The ACIT, Vapi Circle, Vapi V. M/s. Mitsu Ltd., Vapi

ITA 1074/AHD/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0442 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-02-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 13-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D P GUPTA
• Keywords: Retrospective amendment
• Section: 143(3); 80HHC; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO.451 / AHD/2006 & C.O. NO.84/AHD/2007 IN I.T.A.NO. 1074/AHD/2007 (ASSESSMENT YEAR 2002-03) M/S. MITSU LIMITED, BIKLAKHIA HOUSE, MUKTANAND MARG, CHALA, VAPI (GUJ.) VS. CIT VALSAD PAN/GIR NO. : I.T.A.NO. 1074/AHD/2007 (ASSESSMENT YEAR 2002-03) ACIT, VAPI VS. M/S. MITSU LIMITED, BIKLAKHIA HOUSE, MUKTANAND MARG, CHALA, VAPI (GUJ.) (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI M K PATEL WITH SHRI G. AIYER, ARS RESPONDENT BY: SHRI D P GUPTA, CIT DR DATE OF HEARING: 26.02.2013 DATE OF PRONOUNCEMENT: 22.03.2013 O R D E R PER SHRI A. K. GARODIA, AM:- OUT OF THIS BUNCH, THERE IS ONE APPEAL OF THE ASSE SSEE WHICH IS DIRECTED AGAINST THE ORDER DATED 22.12.2005 PASSED BY CIT VALSAD U/S 263 OF THE INCOME TAX ACT, 1961. THERE IS ONE APPEAL O F THE REVENUE, WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) VALSAD DAT ED 30.11.2006 FOR THE I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 2 SAME ASSESSMENT YEAR IN RESPECT OF ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) READ WITH SECTION 263 OF THE INCOME TAX ACT, 1961 AND THE C.O. IS FILED BY THE ASSESSEE WHICH IS DIRECTED AGA INST THE SAME ORDER OF LD. CIT(A), VALSAD. ALL THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. 2. FIRST, WE TAKE UP THE CROSS OBJECTION FILED BY T HE ASSESSEE. IT WAS SUBMITTED BY THE LD. A.R. THAT THE C.O. OF THE ASSE SSEE IS NOT PRESSED AND ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 3. NOW, WE TAKE UP THE APPEAL FILED BY THE ASSESSEE . IN THIS APPEAL, THE ASSESSEE HAS RAISED AS MANY AS 13 GROUNDS OF AP PEAL BUT THE ONLY GRIEVANCE OF THE ASSESSEE IS THIS THAT THE JURISDIC TION EXERCISED BY CIT U/S 263 IS WRONGLY EXERCISED BY HIM AND, THEREFORE, THE SAME SHOULD BE QUASHED. 3.1 THE BRIEF FACT ARE THAT IT WAS NOTED BY LD. CIT IN THE ORDER PASSED BY HIM U/S 263 THAT THE ASSESSEE HAS CLAIMED DEDUCT ION U/S 80-O IN RESPECT OF THE AMOUNT RECEIVED BY THE ASSESSEE ON A CCOUNT OF SALE CONSIDERATION OF TECHNICAL KNOW HOW. CIT WAS OF TH E VIEW THAT IN THE CASE OF SALE TRANSACTION, THE A.O. HAS ERRONEOUSLY ALLOWED DEDUCTION OF RS.2,55,21,132/- U/S 80-O OF THE INCOME TAX ACT, 19 61. THERE WAS ONE MORE OBJECTION OF CIT AS NOTED BY HIM IN THE ORDER PASSED BY HIM U/S 263 OF THE INCOME TAX ACT, 1961 THAT THE ASSESSEE HAS C LAIMED DEDUCTION U/S 80HHC AND FOR CLAIMING THE SAME, THE ASSESSEE HAS E XCLUDED EXCISE DUTY AND SALES TAX FROM TOTAL TURNOVER AND, THEREFORE, I T HAS RESULTED IN EXCESS ALLOWANCE OF CLAIM U/S 80HHC OF THE INCOME TAX ACT, 1961 AND FOR BOTH THESE ISSUES, CIT ISSUED NOTICE TO THE ASSESSEE U/S 263 AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE, HE HAS COME TO THE CONCLUSION THAT THE ASSESSEE CANNOT EXCLUDE EXCISE DUTY AND SALES T AX FROM TOTAL TURNOVER I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 3 FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC OF THE INCOME TAX ACT, 1961. HE HAS ALSO CO ME TO THE CONCLUSION THAT THE CONSIDERATION WHICH ENABLED THE ASSESSEE FOR CLAIMING DEDUCTION U/S 80-O OF THE INCOME TAX ACT, 1961 MUST BE RECEIVED ONLY FOR USE AND NOT FROM SALE OF SPECIFIED ITEMS. FOR BOTH THESE ISSUES, CIT HELD THAT SUCH ASSESSMENT ORDER PASSED BY THE A.O. ALONG WITH SUBSEQUENT ORDER PASSED BY HIM U/S 154 OF THE INCOME TAX ACT, 1961 ARE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND HENCE, BY INVOKING HIS POWERS OF REVISION U/S 263, HE SET ASIDE BOTH T HESE ORDERS PASSED BY THE A.O. AND DIRECTED THE A.O. TO COMPLETE THE ASSE SSMENT DE NOVO AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE. NOW, THE ASS ESSEE IS IN APPEAL BEFORE US. 3.2 IT WAS SUBMITTED BY THE LD. A.R. THAT THE A.O. S LETTER DATED 14.02.2005 TO THE ASSESSEE IS AVAILABLE ON PAGES 92 -93 OF THE PAPER BOOK AND IN PARA 3.1 OF THIS QUERY LETTER ISSUED BY THE A.O., QUERY WAS RAISED BY THE A.O. AND REPLY OF THE SAME IS AVAILABLE ON P AGES 97-108 OF THE PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRA WN TO PAGES 100-103 OF THE PAPER BOOK AND IN PARTICULAR TO PARAS 3.4 TO 3. 6 OF THIS REPLY AND IT WAS POINTED OUT THAT RELIANCE WAS PLACED BY THE ASSESSE E ON CIRCULAR NO.731 DATED 20.12.1995 ISSUED BY CBDT AND IT WAS SUBMITTE D THAT THE ASSESSEE HAS CONSIDERED 20% OF THE RECEIPT AS TOWARDS TRANSF ER OF TECHNICAL KNOW HOW AND WAS TREATED AS ROYALTY U/S 80-O OF THE INCO ME TAX ACT, 1961 READ WITH THIS CIRCULAR ISSUED BY CBDT. IT WAS ALSO SUB MITTED BEFORE THE A.O. THAT EVEN IF THE BALANCE RECEIPT OF 80% IS CONSIDER ED AS REVENUE RECEIPT, THE SAME IS ASSESSABLE UNDER THE HEAD INCOME FROM B USINESS AND, THEREFORE, ELIGIBLE FOR DEDUCTION U/S 80-O AS WELL AS U/S 80HHC. HE ALSO SUBMITTED A COPY OF THE ORIGINAL ASSESSMENT ORDER F AMED BY HE A.O. ON I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 4 21.03.2005 WHICH IS AVAILABLE ON PAGES 109-128 OF T HE PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE 113 OF THE PAPER BOOK WHERE, IN PARA 10 OF THE ASSESSMENT ORDER, THE A.O. HAD DI SCUSSED THE ISSUE REGARDING RECEIPT OF NON COMPETE FEE FOR TRANSFER O F TECHNOLOGY/TECHNICAL KNOW HOW. HE ALSO DRAWN OUR ATTENTION TO PAGE 118 OF THE PAPER BOOK WHERE THE A.O. DISCUSSED THE ISSUE REGARDING DEDUCT ION U/S 80HHC AND U/S 80-O AND THEREFORE, CIT HAD NO JURISDICTION U/S 263 ON THESE TWO ISSUES. HE ALSO SUBMITTED THAT THE TERM USE IS W IDE ENOUGH TO INCLUDE SALES. AT THIS JUNCTURE, A QUERY WAS RAISED BY THE BENCH AS TO WHETHER THE ASSESSEE HAS ESTABLISHED THAT THE BUYER OF TECHNICA L KNOW HOW HAD USED THE KNOW HOW ONLY OUTSIDE INDIA OR THAT HE COULD NO T USE THE TECHNICAL KNOW HOW IN INDIA OR THE BUYER CAN USE THE SAME ONL Y OUTSIDE INDIA. IN REPLY, IT WAS SUBMITTED BY THE LD. A.R. THAT THIS I S NOT THE DISPUTE RAISED BY LD. CIT AND THE ONLY DISPUTE RAISED BY CIT IS TH IS THAT THE SALE IS NOT USER. HE SUBMITTED THAT THE SALE ALSO INCLUDES USE R AND IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON CIRCULAR NO.187 DATED 23.12.1975 AS REPORTED IN 102 ITR (STATUTE) 83. RELIANCE WAS ALS O PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (A) 323 ITR 174 (BOM.) CIT VS CHARLES M. CORREA (B) 231 ITR 148 (S.C.) CBDT VS OBEROI HOTELS (INDIA ) PVT. LTD. (C) 195 ITR 81 (S.C.) CONTINENTAL CONSTRUCTION LTD. VS CIT 3.3 HE ALSO SUBMITTED THAT EVEN IF IT IS CONSIDERED NECESSARY BY THE BENCH THAT WHETHER THE TECHNICAL KNOW HOW WAS CAPAB LE OF BEING USED BY THE BUYER ONLY OUTSIDE INDIA OR HE CAN USE THE SAME WITHIN INDIA ALSO, THE MATTER MAY GO BACK FOR AFRESH DECISION. RELIANCE W AS ALSO PLACED ON A JUDGEMENT OF HONBLE APEX COURTS RENDERED IN THE CA SE OF CIT VS MAX INDIA LTD. AS REPORTED IN 295 ITR 282 IN SUPPORT OF THIS CONTENTION THAT WHERE TWO VIEWS ARE POSSIBLE, CIT HAS NO JURISDICTI ON U/S 263. I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 5 3.4 AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D. R. THAT CIRCULAR 187 OF 1975 IS NOT APPLICABLE AFTER AMENDMENT IN LAW IN 1997 W.E.F. 01.04.1998. HE ALSO SUBMITTED THAT THE TOTAL AMOUN T RECEIVED BY THE ASSESSEE WAS AROUND RS. 23 CRORES AND WHAT IS THE B ASIS OF DISTRIBUTION IN THE RATIO OF 20:80, IS NOT CLEAR AND NO QUERY WAS R AISED BY THE A.O. IN THIS REGARD. RELIANCE WAS ALSO PLACED BY HIM ON THE JUD GEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS G M MITTA L STAINLESS STEEL (P) LTD. AS REPORTED IN 263 ITR 255 IN SUPPORT OF THIS CONTENTION THAT POWER OF CIT U/S 263 SHOULD BE ON THE BASIS OF MATERIAL T HAT WAS AVAILABLE BEFORE HIM WHEN HE EXERCISED THE POWER. 3.5 IN THE REJOINDER, IT WAS SUBMITTED BY THE LD. A .R. THAT THE CIRCULAR IS STILL VALID. REGARDING THE BASIS OF BIFURCATION IN THE RATIO OF 20:80, IT WAS SUBMITTED THAT THE SAME WAS NOT CHALLENGED BY T HE CIT AND THIS ISSUE CANNOT BE RAISED NOW. HE ALSO SUBMITTED THAT IN PA RA 3.2 OF THE ORDER PASSED BY CIT U/S 263, 6 JUDGEMENTS WERE CITED BY T HE ASSESSEE BEFORE HIM AS NOTED BY CIT REGARDING EXCLUSION OF EXCISE D UTY AND SALES TAX FROM TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION AL LOWABLE TO HE ASSESSEE U/S 80HHC. 3.6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE AS PER THE REQUIREMENTS OF THE PROVISIONS OF SECTION 80-O, WHEN THE ASSESSEE RECEIVES SOME INCOME WHICH STANDS INCL UDED IN GROSS TOTAL INCOME, FROM A BUSINESS ENTERPRISE IN CONSIDERATION FOR THE USE OUTSIDE INDIA OF ANY PATENT, DESIGN OR REGISTERED TRADE MAR K AND SUCH INCOME IS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE IN INDIA A ND SUBJECT TO SOME OTHER CONDITION AS PRESCRIBED IN THIS SECTION, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80-O OF THE INCOME TAX ACT, 1961. TH ERE IS NO DISPUTE I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 6 REGARDING THOSE OTHER CONDITIONS OF RECEIPT IN INDI A IN CONVERTIBLE FOREIGN EXCHANGE. THE ONLY DISPUTE RAISED BY CIT IS THIS A S TO WHETHER THE RECEIPT IN QUESTION IS OF CONSIDERATION FOR THE USE OUTSIDE INDIA OF ANY PATENT, DESIGN OR REGISTERED TRADE MARK ETC. ALTHOUGH THE BASIS OF OBJECTION RAISED BY THE CIT IS THIS THAT SINCE THESE RECEIPT S ARE ON ACCOUNT OF SALE OF TECHNICAL KNOW HOW AND THE SALE CANNOT BE CONSIDERE D AS RECEIVED ON ACCOUNT OF USER OF SUCH TECHNICAL KNOW HOW OUTSIDE INDIA. BUT THE FACT REMAINS THAT HE ALSO OBJECTED ON THIS ASPECT THAT T HE RECEIPT IN QUESTION IS NOT ON ACCOUNT OF TECHNICAL KNOW HOW HAVING BEEN US ED OUTSIDE INDIA AND HENCE, THIS OBJECTION OF THE LD. A.R. IS NOT CORREC T THAT IF IT IS FOUND THAT SALES ALSO INCLUDE USER THEN THERE IS NO MERIT IN T HE OBJECTION OF CIT. IN OUR CONSIDERED OPINION, EVEN IF WE ACCEPT THAT THE SALE ALSO INCLUDE USER THEN ALSO, IT HAS TO BE SEEN AS TO WHETHER AS PER T HE TERMS OF SALE, THE BUYER CAN USE THE TECHNICAL KNOW HOW ETC ONLY OUTSI DE INDIA OR WHETHER HE CAN USE THE SAME IN INDIA ALSO. IN REPLY OF A S PECIFIC QUERY BY THE BENCH, LD. A.R. COULD NOT POINT OUT ANY RESTRICTION IN THE SALE AGREEMENT AS PER WHICH THE BUYER IS DEBARRED FROM USING THE T ECHNICAL KNOW HOW PURCHASED BY THE BUYER IN INDIA AND HENCE, IT IS PO SSIBLE THAT THE SAME MIGHT HAVE BEEN USED BY THE BUYER IN INDIA OR HE MA Y USE THE SAME IN INDIA ON A FUTURE DATE AND IN THAT SITUATION, IT CA NNOT BE SAID THAT THE SALE PROCEEDS OF TECHNICAL KNOW HOW IS THE RECEIPT IN CO NSIDERATION OF USER OF TECHNICAL KNOW HOW ETC. OUTSIDE INDIA. NO QUERY WAS RAISED BY THE A.O. WITH REGARD TO THIS ASPECT IN THE ORIGINAL ASSESSME NT ORDER FAMED BY THE A.O. AND HENCE, IN OUR CONSIDERED OPINION, THE ASSE SSMENT ORDER PASSED BY THE A.O. IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND, THEREFORE, THE CIT HAS RIGHTLY EXERCIS ED HIS JURISDICTION U/S 263 WITH REGARD TO DEDUCTION ALLOWED BY THE A.O. U/ S 80-O. I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 7 3.7 HOWEVER, REGARDING THE 2 ND OBJECTION OF CIT IN RESPECT OF ALLOWANCE OF DEDUCTION U/S 80HHC BY EXCLUDING THE E XCISE DUTY AND SALES TAX FROM TOTAL TURNOVER, WE ARE OF THE CONSID ERED OPINION THAT AS PER THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LAXMI MACHINES AS REPORTED IN 290 ITR 667, EXCISE DUTY AN D SALES TAX CANNOT BE INCLUDED IN TOTAL TURNOVER FOR THE PURPOSE OF COMPU TATION OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC OF THE INCOME T AX ACT, 1961. HENCE, IN OUR CONSIDERED OPINION, THIS OBJECTION OF CIT IS NOT VALID BUT STILL WE FEEL THAT THE ORDER PASSED BY HIM U/S 263 DIRECTING THE A.O. TO FRAME DE NOVO ASSESSMENT ORDER IS VALID BECAUSE WE HAVE ALREADY SEEN THAT THE ASSESSMENT ORDER PASSED BY THE A.O. WAS ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IN RESPECT O F THE ISSUE REGARDING ALLOWABILITY DEDUCTION TO THE ASSESSEE U/S 80-O WHI CH WAS DECIDED BY THE A.O. WITHOUT MAKING PROPER INQUIRY AND WITHOUT BRIN GING COGENT MATERIAL ON RECORD TO SHOW THAT THE IMPUGNED RECEIPT WAS ONL Y IN CONSIDERATION OF USER OF TECHNICAL KNOW HOW OUTSIDE INDIA. 3.8 NOW, WE CONSIDER THE APPLICABILITY OF VARIOUS J UDGEMENTS AND CIRCULAR CITED BY THE LD. A.R. :- - THE CIRCULAR NO.187 DATE 23.12.1975 IS IN SUPPORT OF THIS CONTENTION THAT SALE ALSO INCLUDES USER. WE HAVE A LSO ACCEPTED THIS CONTENTION FOR THE TIME BEING AND FOUND THAT EVEN A FTER ACCEPTING SO, THE ASSESSEE COULD NOT ESTABLISH THAT ONE OF THE CONDIT IONS OF SALE WAS THIS THAT THE TECHNICAL KNOW HOW CANNOT BE USED BY THE BUYER IN INDIA AND, THEREFORE, IN OUR CONSIDERED OPINION, THIS CIRCULAR REPORTED IN 103 STATUTE 83 IS OF NO HELP TO THE ASSESSEE. - REGARDING THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C IT VS CHARLES M I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 8 CORREA AS REPORTED IN 323 ITR 174, WE FIND THAT THI S JUDGEMENT IS ALSO OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE BECAUSE IN THAT CASE, A CLEAR FINDING WAS GIVEN THAT IT WAS NOT IN DISPUTE THAT T HE DESIGNS PROVIDED BY THE ASSESSEE WERE USED OUTSIDE INDIA. IN THE PRESE NT CASE, WE HAVE SEEN THAT THIS IS NOT ESTABLISHED BY THE ASSESSEE THAT T ECHNICAL KNOW HOW TRANSFERRED BY THE ASSESSEE COULD BE USED ONLY OUTS IDE INDIA BY THE BUYER AND THE BUYER CANNOT USE THE SAME IN INDIA. - THE 2 ND JUDGEMENT IS OF HONBLE APEX COURT RENDERED IN THE CASE OF CONTINENTAL CONSTRUCTION LTD. VS CIT AS REPORTED IN 195 ITR 81. THIS IS LONG JUDGEMENT AND IT WAS SUBMITTED BY THE LD. A .R. THAT THE RELEVANT PAGES ARE 122-123 OF THIS ITR. ON THESE PAGES, WE FIND THAT THE DISCUSSION IS REGARDING SEGREGATING OF RECEIPT ON A CCOUNT OF CONTRACT IN TWO PARTS IN INDIA TO FIND OUT PART WHICH WILL FALL U/S 80-O AND WHICH PART WILL FALL U/S 80HHB. IN OUR CONSIDERED OPINION, TH IS JUDGEMENT DOES NOT THROW ANY LIGHT AS TO WHETHER EVEN IN ANY SITUATION WHERE THE CONSIDERATION IS RECEIVED ON ACCOUNT OF SALE OF TE CHNICAL KNOW HOW AND IN THE ABSENCE OF ANY RESTRICTION THAT THE BUYER IS DEBARRED FROM USING THE SAME IN INDIA, IT CAN BE SAID THAT THE RECEIPT IS O N ACCOUNT OF USER OF TECHNICAL KNOW HOW OUTSIDE INDIA. HENCE, THIS JUDG EMENT IS ALSO OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE. - NOW, WE DISCUSS THE APPLICABILITY OF THE 3 RD JUDGEMENT WHICH IS RENDERED BY HONBLE APEX COURT IN THE CASE OF CBDT VS OBEROI HOTELS (INDIA) PVT. LD. AS REPORTED IN 231 ITR 148. IN T HAT CASE, THE DISPUTES WAS REGARDING AGREEMENT OF THE ASSESSEE WITH A FORE IGN ENTERPRISE FOR PROVIDING TECHNICAL SERVICES TO THE FOREIGN ENTERPR ISE WITH RESPECT TO OPERATION OF A HOTEL SITUATED IN KATHMANDU, NEPAL. THE AGREEMENT WAS FOR MANAGING A MODERN HOTEL SITUATED IN A FOREIGN C OUNTRY AND ITS TERMS OF I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 9 AGREEMENT ALSO INCLUDED PROVISIONS OF BUSINESS REGU LATING AND TRAINING OF STAFF ETC. IT WAS HELD THAT IT IS REQUIRED RENDE RING OF TECHNICAL AND PROFESSIONAL SERVICES AND, THEREFORE, AGREEMENT WAS ENTITLED FOR APPROVAL U/S 80-O OF THE INCOME TAX ACT, 1961. IT WAS HELD THAT ONLY BECAUSE THE CONSIDERATION WAS EXPRESSED AS PERCENTAGE OF GROSS OPERATING PROFIT IT WILL NOT ALTER THE NATURE OF SERVICES RENDERED. WE HAVE SEEN THAT IN THAT CASE, THIS WAS NOT IN DISPUTE THAT THE TECHNICAL SERVICES PROVIDED BY THE ASSESSEE WERE NOT USED OUTSIDE INDIA WHEREAS IN THE PRESENT CASE, WE HAVE SEEN THAT THE ASSESSEE COULD NOT ESTABLISH BEFORE US THA T THE TECHNICAL KNOW HOW WAS EXCLUSIVELY USED OUTSIDE INDIA AND IT CANNO T BE USED WITHIN INDIA. HENCE, THIS JUDGEMENT IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. - NOW, WE DISCUSS THE APPLICABILITY OF ANOTHER JUDG EMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF MAX INDIA (SUPRA ). IN THAT JUDGEMENT, THE RATIO LAID DOWN IS THIS THAT SINCE THE JURISDIC TION U/S 263 WAS EXERCISED BY THE COMMISSIONER IN 1997, LAW PREVAILING IN 1997 SHOULD BE APPLIED NOTWITHSTANDING RETROSPECTIVE AMENDMENT IN 2005 IN SECTION 80HHC. IN THE PRESENT CASE, THIS IS NOT IN DISPUTE THAT THE L AW BEING APPLIED BY THE CIT IS THE LAW WHICH WAS ON STATUTE BOOK AT THE REL EVANT POINT OF TIME WHEN HE INVOKED HIS JURISDICTION U/S 263 AND THEREF ORE, THIS JUDGEMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. - REGARDING VARIOUS JUDGEMENTS CITED BY THE ASSESSE E BEFORE CIT WHICH ARE NOTED BY HIM IN PARA 3.2 OF HIS ORDER, WE FIND THAT THE SAME ARE WITH REGARD TO EXCLUSION OF EXCISE DUTY AND SALES T AX FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC AND WE HAVE ALREADY HELD THAT ON THIS ASPECT. CIT WAS NOT HAVING ANY JURISDICTION U/S 263 AND HENCE, THESE JU DGEMENTS ARE OF NO I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 10 RELEVANCE WITH REGARD TO THE ISSUE CONNECTED WITH S ECTION 80-O OF THE INCOME TAX ACT, 1961. 3.9 IN VIEW OF OUR ABOVE DISCUSSION, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT PASSED BY HIM U/S 263 . REGARDING THIS CONTENTION OF THE LD. A.R. THAT THE MATTER MAY BE R ESTORED BACK TO HIS FILE FOR EXAMINING THIS ASPECT FOR USER OUTSIDE INDIA, W E FIND THAT CIT HAD SIMPLY DIRECTED THE A.O. TO FRAME DE NOVO ASSESSMEN T AFTER HEARING THE ASSESSEE AND HENCE, THIS ARGUMENT IS NOT RELEVANT F OR DECIDING THE PRESENT APPEAL. 3.10 IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS DISMISSED. 4. NOW, WE TAKE UP THE APPEAL FILED BY THE REVENUE. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. THE ID. CIT(A) HAS ERRED IN HOLDING THAT THE EXCISE DUTY AN D SALES WILL RIOT BE INCLUDED IN THE TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S.8OHHC OF THE ACT WITHOUT CONSIDERING THE FACT T HAT THE ISSUE IN QUESTION IS YET TO BE DECIDED BY THE HIGHEST COU RT OF THE LAND. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE ID. CIT(A) HAS ERRED IN HOLDING THAT THE EXCISE DUTY AN D SALES WILL NOT BE INCLUDED IN THE TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S.8OHHC OF THE ACT EVEN THOUGH PROVISIONS OF SECT ION 145A REQUIRE THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING INCOME CH ARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS' OR PROFESSI ON SHALL BE ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CE SS OR FEE (BY WHAT EVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN GRANTING DEDUCTION U/S 80-0 WIT HOUT APPRECIATING THE FACT THAT DEDUCTION UNDER THIS SEC TION IS GIVEN FOR TRANSFER OF ANY PATENT, INVENTION, DESIGN OR REGIST ERED TRADE MARK BUT ALL OF THESE CONTINUE TO BE WITH THE OWNER AND DOES NOT SELL THESE ITEMS. HOWEVER, THE ASSESSEE HAS SOLD THE ASS ETS AND RIGHTS THEREIN. 4. IT IS THEREFORE, PRAYED THAT THE DECISION OF T HE LEARNED CIT(A) MAY BE SET ASIDE AND THE ORDER OF THE AO MAY BE RES TORED. I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 11 THE APPELLANT CRAVES TO ADD, ALTER OR AMEND ANY GRO UNDS OF APPEAL. 4.1 REGARDING GROUNDS NO. 1& 2, WE FIND THAT THIS I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LAXMI MACHINES (SUPRA ) AND RESPECTFULLY FOLLOWING THE SAME, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. BOTH THESE GROUNDS OF THE REVENUE ARE REJECTED. 4.2 REGARDING GROUND NO.3, IT WAS SUBMITTED BY THE LD. D.R. THAT DEDUCTION U/S 80-O IS ALLOWABLE FOR RECEIPT ON ACCO UNT OF USER OF ANY PATENT, DESIGN OR REGISTERED TRADE MARK OUTSIDE IND IA BUT IN THE PRESENT CASE, ASSESSEE HAS SOLD THE SAME AND THEREFORE, DED UCTION IS NOT ALLOWABLE TO THE ASSESSEE U/S 80-O. LD. A.R. SUPPORTED THE O RDER OF LD. CIT(A). 4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT LD. CIT(A) HAS DECIDED THIS ISSUE BY FOLLOWING THE CBDT CIRCULAR NO.731 DATED 20.12.1995 BUT NO FINDING HAS BEEN GIV EN BY HIM THAT EVEN AFTER SALE OF TECHNICAL KNOW HOW, THERE WAS RESTRIC TION ON THE BUYER DEBARRING HIM FROM USING SUCH TECHNICAL KNOW HOW IN INDIA. UNDER THESE FACTS, WE FEEL THAT THE ORDER OF LD. CIT(A) IS NOT SUSTAINABLE ON THIS ISSUE. HOWEVER, WE FEEL THAT IN THE INTEREST OF JUSTICE, T HIS MATTER SHOULD GO BACK TO THE FILE OF LD. CIT(A) FOR DECIDING THIS ISSUE A FRESH IN ORDER TO ENABLE THE ASSESSEE TO BRING COGENT EVIDENCE ON RECORD TO ESTABLISH THAT THERE WERE RESTRICTION ON THE BUYER DEBARRING HIM FROM US ING THE TECHNICAL KNOW HOW IN INDIA AT ANY POINT OF TIME. IF THE ASS ESSEE IS ABLE TO DO SO THEN THE ASSESSEE MIGHT HAVE A CASE FOR ALLOWING DE DUCTION U/S 80-O BUT IN THE ABSENCE THE ASSESSEES ABILITY TO ESTABLISH THIS, THAT THERE WAS RESTRICTION ON THE BUYER DEBARRING HIM FROM USING T ECHNICAL KNOW HOW IN I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 12 INDIA AT ANY POINT OF TIME, IN OUR CONSIDERED OPINI ON, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80-O ON ACCOUNT OF THIS RECEIPT BECAUSE IN THAT SITUATION, IT CANNOT BE SAID THAT THE RECEIPT IN QU ESTION IS A CONSIDERATION FOR USER OF TECHNICAL KNOW HOW OUTSIDE INDIA. HENC E, WE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THE MATTE R BACK TO HIS FILE FOR AFRESH DECISION. HE SHOULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO BOTH THE SIDES. GROUND NO.3 STANDS ALLOWED FOR STATISTI CAL PURPOSES. 4.3 IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 5. IN THE COMBINED RESULT, APPEAL OF THE ASSESSEE A ND C.O. FILED BY THE ASSESSEE ARE DISMISSED WHEREAS THE APPEAL OF THE RE VENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 6. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD I.T.A.NO. 451 /AHD/2006 I.T.A.NO. 1074/AHD/2007 & C.O. NO.84/AHD/2007 13 1. DATE OF DICTATION 19/03/2013 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21/03/2013.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 22/03/2013 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.1/4 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 01/04/2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .