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A.S.K. Gothenburg Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1982)1ITD828(Mum.)
AppellantA.S.K. Gothenburg
Respondentinspecting Assistant
Excerpt:
.....previous year ended 31-12-1976.2. the assessee is a non-resident. during the relevant previous year, the assessee received from associated bearing co. ltd., bombay, an amount of rs. 9,98,618 by way of fees for technical services rendered by the assessee. in appeals relating to the earlier assessment years, the tribunal had held that the research and development compensation received by the assessee to the extent of 50 per cent thereof related to the exploitation of the trade mark 'skf' in india and would, therefore, be assessable in india. on this basis, 50 per cent of the fees mentioned above, being rs. 4,99,309, was treated as the income of the assessee under the said item. in the earlier years, the tribunal had also held that the expenses of the assessee relating to this item of.....
Judgment:
1. This appeal by the assessee relates to the assessment year 1977-78, for which the relevant previous year ended 31-12-1976.

2. The assessee is a non-resident. During the relevant previous year, the assessee received from Associated Bearing Co. Ltd., Bombay, an amount of Rs. 9,98,618 by way of fees for technical services rendered by the assessee. In appeals relating to the earlier assessment years, the Tribunal had held that the research and development compensation received by the assessee to the extent of 50 per cent thereof related to the exploitation of the trade mark 'SKF' in India and would, therefore, be assessable in India. On this basis, 50 per cent of the fees mentioned above, being Rs. 4,99,309, was treated as the income of the assessee under the said item. In the earlier years, the Tribunal had also held that the expenses of the assessee relating to this item of income should be treated as 50 per cent and this was being allowed.

But a new development took place in the form of introduction of Section 44D of the Income-tax Act, 1961 ("the Act"), by the Finance Act, 1976, with effect from 1-6-1976. So far as it is relevant for the present purpose, the section provides that the deductions admissible under Sections 28 to 44C in computing income by way of royalty or fees for technical services received from an Indian concern, shall not exceed in the aggregate 20 per cent of the gross amount of such royalty or fees.

The ITO held that 50 per cent expenditure allowable to the assessee as per the earlier orders of the Tribunal should now be restricted to 20 per cent under Section 44D and he, accordingly, reduced the allowable expenditure to Rs. 99,861.

3. The correctness of the above order of the ITO was questioned by the assessee before the Commissioner (Appeals) by taking an additional ground. The contention of the assessee was that Section 44D was effective only from 1-6-1976 and that expenses should, therefore, be allowed at the earlier rate of 50 per cent up to 31-5-1976 and that only the expenses after 1-6-1976 should be reduced to 20 per cent. In support of the contention, the assessee relied upon the ruling of the Madras High Court in CIT v. Bent & Co. (P.) Ltd. [1979] 119 ITR 830.

The contention was rejected by the Commissioner (Appeals), who held that as Section 44D was in force on 1-4-1977, it will be applicable for the assessment year 1977-78 and that the expenses for the whole of the previous year should be confined to 20 per cent as per Section 44D.4. The first ground taken by the assessee is against the above finding.

It is to the effect that the Commissioner (Appeals) erred in confining the allowance of expenditure to 20 per cent for the entire previous year and that he should have allowed expenses at 50 per cent for the period up to 31-5-1976. It was contended by the learned counsel for the assessee that the proposition that the law as on the first day of April of any assessment year should govern the assessment for that year, is not absolute and that it is subject to qualification by an express provision or necessary implication. In support of this contention, the learned counsel relied upon the ruling of the Madras High Court in Best & Co. (P.) Ltd. (supra). According to the learned counsel, the fact that Section 44D was introduced with effect from 1-6-1976 clearly indicates that it was to operate only from that date. It was claimed that the ruling of the Calcutta High Court in CIT v. Bombay Photo Stores (P.) Ltd. [1970] 76 ITR 84 also supports the stand taken by the assessee.

5. As against this, it was contended by the learned departmental representative that in the case in Best & Co. (P.) Ltd. (supra) the nature of the amendment clearly indicated that the provision was to operate only from a particular date, that the date was mentioned even in the body of the section and that this ruling is not applicable to the present case where apart from the fact that the section was brought into force on a particular day, there was nothing in the body of the section which would indicate that the provision was to operate from any particular date.

It was, therefore, argued that the section which was introduced into the Act on 1-6-1976 was clearly on the statute book on the first day of the assessment year, namely, 1-4-1977, and that it should, therefore, operate with regard to the entire previous year and not any portion thereof.

6. The proposition that normally the law on the first day of April of any assessment year should govern the assessment for that year is well settled as has been stated in Best & Co. (P.) Ltd. (supra). The position has been reiterated by the Supreme Court in Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921. Following its earlier rulings in CIT v. Isthmian Steamship Lines [1951] 20 ITR 572 (SC) and Karimtharuvi Tea Estate Ltd. v. Slate of Kerala [1966] 60 ITR 262 (SC) the Supreme Court held that it is a cardinal principle of law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. It was also held that the principle that a vested right cannot be divested will not be of avail against this cardinal principle. There is also force in the contention of the learned departmental representative that in the case of Best & Co. (P.) Ltd. (supra), the amendment clearly indicated that it was to operate only from a particular date. It related to Sub-clause (Hi) of Section 40(c). The sub-clause was substituted by the Finance Act, 1964. The sub-clause as substituted dealt with expenditure constituting perquisite incurred after 29-2-1964. The sub-clause prior to its substitution related to expenditure incurred after 29-2-1963. It was held by the High Court that the link in the matter of allowance or disallowance is with regard to the remuneration paid to a particular employee during the period of his employment subsequent to the dates mentioned in the clauses and that these dates are not linked with any particular assessment year as such or even previous years. It was, therefore, a case where the matter did not rest upon the date of bringing into force of the amendment. The position in the present case is different because Section 44D does not mention any date with reference to the period of payment. The matter is sought to be taken out of the general principle that the law on the first day of the assessment year governs the assessment for the previous year, solely by relying upon the circumstance that the section has been brought into force with effect from 1-6-1976. A glance at the Finance Act, 1976, will show that while some of the sections have been brought into force with effect from 1-4-1976 so that they may operate for the assessment year 1976-77, some sections have been brought into force with effect from 1-4-1977 so that they may operate for the assessment year 1977-78.

But in the case of Section 44D, it has been brought into force on 1-6-1976. The learned departmental representative was not able to furnish any reason why this section was brought into force on 1-6-1976 and he was not also able to explain the purpose served by the introduction of the section on this particular date. If the section has been brought into force only from 1-4-1977, it would have governed the assessment for the assessment year 1977-78. As pointed out by the learned counsel for the assessee, it is a well established principle of law that no portion of a statute should be treated as redundant. The principle should apply to the date of bringing into force of the section also. The provision relates to the restriction of expenses and one cannot rule out the possibility that the section was introduced in the middle of the year for the purpose of enabling the assessees to adjust or control their expenditure accordingly. If this be so, it is only reasonable to hold that it should govern the particular item of expenditure only for the period after the coming into force of the section. In this context, the ruling of the Calcutta High Court in Bombay Photo Stores (P.) Ltd. (supra), relied on by the assessee, is relevant. That case related to the effect of the amendment of Section 23A of the Indian Income-tax Act, 1922, by Section 11 of the Finance Act, 1959, which received the assent of the President on 28-4-1959. The amendment was of the percentages mentioned in the section and this was brought into force only with effect from 1-4-1960. The High Court upheld the finding of the Tribunal that with regard to the assessment year 1960-61, for which the relevant previous year ended 30-6-1959, the percentages mentioned in the section prior to the amendment will be applicable and not the new percentages. If the principle is applied to the present case, the assessee is entitled to succeed in its contention. Further, as pointed out earlier, some significance has to be given to the fact that the section was brought into force not on the first day of any assessment year but from the first day of June.

We are, therefore, inclined to accept the contention of the assessee that the effect of the amendment is that it will apply only to expenditure incurred for the period subsequent to the amendment and not during the period prior to the amendment. We, therefore, hold that the assessee is entitled to claim expenses at 50 per cent up to 31-5-1976 and that the expenses will be reduced to 20 per cent only from 1-6-1976. The ground is decided in favour of the assessee.


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