Income Tax Appellate Tribunal - Mumbai
Jcit, S.R. 26 vs Warner Bros (Fe) Inc. on 20 January, 2006
Equivalent citations: [2006]99ITD1(MUM), (2006)100TTJ(MUM)109
ORDER
O.K. Narayanan, Accountant Member
1. This is a bunch of four appeals and one cross objection filed by the Revenue as well as the Assessee. The Revenue has filed appeals for the three assessment years 1995-96, 1996-97 and 1997-98 in ITA. No. 94/Mum/99, ITA. No. 4703/Mum/99 and ITA. No. 2361/Mum/2000, respectively. The assessee has filed its appeal for the assessment year 1998-99 in ITA. No. 7237/Mum/2002. The cross objection No. l69/Mum/2000 is again filed by the assessee for the assessment year 1995-96 in the light of the appeal filed by the Revenue for the said assessment year.
2. The appeal and the cross objection for the assessment year 1995-96 are directed against the order of the CIT (A)-XIV at Mumbai passed on 16-11-1998. The appeals for the assessment years 1996-97 and 1997-98, by the Revenue are directed against the Orders of the CIT (A)-XIV at Mumbai dated 4-8-1999 and 6-3-2000, respectively. The appeal of the assessee for the assessment year 1998-99 is directed against the Order of the CIT (A)- XXI at Mumbai passed on 17-10-2002. All the appeals and the cross objection arise out of the respective assessments completed under Section 143 (3) of the Income Tax Act, 1961.
3. These appeals and the cross objection are placed before us, the Special Bench, to consider and decide the following issue :
Whether on the facts and circumstances of the case and in law, the 'settlement' dated 3rd March, 1987 continues to govern the computation of income even after 31-3-1987 and would apply to the assessment years subsequent to the assessment year 1987-88 ?
4. These appeals and cross objection have been filed before the Tribunal mainly on the above issue. The appeals and the cross objection would be substantively disposed-off, once the issue referred before the Special Bench is decided. Therefore, with the concurrence of the Revenue as well as the Assessee, the Bench thought it fit to proceed to dispose-off the appeals and cross objection as such, without confining itself to the issue above. The issue referred will be discussed and decided in the course of such disposal. This proposition is in fact in tune with the spirit of Section 255 (3) of the Income-tax act, 1961 wherein the law relating to the constitution of a Special Bench by the President of ITAT is provided. The law says that the President may, for the disposal of any particular case, constitute a Special Bench consisting of three or more Members .... (emphasize provided). When a matter is referred to a Special Bench, the case itself is referred rather than the issue/issues alone. Accordingly, we proceed to dispose off the appeals and the cross objection and will decide the issue referred before the Special Bench in the course of disposing them.
5. The assessee in this case is a non resident company incorporated in USA. It is engaged in the business of distribution of foreign films on behalf of M/s. Warner Bros. Inc., another nonresident company incorporated in USA. The assessee company carries on the business of distribution of foreign films on the terms and conditions of agreement entered into by the assessee company and M/s. Warner Bros. Inc. The assessee is a Member of Motion Picture Association of America (MPA for short). There are number of Member companies in the said Association. The business of the Member companies is distribution/exhibition of Motion Pictures produced out side India. All the Member companies have been carrying on the said business in India since about five decades in the past.
6. There were in fact a number of problems in the tax matters of the above said Member companies in India. Some companies were filing only one return of income whereas other companies were filing two returns of income; one for themselves as the Member company and the other for the non-resident producer company/international distribution company. The returns filed on behalf of the producer companies were filed either in the name of the Member companies as such or as agents of the producer companies. As far as the present assessee is concerned, it has filed two returns for all the impugned assessment years; one for itself and one for the producer company M/s. Warner Bros. Inc. While filing the returns of the producer companies, a share in the production cost of the films, global publicity cost, print and materials cost and other logistic and administrative overheads were claimed by the companies as deductions against the gross collections made in India. The differential net income alone was offered for taxation. The companies also filed statements incorporating the details and particulars of the above items of deductions claimed by them. In the course of assessment proceedings, the Assessing Officers have disputed the veracity of such claims made by the companies mainly on the ground that the verification of various items of expenditure was not possible and a correct apportionment also was difficult. These practical difficulties resulted in a number of anomalies and litigations for so many assessment years. Assessee companies as well as Assessing Authorities opted for different standards and assessments varied violently from case to case even though all the companies did carry on the same line of business with exact parameters of operations in India. The Central Board of Direct Taxes (CBDT for short) had to intervene in the scenario to chalk out a practical way to complete the assessments of Member companies in a reasonable manner. The CBDT made extensive study on the subject and made discussions with the representatives of the MPA and finally intervened in the situation by issuing a proceeding F.No. 485/2/85-FTD dated 3rd March, 1987 (this proceeding hereinafter referred to as 'settlement'). The 'settlement' provided that the assessments in the case of Member companies of MPA would be made only on the Designated Member company and no assessments would be made on other producer companies/distributor companies of that group. The Member company directly operating in India alone would be taxed. The 'settlement' also provided that the taxable income of the Member companies would be determined on a presumptive rate of 25% of the gross film receipts earned by the Member companies out of its operations in India.
7. The above proceeding of the CBDT was issued on 3rd March, 1987 and as such the assessments of the Member companies, including those of the assessee were completed on the basis of the 'settlement' up to and including the assessment year 1987-88. Particularly in the case of the assessee company, the assessments up to the assessment year 1993-94 were completed on the basis of the 'settlement' without any objection from either side.
8. However, for the assessment year 1994-95, the income tax authorities declined to make the assessment on the basis of the 'settlement' on the ground that it applied only up to 31-3-1987 and not thereafter. The matter reached Appellate Tribunal at the instance of the assessee in ITA. No. 1668/Mum/98. In the mean time, the Tribunal had already considered the issue in the case of M/s. Columbia Picture Industries Inc.; a Company operating in the same line of business in India. The Tribunal through its Order dated 25/5/1998 in ITA.Nos.1145 & 3532/Cal/91 and C.O.21 & 22/Cal/92 held in Columbia's case that the 'settlement' would continue to govern the assessments even beyond 31-3-1987. As the said decision of the Tribunal in Columbia's case was available before it, the Tribunal followed the said Order and held in assessee's case for the assessment year 1994-95 that the income had to be computed in accordance with the 'settlement'.
9. The CIT (A) for the assessment years 1994-95, 1996-97 and 1997-98 followed the same view and directed the assessing authority to compute the income in accordance with the 'settlement'. The first appeals filed by the assessee company against the assessment orders were allowed by the CIT (A). It is, for that reason, the Revenue has come before us in appeals for the said three assessment years.
10. But, the first appeal for the assessment year 1998-99 was decided by another CIT (A) who did not follow the decision in favour of the assessee. The CIT (A) held that the circular issued by the CBDT dated 3rd March, 1987 would not be applicable beyond 31-3-1987. The CIT (A) relied on a clarification issued by CBDT on 6-1-1992 to one Mr. D.F. Pereira to come to the above conclusion. He also referred to the decision of the ITAT Mumbai Bench in the case of Columbia Pictures where the Tribunal has observed that the agreement was made applicable for the reason of non availability of relevant details and where the details are available, the Revenue could consider the application of appropriate Rules for determining the income of the assessee. Accordingly, he upheld the determination of income made by the Assessing Officer on an estimate basis. That is why the assessee is in appeal for the assessment year 1994-95.
11. The common ground raised by the Revenue for all the three assessment years is extracted below :
On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in directing the A.O. to adopt 25% of gross receipts of the assessee company and not the income as computed Under Section . 143 (3) of the Income-tax Act as taxable income without appreciating that the method of arriving at total income by way of adoption of 25% of gross receipts as earlier settled by Motion Pictures Export Association with C.B.D.T., was not applicable in the A.Y. 1995-96 as per CBDT's letter No.485/2/85-FTD dated 19/02/1998
12. The ground raised by the assessee for the assessment year 1998-99 is the converse that the CIT (A) has erred in upholding the estimation of income made by the assessing authority defying the settlement followed in the past.
13. The issue referred before this Special Bench arises out of the above common ground raised in these appeals.
14. When these appeals were earlier placed before the Regular Division Bench, to its curiosity, it was found that the issue has been decided by the Tribunal, in either way. The Tribunal held in the following cases that the 'settlement' continued to govern the assessments even after 31-3-1987 :
M/s. Columbia Picture Industries Inc. (ITA.No. 1145 & 3532/Cal/91 & CO Nos. 21 & 22/Cal/92 - Assessment years 1987-88 & 1988-89, dated 25-5-1998) M/s. Columbia Pictures Industries Inc. No.3316/Bom/95 dt. 25-2-2003 -A.Y. 1992-93) M/s. Columbia Pictures Industries Inc. (ITA. No. 100/Mum/99 dt. 17-9-2003 - A.Y. 1994-95 Warner Bros. (F.E.) Inc. (ITA. No. 1668/Mum/98 dt.7-5-2003 A.Y. 1994-95) JCIT v., 20th Century Fox International Corporation (ITA Nos. 1997, 1998 & 1999/Mum/1999 dt. 12-11-2003 A. Ys. 1993-94 to 1995-96)
15. It was also found that the Tribunal in the case of JCIT v. M/s. Columbia Picture Industries Inc. for the assessment year 1995-96 in ITA. No. 6657/Mum/98 dated 23-10-2003 has held that the 'settlement' would not be applicable for the period subsequent to 31-3-1987.
16. As there is a conflict of Opinion amongst the Benches of the Tribunal on the question whether the settlement continued to govern the assessments even after 31-3-1987, the matter was referred to the Hon'ble President who constituted the present Special Bench to consider the issue, which is again extracted below :
Whether on the facts and circumstances of the case and in law, the 'settlement' dated 3rd March, 1987 continues to govern the computation of income even after 31-3-1987 and would apply to the assessment years subsequent to the assessment years 1987-88 ?
17. Shri P.K. Das, the learned Commissioner of Income Tax appeared for the Revenue. He argued the case along with Shri Ravindra Kumar, the learned Senior D.R. The learned Commissioner contended that the 'settlement' relied on by the assessee was not in fact in the nature of any circular issued by the CBDT. He explained that it was only a letter dated 3rd March, 1987 written to the concerned Commissioner of Income Tax at Mumbai, clarifying the settlement proposed up to 31st March, 1987. It was a specific letter. The directions as per the said letter governed the assessments for and up to the assessment year 1987-88 alone and not any assessment thereafter. He explained that the said letter was not a binding circular issued by the CBDT. He invited our attention to page 8 of his paper book wherein he has given a copy of the Circular No.742 issued by the CBDT to distinguish the features of a formal circular from that of a clarification letter. He stated that the circulars are issued on a definite format wherein all the aspects of the issue are discussed and specific instructions are given. The present settlement relied on by the assessee is a letter issued to the Commissioner of Income Tax discussing the issues raised by him in completing certain pending assessments and it was a specific settlement relevant only for the period up to 31-3-1987 and not thereafter. He explained that the settlement did not have any perpetual value.
18. The learned Commissioner contended that if certain assessments were completed on the basis of the settlement even after 31-3-1987, it could be only a mistake and nothing more. Such mistake committed by the Officers of the Department on the basis of an improper appreciation of the situation cannot be perpetuated indefinitely for all the years to come, to the wrongful advantage of the assessees. The mistake cannot be held of as a Rule of Consistency. It cannot be stated that the mistake acted as resjudicata on the issue. In certain cases, assessments would have been completed on the basis of the 'settlement' for the period even after 31-3-1987. In certain other cases, assessments would have been completed on the regular provisions of the Income-tax Act and in appeal the CIT (A) might have set aside the finding of the assessing authorities and directed to determine the income on the basis of 'settlement' and in such cases, the Revenue might not have preferred second appeals before the Appellate Tribunal. In spite of all these pits and falls on the part of the Revenue, the assessees could not be allowed to take advantage of the situation by stating that such pits and falls made by the department have set a precedence in applying the outdated settlement for the purpose of assessments. The assessees cannot take benefit out of such mistakes and on that ground they cannot rely on the terms of the settlement which no more existed beyond 31-3-1987, as evident from the subsequent clarifications issued by the CBDT stating in a clear voice that the 'settlement' dated 31-3-1987 did not apply to assessments for the period falling after 31-3-1987.
19. The learned Commissioner invited our attention to page 7 of his paper book where a copy of the clarification issued by CBDT is placed for our reference. In the said clarification in the form of a letter dated 19th February, 1998 issued to one Mr. Dinesh, the Board has clarified that the 'settlement' dated 03-03-1987 referred to by the assessee was only in respect of those assessments pending at that point of time and the settlement would not be applicable for subsequent assessment years. The learned Commissioner stated therefore, that even if the 'settlement' dated 03-03-1987 is construed as a circular issued by CBDT, the said circular ceased to be operative beyond 31-3-1987 as clarified in the subsequent letter of the CBDT issued on 19th February, 1998. In the said letter dated 19th February, 1998, the Board has also referred to an earlier clarification issued by it on the same line through letter dated 16th January, 1992. Once it is clarified by CBDT that the 'settlement' no more existed for the period beyond 31-3-1987, there is no substance in the argument of the assessees that subsequent assessments should also be governed by the out dated settlement.
20. The learned Commissioner further explained that the Order in the case of M/s. Columbia Pictures Industries Inc. [ITA.No.6657/Mum/98 dated 23-10-2003] IT AT 'A' Bench, Mumbai] is the speaking Order passed by the Tribunal after taking into consideration all aspects of the case whereas all other decisions of the Tribunal rendered in favour of the assessee just followed the first Order of the Tribunal passed in Columbia's case without considering the subsequent notifications issued by the CBDT and without considering the issue independently.
21. The Revenue further contended that the decision of the ITAT Mumbai T Bench dated 23rd October, 2003 passed in the case of M/s. Columbia Pictures Industries Inc. deciding the issue in favour of the Revenue is the proper Order to be followed by the Tribunal as against the earlier Orders of the Tribunal rendered in favour of the assessee. The Revenue contended that even though the General Rule is to follow the decision of a Coordinate Bench, there can be certain circumstances, in which an earlier Order could not be followed and this is a case where the earlier Orders of the Tribunal deciding the issue in favour of the assessee should not be followed just to satisfy the General Rule of precedence. Reliance was placed on the decision of ITAT, Ahmedabad Bench in the case of Harish Krishna Kant Bhatt v. ITO 278 ITR (AT) 1 (Ahmedabad).
22. The learned Commissioner further argued that the fact that certain assessments even after 31st March, 1987 were completed on the basis of the 'settlement' does not estop the Revenue from pleading for applying the correct proposition of law in the present appeals placed before the Special Bench. He relied on the decision of the Supreme Court in the case of New Jahangir Vakil Mills Co. Ltd., v. CIT 49 ITR 137 where in the facts and circumstances of the case, the Court has held that the fact that assessee was treated as an investor in assessment related to 1943 would not estop taxing authorities from considering when trading activity began. The learned Commissioner submitted that wrong precedence could not be relied on as resjudicata. He also relied on the following decisions.
M.M. Ipoh and Ors. v. CIT 67 ITR 106 (SC) A. Ranganathan v. Controller of Estate Duty 49 ITR 137 (Mad.) Union of India and Ors. v. Godfrey Philips India Ltd. 158 ITR 574 (SC) CIT v. B.N. Bhattacharya 118 ITR 461 (SC)
23. He concluded that the 'settlement' relied on by the assessee was only a one time clarification applicable for a short period ending on 31-3-1987 and that too for pending assessments at that point of time and the said 'settlement' has been undone by subsequent clarifications issued by the CBDT in 1992 and 1998 and therefore at any stretch of imagination it is not possible to hold that the 'settlement' would still be applicable for assessments even after 31/3/1987. He, therefore, submitted that the decision of the ITAT Mumbai Bench T in JCIT v. Columbia Pictures Industries Inc. dated 23rd October, 2003 may be approved by the Special Bench holding that the assessments for the impugned assessment years have to be completed under the regular provisions of the Income-tax Act, 1961.
24. Sri W. Hasan the learned Counsel appeared for the assessee and argued the case. The learned Counsel stated that the entire thrust placed by the Revenue is on the decision of the ITAT Mumbai T Bench in JCIT v. M/s. Columbia Picture Industries Inc. dated 23rd October, 2003 wherein the Tribunal has held against the assessee stating that the 'settlement' dated 03-03-1987 would not be available for assessments for the period falling after 31-3-1987. The learned Counsel submitted that it is on the basis of the said Tribunal judgment that the Revenue is harping its argument that the 'settlement' is not applicable in the present cases.
25. The learned Counsel stated that the basis of the finding of the Tribunal in the said decision was that "the fact that representations of MPEAA for extension of the same basis to the assessment of subsequent years had already been rejected by the Board was not known to the Tribunal when the Orders cited by the learned AR of the assessee were passed." It is the finding of the Tribunal that other Benches of the Tribunal have passed earlier Orders in favour of the assessees without the knowledge of the subsequent clarifications issued by the CBDT. The learned Counsel submitted that the above finding of the Tribunal is not up to the facts. This point was specifically raised as one of the grounds in the appeals filed by the assessees before the Tribunal in which the Judgments were rendered in their favour. The learned Counsel cited the cases of M/s. Columbia Picture Industries inc. for the assessment year 1994-95; the case of 20th Century Fox International Corporation for the assessment year 1993-94 to 1995-96 and the case of the Columbia Picture Industries Inc. for the assessment year 1990-91. He stated that other Benches of the Tribunal have decided the issue in favour of the assessee only after considering this particular point which formed part of the respective grounds of appeal. He, therefore, stated that the order of the Tribunal relied on by the Revenue is not in any way preferable to the other orders of the Tribunal in so far as the subsequent clarifications issued by the Board are concerned. He submitted that without considering the subsequent notifications of the Board and even after considering those notifications issued by the Board, the consistent view taken by various Benches of the Tribunal is the same that the 'settlement' dated 03-03-1987 continue to govern the assessments even beyond that date. The Tribunal have upheld the above proposition with the exception of the solitary instance pointed out by the Revenue in the case of M/s. Columbia Picture Industries Inc. of which the Order is dated 23rd October, 2003.
26. The learned Counsel further submitted that the assessments completed in various cases on the basis of the 'settlement' even after 31-3-1987 cannot be treated as a casual case of mistake. The Revenue has consistently followed the same method of assessment in a very conscious manner. Even after the receipt of the order of the ITAT T Bench, Bombay in the case of M/s. Columbia Picture Industries Inc., relied on by the Revenue, the CIT (A)-XXXI at Mumbai has decided the appeal vide his Order dated 10-1-2005 holding that the income need to be determined at 25% of the gross receipts on the basis of the settlement pronounced by the CBDT. The learned Counsel submitted that the Revenue has not filed any appeal against the said order of the CIT (A). He further explained that in any number of cases, different Benches of the ITAT have held from time to time, in a consistent manner, that the determination of income must be on the basis of the settlement. He invited our attention to the details furnished in a chart given at page 42 of the paper book. The learned Counsel pointed out that Revenue has not filed any appeals against those Orders of the Tribunal before the High Court except in assessee's own case for the assessment year 1994-95. The said appeal filed by the Rvenue for the assessment year 1994-95 too is rejected by the High Court. The Revenue has moved a Notice of Motion to set aside the Rejection Order of the Court passed on 6-7-2004 which is now pending for adjudication.
27. The learned Counsel submitted therefore, that except in a solitary case, the Revenue has not preferred any appeal before the High Court against the empteen number of Orders passed by the Tribunal and this conduct of the Revenue is an evidence to support the case of the assessee that the determination of income on the basis of the 'settlement' dated 03-03-1987 is a consistent method followed by the Revenue.
28. The learned Counsel submitted that where, over a period of time the Revenue has adopted a particular method of determination of income on the basis of a notification issued by the competent authority, the Revenue has estopped from contending that the said 'settlement' was not applicable after a particular date only for the reason that some of the Assessing Officers held such a view. The learned Counsel pointed out that the consistent method adopted by the Revenue is binding on the Assessing Authorities as held in the following decisions :
Union of India v. Kaumudini Narayan Dalai 249 ITR 219 (SC) Union of India v. Satish Panalal Shah 249 ITR 221 (SC)
29. The learned Counsel further explained that it is not the case of the Revenue that they have ignored the 'settlement' altogether for the purpose of assessments even after 31-3-1987. Two conditions were highlighted in the 'settlement' dated 03-03-1987. The first condition is that only one designated company would be assessed for and on behalf of a particular group of companies. The second condition is that the income of that designated company shall be determined at 25% of the total gross receipts from exhibition of Cinematographic films in India. The Revenue has its grievance only on the question of determination of income after 31-3-87. At the same time, Revenue is contemplating assessments only on the name of the designated company representing a particular group and the Revenue has not proceeded to assess anybody other than the designated company. It shows that the Revenue has accepted for its convenience one limb of the settlement which according to themselves has been expired since 31-3-1987. At the same time, the Revenue refused to follow the second limb of the agreement where it is stated that the income shall be at 25% of the gross receipts. The learned Counsel submitted that this piece meal acceptance and rejection of a time tested settlement is not sustainable in law and the attitude of the Revenue is nothing but arbitrary.
30. The learned Counsel further submitted that the 'settlement' need to be followed by the Revenue authorities even under Article 7 (5) of the India - USA DTAA. Paragraph 5 of the Article 7 of the India - USA DTAA provides that the profits derived from the assets and activities of the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. The learned Counsel submitted that the consistency is again highlighted in the Double Taxation Avoidance Agreement. Therefore, he submitted that the method hitherto followed by the Revenue on the basis of the 'settlement' is the appropriate method to complete the assessments of the Members of MPA even for the period falling subsequent to 31-3-1987.
31. We heard both sides in detail. It is appropriate to short list the points canvassed by both sides at the time of argument. As far as the assessee is concerned the following points were highlighted :
1. That the 'settlement' communicated to the Commissioner of Income Tax on 3-3-1987 is a Circular issued under Section 119 (2) (a) and since it has not been withdrawn by the Board, it would continue to govern the assessments even after 31-3-1987.
2. That Article 7 (5) of the agreement with USA for the avoidance of double taxation would apply, which shows that the computation of the profits of a permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. There is no good and sufficient reason as to why the settlement should not be followed in the assessments made after 31-3-1987.
3. That while passing the Order in the case of M/s. Columbia Picture Industries Inc. on 25-5-1998, the Tribunal was aware of the fact that the settlement was effective only up to 31-3-87, but still held that there is no ground to refuse to apply the same to the assessments completed after that date and this Order has been followed in other cases, including the assessee's case and hence consistent with judicial discipline and proprietary, those Order should be followed in the present appeals also.
4. That in the assessee's own case the Income Tax Authorities have applied the settlement up to the assessment year 1993-94.
5. That the Tribunal, in assessee's own case has applied settlement for the assessment year 1994-95.
6. That the Income Tax Authorities having partly given effect to the settlement by clubbing the income of the two entities viz., Warner Bros. (FE) Inc. as agents to Warner Bros. Inc. and Warner Bros. (FE) Inc. in its own status, in one assessment, were not justified in refusing to give effect to computation of income as prescribed in the settlement.
32. The points highlighted by the Revenue are to be stated as follows :
1. That the 'settlement' covered only the period up to 31-3-87.
2. That it was withdrawn by the letter issued on 6/1/1992
3. That this position was reiterated by letter issued by the Board on 19-2-98.
4. That the Tribunal, while passing Orders in the case of Ms. Columbia Pictures Inc. on 25-5-1998 and subsequently in other cases where it was followed was not made aware that the 'settlement' had been withdrawn by the above letters by the Board.
5. That in any case, a 'settlement' arrived at in 1987 under the circumstances then existing, cannot be given perpetual effect for all time to come irrespective of the ground realities. Its effect was lost by afflux of time.
6. That the 'settlement' was not a circular within the meaning of Section 119 (2) (a) and hence no question of withdrawal thereof.
33. We considered the merits of the issue raised before us in the light of the contentions and arguments advanced by both sides and also in the light of the appeal files and paper books filed before us both by the Revenue and by the Assessee.
34. The 'settlement' was arrived at between the CBDT and MPA for sorting out the difficulties faced in completing the assessments. The agreement has been endorsed by the CBDT in the proceedings issued by it in F.No.485/2/85/FTD on 3rd March, 1987." Even though the agreement was released in the form of a communication to the Commissioner of Income Tax at Mumbai as directions to complete the pending assessments, the agreement acted as a settlement for all purposes of the assessments of the Member Companies of MPA. But, it is not correct to say that the said agreement reflected in the settlement pronounced by CBDT on 3rd March, 1987 in fact existed even beyond 31-3-1987. As rightly contended by the learned Commissioner of Income Tax appearing for the Revenue, the directions as per the settlement governed the assessments for and up to the assessment year 1987-88 and pending at the relevant point of time. When the Member Companies of MPA later on approached the CBDT to extend the scope of the settlement for the period falling beyond 31-3-1987, it was made very clear by the CBDT that the settlement dated 3rd March, 1987 was only in respect of those assessments pending at that point of time and the settlement would not be available for the assessments concerning the period after 31-03-1987. This position has been clarified by the CBDT through its letter dated 6th January, 1992 and again in a subsequent clarification issued on 19th February, 1998. In the course of hearing of these appeals, it was made clear that the assessee company was also aware of the subsequent clarifications issued by the CBDT stating that the settlement dated 3rd March, 1987 would not be available for the assessments falling for the period beyond 31-3-1987.
35. The settlement relied on by the Member Companies of MPA has been authorized and pronounced by the CBDT on the basis of the powers conferred on it under the enabling provisions of the Income Tax Act, 1961. The Board has made it clear later on that the settlement did apply only for those assessment years up to 31-3-1987 and more particularly to those assessments pending at that point of time when the relevant notification was issued on 3rd March, 1987. The Board has made it clear through its subsequent clarifications that the said settlement of 3rd March, 1987 would not be applicable for cases of assessments falling for the period beyond 31-3-1987. In such circumstances when the Author of the 'settlement' has made it clear that the settlement did apply for the period only up to 31-3-1987 and not beyond that period, it is technically not feasible to hold that the said settlement applied for the period even after 31-3-1987. Therefore, the simple answer to the controversy whether the settlement dated 3rd March, 1987 did apply to the period falling after 31/3/1987, is that the said settlement might not be applicable to the period falling after 31-3-1987 as clarified by the CBDT from time to time which fact is known to the assessee company as well.
36. Even though it might be possible to hold that the settlement may not be applicable for the period falling after 31-03-1987, in the light of the subsequent clarifications issued by the CBDT, the termination of the settlement w.e.f. 01-04-1987 could be considered only as a technical outcome. Two conditions were highlighted in the settlement dated 03-03-1987. The first condition is that only one designated company would be assessed for and on behalf of a particular group of companies. The second condition is that the income of the designated company shall be determined at 25% of the total gross receipts from exploitation of cinematographic films in India. It is to be seen that the revenue has its grievance only on the question of determination of income after 31-03-1987. It does not have any grievance with reference to the first limb of the settlement that the assessment would be completed only in the hands of the designated company representing a particular group. Even after the finding arrived at by the authorities that the settlement has been terminated after 31-03-1987, they sought to follow the first limb of the settlement and assessed only one designated company representing a particular group. Therefore, even after the technical termination of the settlement after 31-03-1987, it is to be seen that the department is carrying on the settlement in a partial manner as far as the first limb of the settlement is concerned. Therefore, in the facts and circumstances of the case it has necessarily to be held that the termination of the settlement for the period after 31-03-1987 was only a technical deliberation.
37. But the simple and straight forward answer to the question of applicability of the settlement dated 3rd March, 1987 for the period falling beyond 31-3-1987 by itself does not resolve the issue relating to the impugned assessments. The circumstances which prompted the CBDT to pronounce a settlement dated 3rd March, 1987 continue even to day and no better alternative for completing the assessments of the Member Companies of MPA has been worked out by the competent authorities. It is in these circumstances we have to see the fact that even after 31-3-1987 the Revenue has been determining the income of the Members of the MPA for the subsequent assessment years, on the basis of the principles of settlement reached into between the CBDT and MPA on 3rd March, 1987. The contention of the Revenue that such assessments even after 31-3-1987 were only instances of mistakes seems to be difficult to accept.
38. In many cases where the assessing authority has refused to follow the 'settlement', the CIT (A) have held that the assessments should be completed on the basis of the 'settlement'. In the ensuing cross appeals placed before the various Benches of the Tribunal, the Tribunal has taken a consistent view that the assessments need to be completed on the basis of the 'settlement'. Assessee has cited a number of instances where Revenue has completed the assessments on the basis of the same 'settlement' even after 31-3-1987. It is also brought to our notice that only for assessment year 1994-95 that in the case of the assessee, the Revenue has gone in appeal before the High Court against the Order passed by the Tribunal in favour of the assessee. That appeal has also been rejected by the High Court. In these circumstances, it is, very difficult to hold that the assessments completed after 31-3-1987 on the basis of the 'settlement' were instances of mistakes. On the other hand, the pattern of assessment followed by the department as stated above has laid down a clear case of consistent method followed by it. When an assessment is completed on the basis of a consistent method followed for a number of assessment years in the past, it assumes the Role of a Rule and the method cannot be bye-passed unless the circumstances warranted so. In the present case, in spite of rejection of the 'settlement' by the assessing authorities, no better method of assessment has been brought on record. Therefore, in the light of Supreme Court decisions in the case of Union of India v. Kaumudini Narayan Dalai 249 ITR 219 (SC) and Union of India v. Satish Panalal Shah 249 ITR 221 (SC), the Revenue is estopped from disowning the 'principles of settlement' dated 03-03-1987. The Revenue has an onerous responsibility to establish that it had sufficient reasons to over look the 'principles of settlement' dated 03-03-1987 for the purpose of assessment. So long as the Revenue has not discharged such liability assumed by its own past conduct, it is not proper on the part of the Revenue to deviate from the accepted method and complete the assessment on an estimate basis.
39. Therefore, we find that there is real substance in the argument of the assessee that even after 31-3-1987, the Revenue has followed the 'principles of settlement' for determining the income of Member Companies of MPA, in a conscious and consistent manner. The Revenue has relied on the decision of ITAT Mumbai Bench T in the case of M/s. Columbia Picture Industries Inc. dated 23rd October,2003 to support its argument. As pointed out by the learned Counsel, one of the reasons stated by the Tribunal in taking a different view from the earlier Tribunal decisions and deciding the matter in favour of the Revenue was that the Tribunal while passing the earlier decisions has not taken into consideration the subsequent clarifications issued by the CBDT through letters dated 6th January, 1992 and 19th February, 1998. But, as rightly pointed out by the learned Counsel, the above clarification issued by the CBDT have been considered by the Tribunal in many appeals filed before it as part of the grounds of appeal, and still held that the 'settlement' was applicable in determining the income of those assessees. Useful references are made to the assessments of M/s. Columbia Picture Ind. Inc. for the assessment year 1994-95; 20th Century Fox International Corpn. for the assessment year 1993-94 to 1995-96 and M/s. Columbia Picture Ind. Inc. for assessment year 1990-91. Therefore, we agree with the argument of the learned Counsel that various Benches of the Tribunal has decided the matter in favour of the assessee even after considering the subsequent clarifications issued by the CBDT on the subject. Therefore, the thrust placed by the Revenue on the reasoning of the Order of the Tribunal in the case of M/s. Columbia Picture Industries Inc. dated 23/10/2003 is little exaggerated.
40. As a matter of fact, as considered above, the 'settlement' dated 3rd March, 1987 has been followed by the department in completing many a assessment even after 31-3-1987 and the Tribunal has consistently upheld the applicability of the 'settlement' after 31/3/1987 and that too, after considering the subsequent notifications issued by the CBDT on the subject. In these circumstances it could be easily seen that the assessments of Member Companies of MPA have been completed by the department on the basis of the 'settlement' as a consistent and accepted practice for long time in the past since the date of 'settlement'. Therefore, the Rule of prudence and the Rule of consistency suggests that this procedure be followed in all assessments relating to the Members of MPA even after 31-3-1987.
41. The 'settlement' dated 03-03-1987 was in fact arrived at by the CBDT to over come the difficulties which were felt before the settlement in determining the income of various Member Companies of MPA operating in India. That is the main object of the 'settlement'. Therefore, the relevance of the 'principles of settlement' cannot be overlooked unless and until a better method of assessment is contemplated by the Board or that the prevailing circumstances have warranted a deviation from the terms of the 'principles of settlement'. What is the picture available before us ? In the appeals filed by the Revenue for the assessment years 1995-96, 1996-97 and 1997-98, the assessing authority has not pursued any better / concrete method of assessment to justify the rejection of the 'settlement'. The Assessing Officer has completed the respective assessments on an 'estimate basis'. What is the sanctity of replacing a well settled method of assessment by an estimate method ? Is it necessary to replace an existing and accepted method of assessment with an estimate method of assessment ? We do not find any provocation for that.
42. Let us see the net result of estimating the income for all these three assessment years under appeal. The details speak for themselves :
A.Y Income returned Income assessed Differential 95-96 Rs.4633195 Rs. 50,00,000 (+)Rs. 3,66,805 96-97 Rs.7354820 Rs. 80.00.000 (+)Rs. 6,45, 180 97-98 Rs.9691389 Rs. 1,20,00,000 (+)Rs.23,08,611
43. The differential made out by the assessing authority is nominal and that too made on an estimate. At this point, it is, necessary to reproduce the 'office note' of the assessing authority appended in his assessment order dated 23-1-1998 for the assessment year 1995-96 :
"OFFICE NOTE :
It is the department's contention that the settlement reached between the member companies of MPEAA & CBDT dt. 3-3-87, is not applicable to assessments subsequent to A.Y. 86-87. The member companies of MPEAA contend that this settlement would be applicable for all future years although the Board has clarified to the contrary. The member companies of MPEAA have approached the board in this financial year for continuance of the settlement reached earlier which is under progress and it is likely to take a final shape in coming few months. If the assessment is completed on the basis of profit and loss account then the head office and production expenses should also be allocated towards the cost of distribution expenses and this may result in arriving on an income which would be lesser than the income offered by the assessee. Since the books of accounts are not complete, as the production expenditure is not properly debited to the books of accounts, the books of accounts of the assessee are rejected and the profit of the film distribution is estimated at Rs. 50 lakhs."
44. If the assessing authority is to follow the regular provisions of Income Tax Act to complete the assessment, the situation is not all attractive to the Revenue. The income computed as per the accounts would be less than the income returned by the assessee. The assessing authority himself apprehends that:
If the assessment is completed on the basis of profit and loss account then the head office and production expenses should also be allocated towards the cost of distribution expenses and this may result in arriving on a income which would be lesser than the income offered by the assessee.
45. It is quite clear from the above Office Note that if the assessment was to complete on the basis of the regular provisions of the Income Tax and on the basis of the books of accounts of the assessee, the income assessed might be less than the income offered by the assessee on the basis of the settlement. The only alternative is that of estimation. Either the method of estimation or the method of assessment on the basis of books of accounts does not provide any panacea for the complex issue of determining the income of Member Companies of MPA operating in India.
46. We find that Revenue has not provided any meaningful alternative to the principles laid down in 'settlement' accepted by the CBDT on 03-30-1987. On a plain discussion in the light of the facts and history of the issue as well as the legal provisions, we find that the principles laid down in the 'settlement' dated 03-03-1987 is to be followed for the assessments even after the period 31-3-1987. It is, in this context, we have to reiterate the relevance of the 'settlement' arrived at by the CBDT dated 03-3-1987. It is after facing practical difficulties in completing the assessments of the Member Companies of MPA operating in India, that the CBDT has come down to formulate a presumptive taxation. It was to avoid the complexities involved in the determination of income of the assessees. It is only after a series of thoughtful deliberations that the 'settlement' was agreed to between the CBDT and the MPA. The Board has conducted extensive research on the subject. It is on the basis of such serious study that the CBDT has agreed to the settlement which was finally approved by the Government as a policy matter. Therefore, the 'settlement' dated 03-3-1987 should not be taken as light-hearted. It should be accepted as a practical way of collecting taxes from non resident companies engaged in film distribution in India.
47. In the case of domestic taxation, usually larger principles of welfare economics are preached as the underlying priorities of taxation policy. This is what the canons of taxation propounded in the study of public finance always stated. But, in the case of taxation of income of transnational companies operating in India, the principles of welfare economics are to be replaced by priorities of hard money economics. The collection of Revenue in the form of money is the crucial moto in any scheme of taxation of transnational companies. Therefore, what is to be considered is a practical method to collect reasonable amount of tax on the income earned by such non-resident companies operating in India with least collection cost and less litigation. This is the spirit of the agreement entered into by the CBDT on 03-3-1987. We do not find that the Revenue has invented any better method to replace the agreement/settlement entered into by the CBDT on 03-3-1987.
48. In the circumstances of the case and after considering all the aspects of the case, we find that the issue has to be decided in favour of the assessee. Therefore, we hold that the principles embodied in 'settlement' dated 03rd March, 1987 would apply to the assessment years subsequent to the assessment year 1987-88. In the light of the above finding, we hold that the appeals filed by the Revenue for the assessment years 1995-96, 1996-97 and 1997-98 are liable to be dismissed.
49. The Cross Objection filed by the assessee for the assessment year 1995-96 has become infructuous as we have already dismissed the appeal filed by the Revenue. Therefore, the cross objection is also liable to be rejected.
50. As far as the appeal filed by the assessee for the assessment year 1998-99 is concerned, it has been withdrawn and therefore stands to be rejected.
51. In result, the appeals filed by the Revenue as well as the appeal filed by the Assessee along with the cross objection are dismissed.
52. Order pronounced on this 20th day of January, 2006.