TaxTMI 
TaxTMI 
2007 (4) TMI 280
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.... in law and on facts of the case in deleting the addition of Rs. 55,06,413 made by the Assessing Officer on account of contract receipt and technical consultancy fees. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is therefore prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored to the above extent. 2. Since both these appeals of the revenue relates to same assessee and involved common issues, we, for the sake of convenience, have decided to dispose of these two appeals by this common/consolidated order. 3. We have heard the parties. 4. Since assessment order for assessment year 1997-98 is the leading order, so, we shall decide the issues on the basis of facts and circumstances as revealed from the records for the assessment year 1997-98. 5. The brief facts, as have been revealed from the records are that the assessee-company had furnished its return of income for assessment years 1997-98 & 1998-99 declaring NIL income (in both the returns) on 20-11-1997 and 17-3-1999. respectively. In the statement of income filed along with returns, the a....
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....laneous interest Rs. 58 (4) Miscellaneous Interest Rs. 1,19,733 (5) Contract Receipt and technical fees received from Gujarat Maritime Board Rs. 69,26,956 ------------- Rs. 70,46,689 ....
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....o prove the nexus between the technical services provided by the company to Gujarat Maritime Board has been actually used by the company the assessee was asked to produce the contract agreement for such purpose. The assessee company furnished the agreement with Gujarat Maritime Board. On going through the agreement it is seen that the Gujarat Maritime has entered into a consultancy agreement for detailed project report (Consultancy services) for the Port of Mundra with Adani Port Ltd. The very first clause reads as under:- "(1) The GMB wishes to have provided the consultancy services for preparation of detailed project report for the Port of Mundra." Further in the executive summary progress report one it is mentioned as under: 'Proposed location for berth at Navinal as suggested by GMB is good. However, this clashed with existing approved captive jetty under construction at Navinal by the Adani Group'. Further a photocopy of the detailed map of the different Ports of Mundra, a photocopy of which forming part of the order. Annexure 'A' shows the locations of different ports located in that area shows the different location of the Jetty of GMB and proposed Jetty of Adani....
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....td. is totally misplaced as the facts and situation are entirely different. Whereas this issue is squarely covered under the Hon'ble Supreme Court's decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. I, therefore, treat the interest income received by the company of Rs. 74,236 as its income from other sources, and is taxed accordingly. As far the receipt of contract receipt and technical consultancy fees of Rs. 55,06,413 is concerned, the same is in fact, received by the company from two parties i.e., Gujarat Maritime Board and Eastern Generation Ltd. Since the assessee company is in the process of setting up of a part, for this purpose it has entered into agreements with different foreign agencies to provide the necessary technical know-how, consultancy and related work. The Gujarat Maritime Board is also providing technical know-how to various ports throughout Gujarat State for preparing feasibility study report, detailed project report etc. particularly for the Port of Mundra. However, the company had access of superior technical know-how in this field because of its contracts with foreign agencies. The Gujarat Maritime Board and another party named Eastern....
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....cision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., but deleted the addition of Rs. 55,06,413 being the receipt from Gujarat Maritime Board, after holding that the expenses incurred by the assessee, which were verifiable and were found to have been exclusively incurred for the purposes of acquiring of know-how, which was shared with Gujarat Maritime Board being in excess of the receipt, there was no income form other sources at all. The relevant part of the order of the CIT(Appeals) for assessment year 1997-98 as contained in paragraph No.4, reads as under:- "4. I have very carefully considered the submissions of the AR and perused the material available on record. I have also gone through the case laws relied upon by the appellant and the Assessing Officer. I have also gone through the relevant agreement. On consideration of the entire facts, I agree with the learned Authorised Representative that so far as the receipt of Rs. 55,06,413 is concerned the said amount never forms part of the Profit and Loss Account, and thus, there is no reason to presume that the assessee has earned any income by way of consultancy fee. The bills for such ....
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....that, in any case, such receipt could not be taxed in isolation without giving deduction for the expenditure incurred for gathering the details report etc. by the appellant. Thus, this receipt has to be considered as reimbursement of the project expenses of the appellant. Accordingly, I hold that the Assessing Officer was not justified in considering this income in isolation. The ratio of the decision of the Supreme Court in Bokaro Steel Ltd. fully applicable to the present case. Even otherwise, the said gross receipt has to be considered net of expenses. Here, the expenses are also verifiable and are found to be exclusively incurred for the purpose of information and know-how, now being shared with GMB. In view of the fact that the expenditure is far exceeding such receipt, there is no income from other sources at all, even on that score. The addition is deleted on that account also." 13. So far as assessment year 1998-99 is concerned, the ld. CIT(Appeals) again upheld the taxability of interest income, but deleted the addition of Rs. 69,26,956 (being the consultancy fees received from Gujarat Maritime Board for supply of technical information/know-how), after following his ord....
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....ubmissions made before him are considered by him. He says that to prove the nexus between the technical services provided by the company to GMB has been actually used by the company, the assessee was asked to produce the contract agreement for such purpose. He says that the argument that the technical fees received by the GMB is reimbursement of expenses incurred is not correct. Therefore the expenses are not on exceptionally relatable with the setting up of a port by Adani Port Ltd. Hence, in his view the decision of the Supreme Court in Bokaro's case is not applicable. As regards the interest the Assessing Officer refers to the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizer Co. Ltd. 227 ITR 172, he says that as held in that case the receipt of interest from short-term capital investment should be treated as income from other source. The Assessing Officer says that the technical fees of Rs. 55.06 lakhs is in fact received by the company from two parties. He says that since the company is in process of setting up a port it has entered into an agreement with foreign agency to provide technical know-how consultancy related work. GMB is also pr....
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....banks. Such investments were specifically permitted by the memorandum and articles of association of the company. The company had also deposited certain sums with the Tamil Nadu Electricity Board. It had also given interest-bearing loans to its employees to purchase vehicles. Up to the assessment year 1980-81, interest earned by the company from the various loans given by the Company and also from the bank deposits was shown as income and was taxed accordingly. For the accounting year ending on 30-6-1981 (assessment year 1982-83), the assessee received a total amount of interest of Rs. 2,92,440. In its return of income filed on 22-6-1982, the company disclosed the said sum of Rs. 2,92,440 as "income from other sources". It also disclosed business loss of Rs. 3,21,802. After setting off the interest income against the business loss, the company claimed the benefit of carry forward of net loss of Rs. 29,360. The company later on realised its mistake and on 26-12-1984, it filed a revised return showing business loss of Rs. 3,21,802. It claimed that according to the accepted accounting practice, interest and finance charges along with other pre-production expenses had to be capitalised....
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....reme Court in the case of CIT v. Bokaro Steel Ltd. which is reported in 102 Taxman 94. In the said case the assessee received by way of: (1) Rent charged by the assessee from contractors for housing workers and staff of contractor for construction work of the assessee. (2) Hire charges for plant and machinery given to the contractors for use in the construction work of the assessee. (3) Interest from advances made to the contractors for the purpose of facilitating the work of construction. (4) Royalty for excavation and use of stones lying on the assessee's land for construction work. It is held by the Supreme Court that the receipts being intrinsically connected with the construction of the assessee's plant, would be capital receipt and not an income from any independent source. It is held that it would go to reduce the cost of plant and could not be taxed as income. Applying ratio of the above decision it may be appreciated that the interest of Rs. 74,236 would go to reduce the cost of the project and it is not independent of the activity of the establishing of the project of port. In the present case the facts are that the assessee has earned interest in que....
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....ties are yet to commence, no P&L account has been prepared. In these circumstances, there was no reason for the Assessing Officer to presume that the appellant had earned any income by way of consultancy fees. It is possible that this presumption is arrived at by the Assessing Officer for the reason that the appellant had submitted certificates for T.D.S. issued by Government of Gujarat undertaking; Maritime Board, Ahmedabad in Form No. 16A. However, on perusal of the certificates which are attached to the return of income it may be seen that the certificates are accompanied by challans for payment of T.D.S. by the Gujarat Maritime Board. On the face of the challans it is mentioned that it was with reference to detailed project report for Mundra Port Consultancy fees. Thus this payment made by the Gujarat Maritime Board was for the project report. (ii) In the light of this fact, the correct nature of receipt may be considered. The appellant had, in fact, proposed to establish a Port viz. Adani Port on the Sea-shore. For this purpose, the appellant was studying various factors through international agencies also. The appellant had, therefore, utilised services of various agenc....
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....dani Port Ltd. to it which will also ultimately be helpful in development of port of Mundra which includes Navinal area. It may be noted that Navinal area is part of Mundra Port and this fact has not been taken into consideration. (2) Moreover, it may be noted that the entire Jetty is owned by GMB and only licence has been granted to Adani Port Ltd. This fact has been grossly overlooked by the Assessing Officer for the simple reason that he wanted to make an addition. (3) In view of the fact that the entire project is ultimately owned by GMB in the year under consideration, there is no reason to consider the aforesaid amount as an income of Adani Port Ltd. On the other hand, it is recovery of the expenditure that have already incurred on account of professional consultancy fees. (4) It may be noted that during the course of the development of project of port some project information on technical side was gathered which was parted with GMB. If this simple aspect is also considered then this sharing of the expenditure is also not considered by the Assessing Officer. (5) Once having concluded that the receipt is an income he has further grossly erred in treating the said i....
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....ake out his case by way of an example relating to working textile industry and by submitting that if the assessee starts a project of establishing a textile industry and for that purpose it establishes utility facilities such as providing steam, etc. required for the purpose of textile fabrics and that utility facility is already established but the assessee could not start own its project and if in the meantime that facility is given to some outsider and it earns the income of Rs. 1 crore, then the expenditure incurred for establishing the utility facilities is deductible as business expenditure. In the same way in the present case when the assessee is in the process of establishing its business has gathered knowledge of establishing the said port for which it has incurred huge expenditure by way of payment of consultancy fees, etc. of Rs. 1,65,18,124, the same is deductible from the receipt on account of technical consultancy fees. In that case the income cannot be taxed by way of income from other source. 18. In a nutshell, the submissions of the ld. counsel for the assessee were two fold; namely, (i) The amount received from Gujarat Maritime Board were on account of reimb....
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....se in its own business; i.e., for development of its own port called as Adani Port and if the assessee had used that the technical know-how for development of other's port, the amount received for use of technical knowhow for that purpose, cannot be reimbursement, rather is a revenue receipt and since the assessee's business was not of supply of technical know-how, the receipt was from other sources and was rightly taxed, as such. 21. Coming to assessee's claim of expenditure, the ld. DR submitted that all expenditure incurred by the assessee for procurement of technical know-how were of capital nature and assessee had also capitalized the same. He, therefore, vehemently submitted that expenditure incurred by the assessee, so far as procurement of technical know-how is concerned, was of capital nature which cannot be allowed against income from other sources. 22. The ld. DR, however, was fair enough to submit that if the assessee had ignored direct expenditure while supplying technical know-how to the Gujarat Maritime Board, such as, petrol expenses or telephone expenses, etc. then those expenses may be allowed. In support of his submission that expenditure incurred for procu....
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....ch the assessee-company had charged interest. This interest was later adjusted against the dues of the contractors. (iii) For the purpose of the construction work, the assessee had given on hire certain plant and machinery to the contractors. Against the letting of plant and machinery the assessee received from the contractors income in the form of hire charges. It was not the business of the assessee-company to let out plant and machinery to others. The assessee-company permitted its use only to its own contractors for the construction work done by the contractors for the assessee-company. The Tribunal has found that the assessee-company charged hire charges for such use of plant and machinery in order to cover the maintenance and wear and tear of the plant and machinery belonging to the assessee. (iv) The assessee-company allowed the contractors to use the stones lying on the assessee's land for construction work. The stones lying on the assessee's company's land were the capital assets of the assessee-company. The assessee charged the contractor a certain amount by way of royalty for excavation and use of these stones for construction work. (v) The assessee had, during ....
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....ssee, and (iii) interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and net income of the assessee from any independent source." B. After having considered the facts and the decision in the case of Bokaro Steel Ltd., we, with respect to the Hon'ble Supreme Court, are of the opinion th....
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....concerned. 3. Decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (A)(a) From the aforesaid two decisions of Hon'ble Supreme Court, it is very clear that decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. has not been overrules; meaning thereby, that ratio laid down in that decision is still hold good. (B) So far as facts and ratio laid down is concerned, we do not consider it necessary to elaborate the same, but would like to state that as per the aforesaid decision of Hon'ble Supreme Court, the interest on short-term deposits made out of surplus share application or share money or borrowings raised by any other mode will be taxable as income from other sources and, therefore, the CIT(Appeals) was quite justified in sustaining the taxability of interest income. Thus, we have considered because the parties had referred to this decision, though issue relating to taxability of interest is not before us. 24. Coming to the assessee's main claim with respect to taxability of receipts from Gujarat Maritime Board for supply for know-how procured by the assessee from overseas parties by having incurred the expenses, ....
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....:- M/s. Scientific Engineering House (P.) Ltd. (hereinafter called "the assessee") was manufacturing scientific instruments and apparatus like dumpy levellers, levelling staves, prismatic compass, etc. It entered into two separate collaboration agreements, one dated March 15, 1961, and the other dated March 31, 1961, with M/s. Metrimpex Hungarian Trading Company, Budapest, for undertaking the manufacture of microscopes and theodolites, under which the said foreign collaborator, in consideration of payment of Rs. 80,000 each (Rs. 1,60,000 under both the agreements together), agreed to supply to the assessee all the, technical know-how required for the manufacture of these instruments. The object of both the agreements was to enable the assessee to manufacture the said instruments of certain specifications and the assessee thereunder acquired the right to manufacture in India under its own trade mark and name but under the licence - MOM Hungary - of the foreign supplier, the said instruments and the right to sell the. same in India. To enable the assessee to manufacture these instruments in India in the manner just indicated, the foreign collaborator, inter alia, agreed to render ....
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....(Rs. 80,000 each) had been made mainly for the supply of designs, drawings, charts, etc., that the services to be rendered by the foreign collaborator covered a wide field and that the supply of designs, charts, drawings, etc., was incidental and only in furtherance of other services which the foreign collaborator was expected to render. It further took the view that since the supply of designs, drawings, charts, etc., was only incidental and the payment of Rs. 1,60,000 could not entirely be held to represent the purchase price of those documents, it was unnecessary for them to go into the question whether the said documents fell within the meaning of the expression "books" and whether depreciation was, therefore, admissible thereon. The Tribunal, however, held that the agreements showed that some of the services which the foreign collaborator was required to render to the assessee were on revenue account (as, for example, the provision which required the foreign collaborator to depute their experts to correct any flaws or irregularities that might be encountered in the course of the production) and that, therefore, the payment of Rs. 1,60,000 was partly on capital account and part....
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....he view that the payment of Rs. 1,60,000 did not mainly represent the purchase price of the designs, drawings, charts, etc., as contended by the assessee, that the rendering of "documentation service" was incidental, and that no part of the expenditure was on revenue account but the whole of it was of a capital nature bringing into existence an asset of enduring benefit to the assessee, but what was brought into existence was a non-depreciable asset and, therefore, the assessee was not entitled to any relief in the case. In other words, by its judgment dated 7-1-1973, the High Court held that the assessee was not entitled to any relief either by way of depreciation allowance or on account of revenue expenditure. (iv) Following the aforesaid decision rendered by the Hon'ble High Court in assessment year 1996-97, the assessee was denied similar relief in subsequent in two assessment years 1968-69 & 1969-70. The appeal before the Hon'ble Supreme Court was against the order of the High Court for assessment years 1968-69 & 1969-70. 25.1 The common question of law referred for the determination of the Hon'ble Supreme Court read as under:- "Whether, on the facts and in the circum....
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....ng activity of manufacturing the odolites ann microscopes and these documents had a vital function to perform in the manufacture of these instruments; in fact, it was with the aid of these complete and up-to-date set of documents that the appellant was able to commence its manufacturing activity and these documents really formed the basis of the business of manufacturing the instruments in question. That by themselves these documents did not perform any mechanical operations or processes did not militate against their being a plant since they were in a sense the basic tools of the assessee's trade having a fairly enduring utility, though owing to technological advances they might or would in course of time become obsolete. The capital asset acquired by the appellant, viz., the technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature, fell within the definition of "plant" and was, therefore, a depreciable asset." 26. After careful consideration of aforesaid decision of Hon'ble Supreme Court, what we are able to understand is that- (i) any expenditure incurred for procuring technical know-how which may be consisting of drawings, ....
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....rein the Hon'ble Supreme Court has specifically held the technical know-how to be plant and of depreciable nature, we are of the opinion that the assessee is entitled to depreciation at the rate applicable to Plant & Machinery for such type of business. 30. Without prejudice to the above, we are of the opinion that such a strict interpretation of these provisions should not be taken for the reasons as explained below:- (i) If the taxing organ of a Democratic Government is analyzed, and that too keeping in view the Constitution of India, wherein the very permeable itself speaks of "Government for the people, by the people, and of the people", one will come to the only one conclusion that the Government though, of course, can collect the taxes, but at the same time, is supposed to be vigilant with respect to welfare measure's for the people of the Country. It is in the light of this concept, we have a question to ask ourselves and the question is can a citizen be deprived of well-established business concepts, invoking of which may have been necessary in view of the commercial expediency, only because the Government missed to recognize such concept at an early stage. Our answer....
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....ficer to allow the assessee following expenses: (i) Any expenditure directly incurred for meeting its business contractual obligation during the course of providing technical know-how for the development of Ports of Gujarat Maritime Board. (ii) Any expenditure incurred for acquiring know-how which was procured solely for meeting assessee's business contractual obligation for development of Gujarat Maritime Board's Port and not for the purpose of assessee's own use in these years or in subsequent years. (iii) Allow depreciation on the capitalized value relatable to know-how used for meeting its business contractual obligation towards Gujarat Maritime Board, i.e., on the expenditure incurred for acquiring know-how, which, even after having been used for development Gujarat Maritime Board's Port, is available to be used for development of assessee's own Port also, at the rate applicable to the Plant & Machinery. 33. In the result, both the appeals of the revenue are allowed in part. Per Sanjay Arora, Accountant Member.- I have carefully gone through the order of my ld. brother. However, I find myself in respectful disagreement with the view taken by him and, therefore, ....
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.... of such fresh costs/expenses, required to be incurred; (b) basis of their measurement, e. g. an Engineer's visit to the site would have to be at an agreed cost covering his cost 10 his parent company, et. al. 5. And, further, agreed apriori, to be met on a statement being provided, separately, i.e., distinct from the balance contractual consideration. In the facts of the case, I do not find such essential elements present to pursue this proposition any further. 5.1 The second argument advanced by the assessee-company is that the receipt, as a revenue one, would require, to determine its taxable component, set-off of the expenditure incurred, and which, in the peculiar facts and circumstances, amounts to much more than the receipt itself, so that no income ensures. I wish to examine this proposition in greater detail with reference to the facts and circumstances of the case, being the only argument advanced before us. 5.2 The aforesaid proposition is perfectly valid insofar as the expenditure specifically required to be incurred (for the purpose of the execution of the project is concerned), as also discussed at para 4 above. However, to extend this argument to the whol....
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....n of data/information, apart from the technical skills required to do so, and which the company had procured for its own purposes, i.e., development of the Adani port (at Mundra) at considerable cost thro' engaging the services of, inter alia, international agencies. And which likewise, i.e., but for the Agreement (with the assessee-company), would also be required (to be engaged) by GMB, again, at similar costs. As such, entering into a subsidiary arrangement as the present one with the assessee company made sound commercial/economic sense for both; cutting time & costs for the GMB, and providing revenue to the assessee, and which undoubtedly, speaking in broad and commercial terms, reduces its own development cost to that extent. 5.4 Now, the question that survives for adjudication is whether such reduction of/in costs can indeed be said to have taken place, or, though spoken of such loosely, i.e., in common parlance, arising as it does out of a separate and independent contract, can be netted from the capital cost. To my mind the answer would lie, quite simply, in the nature of the receipt. If it is revenue in nature, it cannot, by any stretch of imagination, go to reduce the....
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....ould have only to be/been fixed before-hand, i.e., at the time the contract is entered, while the costs would only be incurred subsequently, and given the dynamics of the business situations, cannot be predicated/predetermined, except only in broad terms. The accounts as prepared, match the two, i.e., the charges and the costs, suggesting only an allocation of costs to the extent of the charges raised, basis of which is, again, not spelt out. Another important aspect to this is that the company having engaged the services of the consultants for its own project, it would require another agreement with them if their services were also to be utilized for a separate assignment, which is what, as it transpires, it is, considering the aforesaid period of two years. Again, the costs and the revenue stream would be required to separately identified, in accordance with the matching principle, to ascertain the profit from the sub-contract. 5.6 Next, I presume, for the sake of discussion, of (to howsoever extent) a part of the costs already incurred, or to state more appropriately, the body of knowledge/information/data, etc. generated/sourced by incurring the cost(s) already incurred, to ....
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....ncreasingly higher level of details, covering technology selection, basic engineering, detailed engineering, etc. Whatever the extent and scope of the PR contracted to the assessee-company, the same would require considerable inputs in terms of resources. In fact, given the peculiarities of each area/site, and the operational parameters, viz., design, specialized commodity I material handling at the proposed jetty, etc., each project becomes unique in itself. Further, the contract could envisage provision of services such as vendor (contractor) selection (for work execution), supervisory support, et. al. In short, it is essential to delineate the scope of the services required to be provided and determine the related costs. A separate cost centre-wise accounting would thus have to be in place, as most of them may involve allocation of common resources, also being used, simultaneously, for the assessee's own development project. The assessee-company has only followed the method of netting of the receipts, which correspond to the work carried out in pursuance to the contract, extending to at least two years, for which the aggregate receipt is Rs. 124.33 lakhs. The contract is not ....
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....nly the character of the receipt on which, as aforesaid, we find no serious dispute, but also its taxable quantum, and the Tribunal being fully competent to do so. (b) the finding as to the cost incurred by the assessee as constituting a technical know-how (with it) is contrary/inconsistent with the facts/material on record, as I have taken pains to bring forth in the earlier part of my order. In fact, it is contrary to what the assessee itself says of it. While it may be, and which appears to be the case, that the services availed by the assessee from various persons (in its employment, or on hired basis), whose services it has availed for its own project execution, i.e., development of (Adani) port at Mundra, are in the nature of included services, i.e., include the provision of services requiring the user of customary skills of their calling for the purpose, besides making available (by the hired agencies) the technology (experience, skill, know-how, or processes, or development and transfer of a technical plan or design) to the assessee, that by it to the contractee(s) is not. The whole premise of allowing depreciation on the capital cost of its own project by treating it as....
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....see (contractor) and GMB/EGL (contractee), and of which there is no evidence (and/or claim). (c) Finally, my ld. Brother has emphasized, on the basis of the decision of the Hon'ble Apex Court in the case of Scientific Engineering House (P.) Ltd. that the technical knowhow is a capital asset subject to depreciation, so that depreciation under section 32 of the Act is allowable, even as the same is not recognized as a capital asset exigible to depreciation under the Act. In this regard, I would only wish to say that there cannot be, i.e., in principle, any difference of opinion in the matter; the law with regard thereto being settled by the Apex Court. However, the same to be given effect to, would require, apriori, a factual determination of the matter, and which I find to be absent. It is neither the assessee's case/claim, nor supported by any factual finding in its respect, nor possibly can be, i.e., given the highly tenuous/uncertain state of the factual edifice. As such, I do not think that such a direction would be consistent with the facts of the case. 5.11 The assessee-company has adopted different stands in the matter (of the exact nature of the services rendered), eac....
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....o from Eastern Generation Limited. It did not declare any income to tax on the plea that its Port project was under implementation and it had not started any commercial activity. 3. The Assessing Officer, however, held both interest and contract receipts of technical fees are income liable to tax under the head "Income from other sources". He did not allow any expenditure against these receipts as the expenses were capital expenditure pertaining to project under implementation and not for earning these receipts/income. He also held that decision of the Supreme Court in the case of Bokaro Steel Ltd. for adjusting income against expenditure was not applicable, nor did he find the fact as relevant that it was a reimbursement of expenses incurred by the assessee as it was required by Gujarat Maritime Board to supply the technical know-how which is required for development of Mundra Port. He held that technical know-how was obtained from foreign agencies and was of a superior quality. Gujarat Maritime Board and Eastern Generation Ltd. were interested in having the benefit of such information, technical know-how and such consultancy for their project of development of ports in Gujarat....
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....d solely for meeting assessee's business contractual obligation for development of Gujarat Maritime Board's Port and not for the purpose of assessee's own use in these years or in subsequent years, and (iii) allow depreciation on the capitalized value relatable to know-how used for meeting its business contractual obligation towards Gujarat Maritime Board, i.e., on the expenditure incurred for acquiring know-how, which, even after having been used for development of Gujarat Maritime Board's Port, is available to be used for development of assessee's own Port also at the rate applicable to the Plant & Machinery. 6. The Accountant Member, on the other hand, held expenditure, of course, as relating to earning income would be allowable but no exercise was done by any authority at any stage the matter in his opinion required to be set aside to Assessing Officer to determine the allowability. In his view, however, the depreciation may not be wholly allowable as the know-how is not only used for contract receipts but also used for development of its own project which is in implementing stage. His disagreement is elaborated to be because - (a) the nature and scope of the services render....
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....antor, the assessee and Gujarat Maritime Board/Eastern Generation Limited, and of which there is no evidence (and/or claim); and (c) the decision in Scientific Engineering House (P.) Ltd., to be given effect to, according to him, would require, apriori, a factual determination of the matter and supported by any factual finding in its respect and possibly can not be given in the highly tenuous/uncertain state of the factual edifice and therefore such a direction would not be consistent with the facts of the case. 7. The parties are heard. On a close reading of the proposed orders, I do not really find any difference between the two Members on the principle of allowing expenditure including depreciation. The Judicial Member has given specific direction to allow depreciation, if used for consultancy as well own project, in addition to full cost, if exclusively used for Gujarat Maritime Board and the other related expenditure. Each of these allowances by the Judicial Member also require verification and determination by the Assessing Officer. The Accountant Member instead of being specific, had opined for setting aside the assessment for de novo determination by Assessing Officer wi....