Income Tax Appellate Tribunal - Delhi
Mannesmann Demag A.G. vs Deputy Commissioner Of Income-Tax on 20 March, 1995
Equivalent citations: [1995]53ITD533(DELHI)
ORDER
--Assessment in consonance with decisions of High Court and Tribunal.
Ratio:
The decision of the assessing officer which was in consonance with the decision of a High Court and Tribunal could not be said to be erroneous.
Held:
In the present case the assessing officer had taken into account the past history of the case. He had made proper enquiries and had taken a view which was in consonance with the view expressed by the High Court and the several decisions of the Tribunal. Therefore, the decision of the assessing officer could not be said to be erroneous.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Possibility of a view contrary to that taken by the assessing officer.
Ratio:
Order of assessing officer cannot be termed as erroneous merely because there is possibility of a view contrary to view taken by assessing officer.
Held:
When in the past receipts were held not to be taxable and the assessing officer had properly applied his mind to the amended provisions of the Avoidance of Double Taxation Agreement between the two related countries and reached to a possible conclusion that the receipts in question were not liable to tax, the assessing officer could not be said to have committed an error by not taking a view not perceived by him. Merely because the Commissioner is having a different view does not make the order of the assessing officer erroneous. Moreover, it is a well-settled principle of law that where two reasonable views are possible, the one favourable to the assessee must be adopted as held in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). Merely because of there being a possibility of contrary view, the assessing officer could not be said to be erroneous, though it might be prejudicial to the interest of the revenue.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--JURISDICTION OF CIT--Objection(s) pointed out by audit.
Ratio:
Commissioner under section 263 can exercise jurisdiction on the basis of internal auditor's audit objection, provided he applies mind before deciding whether any action is warranted under section 263.
Held:
Setting up of a machinery known as internal audit which assists the Commissioner in this regard is not improper as the said machinery only brings to the notice of the Commissioner the acts of omission, errors and matters of prejudice caused to the revenue. It has to be borne in mind that opinion or the information of the internal audit is not binding upon the Commissioner. It is a mode for excluding such cases not requiring the attention of the Commissioner for the purpose of consideration of any action under section 263. Once the matter has been brought to the notice of the Commissioner, it is the Commissioner who has to exercise his powers under section 263 and for that purpose it is necessary for him to apply his mind to the facts of the case taking into account the objection raised by the internal audit. Such a consideration would not be contrary to the spirit of the scheme of the Act and the powers of the Commissioner under section 263.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 Revision under s. 263--JURISDICTION OF COMMISSIONER--Objection(s) pointed out by audit.
Ratio:
Commissioner under section 263 can exercise jurisdiction on the basis of internal auditor's audit objection, provided he applies mind before deciding whether any action is warranted under section 263.
Held:
Setting up of a machinery known as internal audit which assists the Commissioner in this regard is not improper as the said machinery only brings to the notice of the Commissioner the acts of omission, errors and matters of prejudice caused to the revenue. It has to be borne in mind that opinion or the information of the internal audit is not binding upon the Commissioner. It is a mode for excluding such cases not requiring the attention of the Commissioner for the purpose of consideration of any action under section 263. Once the matter has been brought to the notice of the Commissioner, it is the Commissioner who has to exercise his powers under section 263 and for that purpose it is necessary for him to apply his mind to the facts of the case taking into account the objection raised by the internal audit. Such a consideration would not be contrary to the spirit of the scheme of the Act and the powers of the Commissioner under section 263.
Application:
Also to current assessment years.
A. Y.:
1984-85 Income Tax Act 1961 s.263 ORDER Manzoor Ahmed Bakhshi, Judicial Member
1. Appellant is a foreign company and its appeal for assessment year 1984-85 is directed against the order under Section 263 of the Commissioner of Income-tax, Delhi-Ill, New Delhi. Relevant facts are that for assessment year 1984-85, for which the previous year ended on 31st December, 1983, assessee had filed a return of income at Rs. 19,43,870 on 12-11-1984. The Assessing Officer completed the assessment under Section 143(3) vide order dated 31st December, 1986 at an income of Rs. 19,43,865 say Rs. 19,43,870. It seems that the internal audit on examination of the records of the assessee-company was of the view that a sum of DM 8,69,640 received by the assessee-company from various Indian concerns on the following services amounting to fee for technical services and were liable to tax as such :
(i) Charges for supervision of erection and commissioning, etc.;
(ii) Training of personnel;
(iii) Charges for the testing, repair and maintenance work.
The matter had been brought to the notice of the Commissioner of Income-tax who issued a notice to the assessee inviting objections as to why action under Section 263 be not taken and assessment made by the Assessing Officer set aside so that the amount received is taxed at 20% as per Clause 2 under Article VIII-A of the Agreement for Avoidance of Double Taxation between India and Federal Republic of Germany. Assessee objected to the proposed action. However, the CIT, considering Clause 4 of Article VIII-A of the Avoidance of Double Taxation Agreement between India and Federal Republic of Germany came to the conclusion that the amount received by the assessee was assessable as fee for technical services @ 20%. He further held that Assessing Officer had failed to cause any investigation looking into the nature of the payment or even examine the applicability of provisions of the tax treaty. According to the CIT, the Assessing Officer had simply accepted the contentions of the assessee. He accordingly held that the order of the Assessing Officer was erroneous having been made without proper enquiries and investigations as a result of which prejudice was caused to the revenue. He accordingly directed the Assessing Officer to make de novo assessment after making appropriate enquiries and conducting investigations covering the following aspects :
(i) During this assessment year how many agreements of the assessee-company were in vogue and what were their contents, specific jobs or services rendered ?
(ii) Whether these agreements were such which, though entered in the past, also continued in the subsequent years? And, if so, whether the contents of the same were modified or altered as a consequence of the modification in the tax treaty ?
(iii) To what extent the payments were received during the assessment year in respect of services rendered either for past year, during the accounting year, or as advances for services to be rendered subsequently ?
(iv) The applicability of the provisions of Double Tax Avoidance Treaty both in respect of the original treaty as well as the modified one to the facts of the case during the year.
2. Assessee is aggrieved. The order of the CIT is challenged mainly on three counts. Firstly, it is stated that the CIT has acted entirely on audit objection and has not applied his mind for invoking the jurisdiction under Section 263.
3. Secondly, it has been claimed that the CIT has not recorded any finding of his own in the impugned order and as such his order was invalid and contrary to law.
4. Lastly, it has been argued that when two views are possible and the Assessing Officer has taken one view out of the two possible views, his order cannot be said to be erroneous.
5. Elaborating the contentions raised on behalf of the assessee Shri Ganeshan, learned counsel for the assessee contended that the language of the notice issued by the CIT is exactly the same as used by the auditors in their objection. According to Shri Ganeshan, there is a mistake in the amount stated in the audit objection and the CIT had repeated the mistake in his notice as well in the order which establishes the fact that the learned Commissioner has not applied his mind before the issue of notice under Section 263. Relying upon the decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. Addl. CIT 11977] 108 ITR 407 at page 408, the learned counsel contended that the order passed by the CIT was accordingly invalid.
6. The learned counsel further contended that since no finding had been recorded by the CIT regarding the taxability of the amount, his order under Section 263 was invalid. According to Shri Ganeshan, the CIT was bound to record a finding regarding the taxability of the receipts and since the matter has been set aside by the CIT without recording a finding, his order under Section 263 is contrary to law. In this connection, reliance was placed on the decision of the Punjab and Haryana High Court in the case of CIT v. Kanda Rice Mills [1989] 178 ITR 446 and that of the Delhi High Court in the case of CIT v. O.P. Seth 113 Taxation 128.
7. The third limb of the argument by the learned counsel for the assessee was that when two views are possible and one view is adopted by the Assessing Officer, the order passed by the Assessing Officer cannot be said to be erroneous. In this connection, reliance has been placed on the decision of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129, that of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the decision of the Tribunal in the case of Super Cassettes Industries (P.) Ltd. v. CIT [1992] 41 ITD 530 (Delhi). Shri Ganeshan contended that the view taken by the Assessing Officer that the amount was not liable to tax as fee for technical services was supported by the decision of the Andhra Pradesh High Court in the case of CIT v. Hindustan Shipyard Ltd. [1977] 109 ITR 158 and several Tribunal judgments as under :
1. Bharat Heavy Electricals Ltd. v. ITO [IT. Appeal No. 2578 (Delhi) of 1979];
2. Bharat Heavy Electricals Ltd. v. ITO [I.T. Appeal No. 2579 (Delhi) of 1979];
3. IAC v. Demagmear Rohrtschnik [I.T. Appeal No. 1263 (Mad.) of 1981];
4. IAC v. National Fertilizers Ltd. [I.T. Appeal Nos. 4666 to 4668 (Delhi) of 1981];
5. IAC v. National Fertilizers Ltd. [I.T. Appeal No. 35 (Delhi) of 1981].
8. The learned counsel further contended that assessee had sold certain equipments in India and provided after sales service in pursuance to the sale agreements. Remuneration for such services is not to be construed as fee for technical services. This has been clarified by the USA as reported in 187 ITR 141 (Statutes). It was accordingly contended that the decision of the CIT under Section 263 may be quashed.
9. The learned D.R., on the other hand, contended that there was an amendment during the year under a"ppeal in the Avoidance of Double Taxation Agreement between India and FGR as a result of which substantial changes were brought about. The Assessing Officer, according to the learned D.R., could not have gone on the basis of the preceding year. Though the assessee might have pointed out about the amendment in the Avoidance of Double Taxation Agreement, Assessing Officer has not applied his mind. As such it was contended that the order passed by him is erroneous and prejudicial to the interests of revenue.
10. Referring to the contention raised on behalf of the assessee that the CIT has acted on the basis of audit report, the learned D.R. contended that there was nothing wrong in that. Shri Haldhar contended that internal audit was done by the officers of the Department who are working under the administrative control of CIT. The internal auditors examine the records of the Assessing Officers on behalf of the CIT. If any mistake is found in the records, that is brought to the notice of the Commissioner. The Commissioner has the option either to accept the objection or to reject the same. In case the objection is accepted, remedial action is taken. In such circumstances, Shri Haldhar contended that it cannot be said that the CIT cannot act on the basis of the audit objection. According to the learned D.R., there is proper basis for initiating action. Referring to the decision of the Supreme Court in the case of R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537, the learned D.R. contended that their Lordships of the Supreme Court have even held that the audit objection shall constitute information for the purposes of re-opening of an assessment. It was accordingly contended that there was nothing wrong in the Commissioner of Income-tax having acted upon the audit objection so long as the CIT has applied his mind and taken action on appreciation of the objection and on examination of the records.
11. With regard to the contention raised on behalf of the assessee that CIT should have recorded a finding on merits and should not have remanded the case, the learned D.R. contended that a finding has been recorded by the CIT that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. He has also expressed his views. After having done that it was open to him to send the matter back to the Assessing Officer for doing the needful. That is permissible, according to the learned D.R. In this connection, reliance has been placed on the decision of the Allahabad High Court in the case of Swarup Vegetable Products Industries Ltd. (No. 1) v. CIT [1991] 187ITR412. It was accordingly contended that the claim of the assessee is not well-founded.
12. With regard to the third plea raised on behalf of the assessee that where there are two possible views and the Assessing Officer takes one view, the order passed by the Assessing Officer would not be erroneous, the learned D.R. contended that such a contention is not well-founded. According to Shri Haldhar, the Assessing Officer is bound to decide in favour of the revenue. If two views are possible he has to take a decision in favour of the revenue and if that is not done, a prejudice is caused to the revenue and the CIT has the power to set aside his order under Section 263. Since admittedly two views are possible in this case relating to the assessability of the amount in question, the Assessing Officer having taken the view in favour of the assessee, his order was clearly erroneous and prejudicial to the interest of revenue, it was contended.
13. We have given our careful consideration to the rival contentions and have perused the records. The contention raised on behalf of the assessee that the action of the Commissioner of Income-tax under Section 263 based on the audit objection is invalid and contrary to law is not well-founded. Whereas we agree with the learned counsel for the assessee that the powers under Section 263 are vested in the Commissioner of Income-tax and it is he who has to apply his mind before coming to the conclusion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue, yet, that does not mean that the Commissioner of Income-tax has not to be assisted by anyone else in collecting information and in bringing to his notice any errors or omissions requiring action under Section 263 or under any other provision of the Act. It will be unreasonable to perceive that the Commissioner of Income-tax would himself examine the assessment records of all the assessees within his jurisdiction so as to arrive at a conclusion whether any action under Section 263 is required or not. It is humanly impossible. Therefore, setting up of a machinery known as internal audit which assists the Commissioner of Income-tax in this regard is not improper as the said machinery only brings to the notice of the Commissioner of Income-tax the acts of omission, errors and matters of prejudice caused to the revenue. It has to be borne in mind that opinion or the information of the internal audit is not binding upon the CIT. It is a mode for excluding such cases not requiring the attention of the Commissioner for the purposes of consideration of any action under Section 263. Once the matter has been brought to the notice of the CIT, it is the Commissioner who has to exercise his powers under Section 263 and for that purpose it is necessary for him to apply his mind to the facts of the case taking into account the objection raised by the internal audit. Such a consideration would not be contrary to the spirit of the scheme of the Act and the powers of the CIT under Section 263. The learned D.R. has cited the decision of the Supreme Court in the case of Kasturbhai Lalbhai (supra) which as rightly pointed by Shri Ganeshan has been overruled by the Supreme Court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996.
In any case that decision is inapplicable to the facts of this case. We are not called upon to decide as to whether the audit objection shall constitute information for the purposes of re-opening of an assessment under Section 147 as was the issue before the Supreme Court in the aforementioned case. The issue before us is limited as to whether the Commissioner of Income-tax would be justified in taking action under Section 263 when the matter is brought to his notice by the internal audit. In our view, the internal audit being a machinery under the administrative control of the CIT for the purposes of pointing out the acts of omissions, errors and prejudices caused to the revenue, they are doing so for and on behalf of the Commissioner of Income-tax. Such a report as already observed can form the basis for taking action under Section 263 provided the Commissioner of Income-tax applies his mind before deciding as to whether any action under Section 263 is warranted or not. He has not to merely act upon the audit objection in a mechanical manner but has to form his own opinion which would include information and opinion of the auditors.
Considering the facts and circumstances of this case and the view expressed above, we do not find any fault with the Commissioner of Income-tax in having initiated action after the receipt of the objection from the internal audit, in so far as, we are satisfied that CIT has applied his mind before taking action under Section 263. This objection raised on behalf of the assessee in this regard is, therefore, rejected.
14. Coming to the next issue as to whether the Assessing Officer had made proper enquiries before making assessment and whether on that ground the CIT could invoke hisjurisdiction under Section 263, in this connection, our attention has been drawn to the queries made by the Assessing Officer during the course of assessment proceedings and the replies filed by the assessee during the course of such proceedings. A letter addressed to the Assessing Officer dated 18th September, 1986 placed at page 24 has been brought to our notice which, in our view, has important bearing on the issue in hand. In this letter, assessee had claimed that he has no permanent place of business in India and that it had entered into an agreement with number of companies under which it undertook mainly to supply equipments, engineering, supervise of erection and commissioning, etc. It was also pointed out that the liability of the assessee in India had been determined in the preceding year in terms of the provisions of the agreement for the Avoidance of Double Taxation between the Government of India and Government of Federal Republic of Germany. With reference to Section 90 of the Income-tax Act, it was claimed that the provisions of the Avoidance of Double Taxation would prevail over the provisions of the Indian Income-tax Act. It had also been claimed that in the preceding years though tax had been deducted at source in respect of similar payments, the same was refunded to the assessee on making regular assessments. Assessee had further stated that the liability to tax in India on business profits was attracted only if the permanent establishment as defined in the Avoidance of Double Taxation Agreement were maintained in India. Assessee had disclosed the amount received as royalty and offered the sdme for taxation in accordance with Avoidance of Double Taxation Agreement. In respect of other payments out of which tax had been deducted at source, the company claimed refund. The assessee further claimed that the receipts in the nature of supervision of erection, erection and commissioning and other charges were not subject to tax deducted at source. The assessee also brought to the notice of the Assessing Officer about the amendment of Double Taxation Agreements between two relevant countries which are applicable retrospectively w.e.f. 1st April, 1984. We quote from the letter placed at page 25 of the paper book as under :
The Agreement for the Avoidance of Double Taxation as was entered into in 1960 has recently undergone a change. Amendment has been made in various articles of the original agreement. The amendment have been notified to be applicable retrospectively with effect from April 1, 1984. A copy of the original agreement as amended is enclosed herewith for your perusal. The liability to tax of the said company as such would have to be determined under the provisions of agreement as under.
15. A certificate dated 6th September, 1986 filed before-the Assessing Officer reads as under :
We hereby confirm that we have no 'permanent establishment' in India as defined by Article 11(1) of the Agreement for Avoidance of Double Taxation between India and Federal German Republic, notified vide Notification No. GSR 680(E),' dated 26th August, 1985. We further confirm that the payments made to us for sale of engineering designs, training of the Indian personnel, supervision for erection and commissioning, inspection/repairs etc., represent industrial/commercial profits, in terms of Article III of the Agreement for the Avoidance of Double Taxation between India and Federal German Republic.
Vide letter dated 8th October, 1986 assessee has furnished a note to the Assessing Officer regarding the taxability of the receipts. We quote the following portion from the letter :
As desired by your goodself in the last meeting, we are enclosing herewith a note explaining the position in respect of taxability under the Agreement for the Avoidance of Double Taxation between India and the Ftederal Republic of Germany as amended.
The note given by the assessee is placed at pages 29 to 33 of the paper book. It explains the provisions of the Avoidance of Double Taxation Treaty visa-vis taxability of the receipts of the assessee. Then there is a letter dated 5th November, 1986 placed at pages 34 to 37 of the paper book. In this letter assessee has given information in respect of the nature of the payments received from various Indian companies during the previous year relevant to assessment year 1984-85. This was done as required by the Assessing Officer during the course of discussions.
16. A perusal of the letters filed before the Assessing Officer and in particular the note placed at pages 29 to 33 of the paper book, it is clear to us that Assessing Officer had made proper enquiries into the aspect of taxability of the receipts of the assessee at the time of making the assessment. The finding of the CIT that proper enquiry has not been made by the Assessing Officer in the light of the correspondence which is certified to be on the record of the Assessing Officer, we are unable to accept the finding recorded by the Commissioner of Income-tax that the Assessing Officer failed to make investigation into the assessability of the receipts of the assessee-company. The Assessing Officer was conscious of the amendments made in the Avoidance of Double Taxation Agreement between India and Federal Republic of Germany. The Assessing Officer had also enquired from the assessee as to how the amounts received by the assessee were not liable to tax. After application of mind, the Assessing Officer has accepted the claim of the assessee regarding the non-taxability of the receipts in question.
17. Now a question arises as to whether a view taken by the Assessing Officer regarding the taxability of the receipts in question could be said to be erroneous and prejudicial to the interests of revenue. In this connection, decision of the Andhra Pradesh High Court in the case of Hindustan Shipyard Ltd. (supra) and the decisions of the Tribunal referred to in para 7 of the order support assessee's case. In the light of the view expressed by the Andhra Pradesh High Court and the various Benches of the Tribunal, the view canvassed by the assessee regarding Taxability of the receipts is a possible view. Reference may also be made to the Memorandum of understanding reached between USA and India on May 15, 1989 as reported in 187 ITR 141 (Statutes). In Example 8, it has been provided as under :
An Indian company purchases a computer from a U.S. computer manufacturer. As part of the purchase agreement, the manufacturer agrees to assist the Indian company in setting up the computer and installing the operating system and to ensure that the staff of the Indian company is able to operate the computer. Also, as part of the purchase agreement, the seller agrees to provide, for a period of ten-years, any updates to the operating system and any training necessary to apply the update. Both of these service elements to the contract would qualify under paragraph 4(b) as an included service. Would either or both be excluded from the category of included services, under paragraph 5(a), because they are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of the computer ?
Analysis :
The installation assistance and initial training are ancillary and subsidiary to the sale of the computer and they are also inextricably and essentially linked to the sale. The computer would be of little value to the Indian purchaser without these services, which are most readily and usefully provided by the seller. The fees for installation assistance and initial training, therefore, are not fees for included services, since these services are not the predominant purpose of the arrangement.
The services of updating the operating system and providing associated necessary training may'well be ancillary and subsidiary to the sale of computer, but they are not inextricably and essentially linked to the sale. Without the updates, the computer will continue to accomplish the same functions. Acquiring the updates, cannot, therefore, be said to be inextricably and essentially linked to the sale of the computer.
Thus taking into account the decision of the Andhra Pradesh High Court, the decision of the Tribunal referred to elsewhere in this order and the Memorandum of understanding between USA and India, the claim made by the assessee that the receipts in respect of services rendered which are connected with the sale of equipment were not liable to tax as 'fee for technical services', would be a possible view. We are not here to give our own view in respect of the taxability of the receipts of the assessee. It is sufficient for our present purpose to note that the view taken by the Assessing Officer regarding the taxability of the receipts in question is a possible view. In fact the Departmental Representative has also not refuted this proposition that the claim accepted by the Assessing Officer was a possibility on the basis of the views expressed by the various Benches of the Tribunal and the Andhra Pradesh High Court. However, Shri Haldhar was vehement in his contention that unless the view of the Supreme Court on the issue was available, the Assessing Officer was duty-bound to take a view in favour of the revenue. Shri Haldhar contended that even the decision of the jurisdictional High Court would not be sufficient for the Assessing Officer to disregard the view in favour of the revenue. If that is done, the Commissioner of Income-tax under Section 263 is duty-bound to act and cancel his order, it was contended.
18. We are afraid that this view canvassed on behalf of revenue cannot be accepted. Assessing Officer is a quasi judicial authority vested with the powers of making a fair assessment. If two views are possible, he would be justified to adopt a view that favours the assessee. It is not necessary for him to always take a view against the assessee once he is convinced that the view canvassed by the assessee is the correct view. It can be validly argued that when two views are possible and the Assessing Officer follows a view favourable to the assessee in preference to the view favourable to the revenue, a prejudice shall be caused to the revenue. But it has to be remembered that for the purposes of invoking the powers vested in him under Section 263, the Commissioner of Income-tax has to satisfy himself that the two conditions are satisfied. Firstly, the order of the Assessing Officer should be erroneous and secondly, it must be prejudicial to the interest of revenue. The two conditions must co-exist. This principle has been elaborated by their Lordships of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 as under :
In the context of the above provisions, the power of the Commissioner of Income-tax under Section 263 has to be judged on the words employed in Section 263 is to the effect that the Commissioner may interfere in revision if he considers that the order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenu. It is quite clear from the above phrasing that two things must coexist in order to give jurisdiction to the Commissioner to interfere in revision The order of the Income-tax Officer in question must not only be erroneous but also the error in the Income-tax Officer's order must be of such a kind that it can be said of it that it is prejudicial to the interest of the Revenue. In other words, merely because the officer's order is erroneous, the Commissioner cannot interfere. Again, merely because the order of the Officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the Commissioner to interfere in revision. These two elements must coexist.
[Emphasis supplied] Merely there being a possibility of contrary view, the order of the Assessing Officer cannot be said to be erroneous. Though it might be prejudicial to the interest of revenue. In this case, the Assessing Officer, had taken into account the past history of the case. He had made proper enquiries and had taken a view which is in consonance with the view expressed by the Andhra Pradesh High Court in the case of Hindustan Shipyard Ltd. (supra) and the several decisions of the Tribunal referred to elsewhere in the order. As already observed, the view expressed by the revenue is not supported by any decision of the High Court not to speak of the jurisdictional High Court or of the Supreme Court. Therefore, the decision of the Assessing Officer which is in consonance with the decision of a High Court and Tribunal decision cannot be said to be erroneous. The dictionary meaning of the word 'erroneous' is "full of error, mistaken, wandering, straying". When Assessing Officer takes a view which is a possible view and that view is in accord with the past history of the case, the same cannot be held to be erroneous merely because the CIT is having a different opinion about the assessability of the receipts in question.
The situation could be different in a case where Assessing Officer had taken a view in the past against the assessee and on assessee having succeeded in appeal, Department was pursuing the litigation. In the subsequent year, the Assessing Officer may not be free to take the view against the Deptt. because that would be an apparent error in the light of the past history of the case and also prejudicial to the interest of revenue. Such a view can be disturbed under Section 263. However, as already observed, it is not a case where in the past the receipts in question were taxed and the dispute was pending before any appellate authority. When in the past such receipts were held not to be taxable and the Assessing Officer had properly applied his mind to the amended provisions of the Avoidance of Double Taxation Agreement between the two countries and reached to a possible conclusion that the receipts in question were not liable to tax, the Assessing Officer cannot be said to have committed an error by not taking a view not perceived by him. Merely because the CIT is having a different view does not make the order of the Assessing Officer as erroneous. Moreover it is well-settled principle of law that where two reasonable views are possible, the one favourable to the assessee must be adopted in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). The contention that this principle does not apply to the Assessing Officer is not convincing and in any case of no consequence, as it is not disputed that the appellate authorities are bound to follow the above principle laid down by their Lordships of the' Supreme Court. Once that principle is adopted assuming that the view regarding the taxability of the receipts expressed by CIT is a possible view, the matter ultimately has got to be decided in favour of the assessee on the basis of the principle laid down by their Lordships of the Supreme Court in the case of Vegetable Products of India (supra). In the light of the above discussion and our findings, we are satisfied that the order of the Commissioner of Income-tax under Section 263 does not hold water when tested in the light of the judicial principles. The said order is accordingly cancelled and the original order of the Assessing Officer made under Section 143(3) is restored.
19. In the result, appeal of the assessee is allowed.