capital expenditure. Albeit, the said test is applied on the basis of commercial principles and not as a straitjacket formula. Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) exemplified that even if the expenditure is incurred for obtaining an advantage of enduring benefit, the said test would break down when the nature of advantage considered in a commercial sense merely facilitates the assessee's trading operations or enables the management to conduct the assessee's business more efficiently or more profitability, while leaving the fixed capital untouched. Such expenditure would be on revenue account though the....
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....nts, trade marks, etc. As per the agreement, proprietary information was not to be divulged to third parties without consent. The rights granted enabled access to the technical knowledge and experience with right to use patents and trade marks for a limited period. The Swiss company did not part with any asset of its business, nor did the Indian assessee acquire any asset or advantage of enduring nature. The right empowered the Indian assessee to draw for the purpose of carrying on its business as a manufacturer and rely upon the technical knowledge of the Swiss company. There was no attempt to part with the technical knowledge absolutely in favour of the Indian assessee. It was not a case of transfer of intellectual rights once for all. Thus, the expenditure incurred was revenue in nature. 7. The aforesaid legal position finds resonance in subsequent decisions of the Supreme Court in CIT v. British India Corporation Ltd. [1987] 165 ITR 51 (SC), CIT v. Indian Oxygen Ltd. [1996] 218 ITR 337 (SC) and CIT v. Wavin (India) Ltd. [1999] 236 ITR 314 (SC). These were not cases of outright sale of technical information and know-how and what was granted was non-exclusive or non-transferabl....
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....off in three years. The Revenue contested the said claim on the ground that the expenditure was of capital nature. The High Court observed that the test to be applied was whether there was absolute sale of know-how or the payment was for mere right to use. On elucidation of the relevant clauses of the agreement, the High Court observed that the use of the words like "sold", "absolute property" and "deemed to be the property of" was made in the agreement but on careful and closer scrutiny and reading the agreement as a whole, it emerged that the agreement was for a period of 10 years but it could be terminated "forthwith". The agreement was limited to India. Though the data, drawings, documents and dyes, etc., were to be treated as absolute property of the Indian assessee, yet the copyright continued and remained vested with the foreign party, meaning thereby that it was a case of grant of licence for use. The Indian assessee was to observe complete confidentiality with regard to the know-how and could not assign the agreement, without the written consent. The aforesaid clauses, manifested that the right was only a limited licence for use and not a case of absolute transfer of prope....
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....he cumulative effect on a construction of various terms and conditions of the agreement must be considered. Similar reasoning can be found in Shriram Pistons and Rings Ltd. v. CIT [2008] 307 ITR 363 (Delhi) ; [2008] 171 Taxman 81 (Delhi) which made specific reference to the fact that when the intellectual property rights remain with the foreign party, it indicates that what was granted was a mere licence, as the assessee was obliged to observe complete confidentiality as to know-how and could not have disclosed information or assigned the agreement without prior consent. In this case, there was no provision for returning the drawings or documents. The said factum, it was observed would not be relevant in the rapidly evolving world of science and technology. The decision in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 (SC) was distinguished, as in the said case the issue was whether the drawings and designs could be treated as "books" or "plant" under section 43(3) of the Act and, hence, depreciable. Thus, Scientific Engg. House (P.) Ltd. (supra) dealt with the issue, whether depreciation should be allowed on intangible property like know-how, etc. The Supreme Court....
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....bay High Court in CIT v. Tata Engineering and Locomotive Co. P. Ltd. [1980] 123 ITR 538 (Bom) where the payment was made to the foreign collaborator in respect of design and technical information required for manufacture of automotive products. The reasoning adopted by a Division Bench of the Bombay High Court was to the effect that technical know-how made avail able under an agreement did not stand on the same footing as protected rights of a registered patent holder, as mere right to use in limited sense was granted. It was not material whether the assessee could use the know- how even after the end of the agreement on the ground that this aspect was wholly immaterial. (we express no opinion on other grounds/reason ing recorded in the said decision.) Recently the Delhi High Court in I. T. A. No. 1450 of 2010 titled CIT v. Modi Revlon Pvt. Ltd., decided on August 29, 2012, observed that when royalty was paid for a limited purpose, i.e., for use of know-how, it would be revenue in nature as the entire benefit of know-how was meant for manufacture of products. It was not a matter where the assessee had chosen to undertake the manufacture through a contractor. In the said case, the....
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....pital and partly revenue in nature. The aforesaid decision was upheld by the Supreme Court by a short order observing that they were not persuaded to hold that the view of the High Court was erroneous, vide Southern Switch Gear Ltd. v. CIT [1998] 232 ITR 359 (SC). The decision in Southern Switchgear Ltd. (supra) was considered by the Delhi High Court in CIT v. Sharda Motor Industrial Ltd. [2009] 319 ITR 109 (Delhi) and was distinguished on facts. What is placed before us is the "licence and technical assistance agreement" dated June 2, 1995, for the territory of India. The term "intellectual property right" stood defined to mean those patents, utility models, design patents and other intellectual property rights relating directly to the products or the licensed parts thereof or to manufacturing of the products and their licensed parts but excluded trade marks, patents, utility models, design patents and intellectual property rights relating to the manufacturing facilities and the manufacture thereof. The term "know-how" was defined as any or all secret, technical information except for intellectual property rights, whether in writing or not, including but not limited to drawings,....
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....ars from the effective date of June 21, 1994. The agreement could be terminated by 60 days notice to the defaulting party, if it failed to cure the same within the notice period. The agreement could also be terminated forthwith by a party, if the other party had transferred the whole or an important part of business ; went into liquidation, bankruptcy or insolvency ; merged with, or was directly or indirectly transferred to third party ; or on significant change in share holding ownership. Upon expiration of the term of the agreement, i.e., after 10 years, or termination due to default of performance of obligations, the respond ent-assessee could continue to manufacture, assemble, sell or deliver ser vices but subject to due performance of their obligations, including payment of royalty. In the event of pre-mature termination, i.e., within 10 years, except due to default of performance of obligations, the respondent-asses see was to promptly discontinue manufacturing activities, sale and other dispositions of the products and the parts, as well as the use of intellectual property right and technical information. Further, in the event of expiration or termination, the respon....
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....ns actions as contemplated under the agreement. The respondent could not, without Honda's prior written consent, directly or indirectly or through its subsidiary, affiliate, distributor or agent or any other party, carry on or participate in the business of manufacturing, assembling, distributing or otherwise dealing in two/three wheelers of other parties. On the question of consideration payable, article 25 of the agree ment provided for fees under two heads, namely, (1) model fee ; and (2) running royalty. (a) "Model fee" was payable on model change under the new model agreement. It was non-refundable and non-creditable against other pay ments. The agreement in addition stipulated the amount of model fee pay able in respect of the product, "C-100" of US$ 10,00,000 was payable in three equal instalments ; i.e., (i) within first 60 days of the agreement being taken on record by the Government authorities in India ; (ii) within 60 days of Honda delivering to the respondent the technical information necessary for manufacture and assembly ; and (iii) within 60 days after the parties confirmed in writing that the manufacture of the model had commenced on commercial basis or 4....
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....n the competitive market of two/three wheelers. Model fee, the subject matter of appeal pertaining to the assessment year 2001-02 is merely Rs. 4.09 lakhs and the said issue is not raised in other years. Royalty, on the other hand, is substantive and payment made in the assessment year 2001-02 was Rs. 17.88 crores. The said royalty paid to Honda, if paid for right to use of technical know-how and intellectual property right, would possibly be taxed in India in terms of the Double Taxation Avoidance Agreement between India and Japan. But the said payment might not be taxable in India if it is held that there was absolute and complete transfer of ownership in the intellectual property right by Honda to the Indian assessee in the absence of a permanent establishment (see articles 7 and 12 of the Double Taxation Avoidance Agreement between India and Japan). In the appeal for the assessment year 2000-01, the Revenue has also challenged the tax treatment of Rs. 33.07 lakhs paid as technical guidance fee. Copy of the agreement on the basis of which the said fee was paid has not been placed on record by the appellant-Revenue. In the absence of any document and even details as to the na....
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.... quashed." A reading of the aforesaid reasoning clearly elucidates that the Tribunal has held that the payments made by the respondent to Honda were revenue expenditure and not capital. On the said finding on the merits, the Tribunal observed that there was no error in the order passed by the Assessing Officer. Power under section 263 can be invoked by the Commissioner only when the order passed by the Assessing Officer is erroneous and not otherwise. It is in these circumstances, that no specific question of law with reference to the power under section 263 of the Act has been framed in the appeal relating to the assessment year 2001-02. In view of the aforesaid discussion, the substantial questions of law are answered in favour of the respondent-assessee and against the appellant- Revenue." [Extracted from ITronline keeping CLI true pages] f) Therefore in the present case the Hon'ble high court on the analysis of the agreement has held that these expenditure are revenue in nature. In view of this we are not inclined to uphold the view of the Ld. CIT stating that agreements various clauses, the permanency of agreement by conduct of parties etc are all indicative of expendit....
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....owers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. We find that ld. Commissioner, while considering this argument of assessee has observed that the representative of the assessee was assured that this issue will be considered with independent ....
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.... Hon'ble High Court in Southern Switchgear (supra) there are two other decisions of Hon'ble High Court were referred where 50% and 100% of the expenditure were held to be capital in nature. Therefore, it is clearly discernible that ld CIT is just questioning the estimate made by the Assessing Officer. Therefore, we are not inclined to uphold the order of ld CIT u/s 263 of the Act on this count. 10. The next ground of dispute is with respect to model fees, which was disallowed by ld Assessing Officer to the extent of 25% holding it as capital in nature. The issue involved on this disallowance is identical to the issue relating to royalty and technical fees. The ld Assessing Officer raised query No. 10 asking for model know-how fees that why the same should not be treated as capital expenditure as in the past. The assessee replied to the same vide letter dated 23.11.2006 vide para No. 2 of that letter which has considered by us while deciding the issue on royalty and technical fees. The ld Assessing Officer has discussed this issue in para No. 3 relying on assessment order for AY 2003-04 holding as under:- "Model Fees: 3.1 In the computation of income, the assessee has c....
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....t commission paid also the enclosing copy of the export commission agreement as well as disclose in balance sheet. It was also stated that the issue has been thoroughly examined by the learned transfer pricing officer vide order dated 24/11/2006 having regard to the arm's length price of the export commission paid to the associated enterprise. It was further claimed that the issue is squarely decided in favour of the assessee by the order of the coordinate bench for assessment year 2006 - 07 and 2007 - 08 and therefore the order cannot be said to be erroneous, as the correctness of the order of the learned AO has been approved by the tribunal. It is further referred before us the para No. 3 of the order of the Ld. CIT wherein it has been claimed that the expenditure is revenue in nature, it is pure export agency commission and even if it is held to be fees for technical services royalty as per the provisions of section 9 of the income tax act it is exempted therefore there is no requirement of the deduction of the tax at source on the above payment. On reading of the order of the Ld. CIT it is apparent that the Ld. assessing officer has not conducted enquiry as expected by the Ld. ....
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....of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasijudicial controversies as it must in other spheres of human activity. 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after c....
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.... underlying approach to the amendments made in Section 263 in the very first full budget of the present Government." 16. We have also perused the memorandum explaining provision relating to direct taxes finance bill 2015- 16 wherein while explaining clause 65 it has been specifically mentioned that the amendment will take effect from 01/06/2015 as under:- "Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue The existing provisions contained in sub-section (1) of section 263 of the Income-tax Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment. The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue it is proposed to provide that an order passed by the Asse....
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....a motor Co Ltd Japan. Further assessee explained rational for payment of export commission. On this basis Ld. assessing officer did not disallow any part of the export commission paid by the assessee. In view of above we are of the opinion that Ld. assessing officer has made due enquiry in applicability of withholding tax on export commission and when the claim of the assessee is also supported by 2 circulars we do not find any infirmity in the order of the Ld. assessing officer in allowing the export commission to a foreign party when no services have been rendered in India. It is also not the case of the Ld. CIT that income of the agent is chargeable to tax in India when the recipient is resident of Japan. 18. Therefore We are of the view that Ld. CIT has incorrectly assumed jurisdiction on this issue. Further, the issue has already been decided in favour of the assessee by the coordinate bench in assessment year 2006 - 07 and 2007 - 08 allowing the claim of the assessee of export commission; therefore it cannot be said that the view taken by the Learned assessee officer was erroneous in allowing the claim of the assessee of the export commission. The Ld. CIT has also not referr....