1996 (3) TMI 44 - HC - Income Tax

Summary

Issues:
1. Whether the Appellate Tribunal was correct in allowing the deduction of royalty payment while computing the chargeable profits of the company?
2. Whether the Tribunal was justified in holding that the appeal by the assessee before the Commissioner of Income-tax falls within the scope of section 11(1) of the Income-tax Act, 1961?

Analysis:

Issue 1:
For the assessment year 1976-77, the assessee claimed a deduction of royalty payment of Rs. 24,239 while computing the chargeable profits under the Companies (Profits) Surtax Act, 1964. The Income-tax Officer initially did not allow this deduction, citing the lack of approval from the Central Board of Direct Taxes for the royalty agreement under section 80MM of the Income-tax Act, 1961. However, the Appellate Tribunal, in line with its previous order, accepted the assessee's contention and allowed the deduction. The Department argued that without approval, the deduction cannot be permitted. On the other hand, the assessee contended that approval was not necessary under section 80MM of the Act for claiming the deduction. The High Court held that the Tribunal was correct in allowing the deduction as the Companies (Profits) Surtax Act did not have the same embargo as section 80MM of the Income-tax Act. Therefore, the royalty payment was deductible under the Surtax Act, and the Tribunal's decision was upheld.

Issue 2:
The Department challenged the Tribunal's decision regarding the appeal before the Commissioner of Income-tax, arguing that the Commissioner did not address the merits of the appeal. The Income-tax Officer had not considered the deduction claimed for royalty payment initially. The Commissioner, after a letter from the assessee, upheld the Income-tax Officer's decision. The Tribunal, however, deemed the appeal to fall under section 11(1) of the Act and proceeded to address the merits, allowing the claim. The High Court agreed with the Tribunal, stating that since the appeal was considered under section 11(1) and dealt with on its merits by the Tribunal, there was no issue with the Tribunal's decision. Therefore, the Tribunal's decision on this aspect was upheld as well.