Income Tax Appellate Tribunal - Mumbai
P.N. Writer And Co. Ltd. vs Addl. Commissioner Of Income Tax, Spl. ... on 24 February, 2006
ORDER
Salil Kapoor, J.M.
1.These two appeals filed by the assessee are directed against the consolidated order of Commissioner of Income Tax-VII, Mumbai dated 11-3-2004 passed under Section 263 for both the assessment years i.e., 1999-2000 and 2000-01. These appeals are clubbed together, heard together and are being disposed of by this order for the sake of convenience.
2. The only grievances in both the appeals is that Commissioner of Income Tax has erred in exercising jurisdiction under Section 263 and the order passed is outside the scope and ambit of the said section.
3. The original assessments were completed under Section 143(3) for these assessment years. Deduction under Section 80-O was claimed @ 50% of foreign exchange earned by the assessee without taking into account the expenditure incurred in India to earn such eligible income. However, the assessing officer allowed the deduction under Section 80-O on the net income computed after taking into consideration all the expenses incurred in order to earn such income, The view of the assessing officer was upheld by the Commissioner of Income Tax(A) and also by the Tribunal.
4. Thereafter an order under Section 263 was passed by the Commissioner of Income Tax holding that w.e.f. 1-4-1998 the deduction under Section 80-O was available on the income received in consideration of use outside India of any patent, invention, design or registered trade mark and the assessee had received amount for professional services, as such, the order of the assessing officer for both the assessment years allowing deduction under Section 80-O was considered erroneous and, therefore, prejudicial to the interest of the Revenue.
5. Admittedly, the assessee is in the business of rendering the moving services in India and in foreign countries. The nature of services rendered by the Company relate to a composite package of specialized door to door services involving handling, packing and moving of personal and household effects of foreign clients like multinational companies, diplomatic missions, Government agencies and private non-resident clients. These services involve complete pre-importation services to include advice to forwarding/destination agents in the foreign country on the type of packing mode of forwarding, advise/assistance on negotiation of favourable freight rates from the foreign country to India, advice on custom's formalities, tariffs and classification, close monitoring of the shipment from pick-up in the foreign country to India, advice on custom's formalities, tariffs and classification, close monitoring of the shipment from pick-up in the foreign country to arrival at Port in India, etc. The services also involve complete door-to-door specialized packing, moving relocation services from residence in India to residence in a foreign country, receiving consignments at entry port in the foreign country, arrange transfer of consignment to agents' bonded facility, customs clearance, reloading, transfer of shipment to shipper's residence, unloading, unpacking, placement of items, removal of debris, handyman services, etc. The assessee claimed that all these activities involve an internationally recognized high standard of expertise, know-how and skill related to such services provided to foreign clients and such high standard must be maintained by the company only by virtue of its using registered trade marks of various International Associations of which the company is a member and the name of the company is enlisted in the members' list published by the respective Associations.
6. The first contention of the Commissioner of Income Tax for passing an order under Section 263 is that it is not mentioned in the invoices that the amounts received by the assessee was for the use of registered trade mark. The second contention of the Commissioner of Income Tax is that the words 'in consideration' as used in Section 80-O does not mean self use of registered trade mark as done by the assessee. According to him 'in consideration' means in exchange for the use or in lieu of the use outside India of any patent, invention or registered trade mark. The use of register trade mark by itself by the assessee, does not entitle it for deduction under Section 80-O. According to the Commissioner of Income Tax the Section 80-O has undergone change w.e.f. 1-4-1998 and the said amended section has not been considered by the assessing officer while passing the assessment order.
7. The learned Counsel for Shri A. Shankar has submitted various arguments before us in order to show that the order passed under Section 263 is not a valid order. The gist of the detailed arguments raised by the learned Counsel for the assessee is as under:
(i) the partial deduction under Section 80-O was allowed by the assessing officer on the ground that it is available on net receipt and not on the gross receipt as claimed by the assessee. The order passed by the assessing officer was upheld by the Commissioner of Income Tax (A) and as such assessing officer's order has merged with the order of the Commissioner of Income Tax (A). Since the issue of deduction under Section 80-O has already been considered and decided in appeal before Commissioner of Income Tax(A), as such in view of Section 263(1)(c), the Commissioner of Income Tax had no power to pass the order under Section 263 in the case of the assessee. For this proposition he relied on the following case law:
(i) Commissioner of Income Tax v. P. Muncherji & Co. .
(ii) Commissioner of Income Tax v. Smt. A. S. Narendrakumari Basaheba of Rajkot .
(iii) Ritz Ltd. v. Union of India .
(iv) Commissioner of Income Tax v. Godavari Sugar Mills Ltd. (1992) 198 ITR 1964 (Bom).
(v) Commissioner of Income Tax v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC).
(ii) The notice issued under Section 263 by the Commissioner of Income Tax was not valid notice as it was issued on the basis of presumption. It is clear from para 3 of the impugned order in which it is mentioned that "it appears that the assessing officer has ignored the amended provisions of Section 80-O". The law requires that Commissioner of Income Tax(A) can issue notice under Section 263 if he considers that orders passed by the assessing officer is erroneous and insofar it is pre-judicial to the interest of the revenue. It means that the Commissioner of Income Tax must be satisfied with regard to said error, prior to issuance of notice under Section 263. The order passed under Section 263 based on the said invalid notice is illegal and deserves to be quashed.
(iii) The Commissioner of Income Tax has passed a combined order under Section 263 for both the assessment years and same is illegal, as the law requires him to pass a separate order for each assessment year.
(iv) The deduction under Section 80-O was allowed by the assessing officer after considering all the relevant facts and after application of mind. A note was attached along with the return (page 16 of the paper book-3) which clearly states that how the assessee is entitled to deduction under Section 80-O even after the amendment in Section 80-O w.e.f. 1-4-1998. Specific query was raised by the assessing officer in his questionnaire issued during the course of assessment, (page 14 of the paper book-3) and assessee was required to justify the fulfilment of condition for claim made in Chapter VI-A and Section 80-O falls under Chapter VI-A. The detailed explanation was filed by the assessee and all the bills and vouchers were produced before the assessing officer and were test checked. The view of the Commissioner of Income Tax that the income received by the assessee by way of self use by it of registered trade mark does not amount to have been received in consideration for use of the trade mark, amounts to change of opinion and the same is not permissible under the law. He relied on the decisions of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax (2000) 243 ITR 831 (SC), Commissioner of Income Tax v. Gabrial India Ltd. (1993) 203 ITR 1081 (Bom) and Commissioner of Income Tax v. Arvind Jewellers .
8. The learned DR Ms. Ruby Srivastava supported the order of the Commissioner of Income Tax and stated that the question of allowability of deduction under Section 80-O was never examined by the assessing officer. The questionnaire issued during the course of assessment was only with regard to allowability of deduction under Section 80-O on gross receipts or net receipts. Simple reading of the assessment order makes it clear that there was no application of mind. The real debate before the assessing officer was with regard to the quantum of deduction under Section 80-O on the basis of gross receipts or net receipts. The change in the Section 80-O w.e.f. 1-4-1998 was ignored by the assessing officer. She stated that there was no change in the nature of services rendered by the assessee from assessment year 1992-93 and in the case of the assessee for assessment year 1992-93 the Tribunal has held that the services rendered by the assessee were based on manual skill.
9. Ms. Ruby Srivastava, learned DR also stated that the assessee is incurring expenditure for the use of trade mark of various associations and the income earned by the assessee is not for the use of its own trade mark. The bills raised by the assessee are for the services rendered by it.
10. During rebuttal Mr. A. Shankar stated that the assessee-company came into existence from assessment year 1993-94 and as such the case for assessment year 1992-93 was of M/s. P.N. Writer Company (firm) i.e., a different assessee. Moreover, the Tribunal in the said case has held that in para 34 that the assessee did nothing to deliver or render its skill or service abroad except to trifurcate the bill and charge its customers for the destination services actually delivered by certain foreign parties by adding a substantial mark-up. This finding in fact proves the case of the assessee that the income earned by way of mark up is due to use of registered trade mark outside India. The income of the assessee is in consideration for use of the registered trade mark. The deduction under Section 80-O was allowed by the assessing officer after proper application of mind and after going through all the papers filed along with the return. It is clear from the questionnaire, as referred earlier that there was a separate question asked from the assessee with regard to deduction under Section 80-O on gross or net basis/receipt and a separate question with regard to fulfilment of conditions for claim made under Chapter VI-A. He drew our attention to question Nos. 11 and 12 of the questionnaire at page 14 of the paper book-3. He also stated that there is no restriction under Section 80-O with regard to use of the registered trade mark of the associations in which the assessee is a member.
11. We have heard the rival submission in detail. There is no dispute with regard to the legal position that the issue which is considered and decided in appeal by Commissioner of Income Tax(A) cannot be subject to powers of Commissioner of Income Tax under Section 263. The case law quoted by the assessee is in support of the said proposition. However, the situation in this case is different as the issue before Commissioner of Income Tax(A) for consideration was whether the assessee is entitled to deduction under Section 80-O on the basis of gross foreign exchange receipts or net receipt after deducting the expenditure incurred in order to earn the said income. The matter before Commissioner of Income Tax (Appeals) was with regard to quantification of deduction under Section 80-O and the issue as to whether the assessee is entitled to deduction under Section 80-O or not was not before the Commissioner of Income Tax (Appeals) for consideration. As such we do not agree with the arguments of the counsel for the assessee raised in this regard.
12. The notice under Section 263 can be issued by the Commissioner of Income Tax if prima facie he is of the view that there is an error committed by the assessing officer which is pre-judicial to the interest of the revenue. We are of the view that the Commissioner of Income Tax need not be satisfied with regard to the said error prior to issuance of notice under Section 263. However, he is required to be satisfied in this regard prior to the passing the order under Section 263. A notice under Section 263 can be issued if he considers that the orders passed by the assessing officer is erroneous so far it is prejudicial to the interest of the revenue, which does not mean that he must be satisfied with regard to the said error prior to the issuance of notice under Section 263. In this case the Commissioner of Income Tax has mentioned in his notice under Section 263 that the assessing officer appears to have ignored the amended provisions of Section 80-O. We are of the considered view that such a notice cannot be treated as invalid notice and as such we do not agree with the contention of the counsel for the assessee raised in this regard.
13. The plea of counsel for the assessee that combined order passed under Section 263 for both the assessment years is illegal as a separate order required to be passed under Section 263, is hyper technical objection. There is no bar in Section 263 that a combined order for two years cannot be passed. The Commissioner of Income Tax may pass such order under Section 263 as specified therein cannot be read to mean that no combined order can be passed under Section 263. We do not find any merit in the said argument of the assessee's counsel.
14. The fact that the deduction under Section 80-O was allowed by the assessing officer after considering all the aspects of the case cannot be ignored. A note was attached along with the return explaining the nature of business of the assessee and how it is entitled to deduction under Section 80-O after the amendment in the said Section w.e.f. 1-4-1998. The specific query was raised by the assessing officer with regard to fulfilment of conditions for its claim under Chapter VI-A and detailed replies were filed by the assessee. In such circumstances it cannot be stated that there was no application of mind of the assessing officer in this regard, even if there is no detailed discussion in the assessment order to show that passing of assessment order is a domain of the assessing officer, it is for him to decide the way he want to write the order. However, the documents placed on record do not show that there was no application of mind. The assessment order cannot be held to be erroneous merely because the same should have been written in an elaborate manner.
15. The deduction under Section 80-O is available where the gross total income includes any income received from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any patent, invention, design or register of trade mark. View accepted by the assessing officer is that the receipt by the assessee is in consideration for the use outside India or register trade mark. Whereas the view of the Commissioner of Income Tax (Appeals) is that the deduction is available only if the income is received in exchange for the use or in lieu of the use outside India of registered trade mark and the assessee is not entitled to the deduction since it has itself used the trade mark.
16. The view taken by the assessing officer is one of the possible views and cannot be held that some error was committed by him by accepting such a view. Different opinion taken by the Commissioner of Income Tax does not mean that the order passed under Section 143(3) was erroneous insofar as it is prejudicial to the interest of the revenue. The provisions of Section 263 cannot be invoked on the basis of change of opinion. The decisions of P & H High Court in the case of Commissioner of Income Tax v. Max India Ltd. and Calcutta High Court in the case of Commissioner of Income Tax v. Smt. Joytsna Poddar , are to the same effect. The Calcutta High Court in the case of Commissioner of Income Tax v. Subhas Projects & Marketing Ltd. (IT Appeal No. 448 of 2000, dated 19-10-2001), as referred in ITA No. 3778/Mum./2005 Mumbai 'D' Bench in the case of Zyma Laboratories, has held that in exercise of power under Section 263, the order of the assessing officer can be said to be erroneous only when an impossible. view is taken.
17. On query raised by the Bench as to how it is possible that the entire income earned in convertible foreign exchange can be attributable towards the use of registered trade mark. The counsel for the assessee stated that the Commissioner of Income Tax has not passed order under Section 263 on this ground.
There was no error committed by the assessing officer with regard to the issue, which was made the basis of order under Section 263. It cannot be held that the entire income earned in the foreign exchange was in consideration for use of registered trade marks in foreign countries as the element of profit on account of services rendered by the assessee cannot be ruled out. However, we are dealing with the issue of legality of the order under Section 263 which is not passed on this ground. We are well aware that the different High Courts have held that the scope of order under Section 263 has to be ascertained with reference to the purpose and basis of the initiation of said proceedings. It is so held by:
(i) Karnataka High Court in the case of Commissioner of Income Tax v. L.F. DSilva ; and
(ii) Punjab & Haryana High Courtin the case of Commissioner of Income Tax v. Jagadhri Electric Supply & Industrial Co. (1983) 140 ITR 498 (Punj & Har).
18. In view of the above discussion we are of the view that the deduction under Section 80-O was allowed to the assessee after due deliberations and application of his mind and view taken by him is a possible view. The very fact that Commissioner of Income Tax has a different view does not mean that order passed by the ITO was erroneous insofar as it is prejudicial to the interest of the revenue. Moreover the view of the Commissioner of Income Tax that "in consideration" means in exchange for the use or in lieu of the use and self use cannot be "in consideration" is an extreme view. We hold that there was no such error committed by the assessing officer, as mentioned by Commissioner of Income Tax in order under Section 263 which can term the assessment order as erroneous in so far it is prejudicial to the interest of the revenue. The order passed by Commissioner of Income Tax under Section 263 for both the assessment years is quashed.
19. In the result, both the appeals of the assessee are allowed.