TMI Blog2009 (8) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... case of George Henderson Co. Ltd.[ 1967 (4) TMI 18 - SUPREME COURT] . Section 2(47) defines the word transfer which is inclusive. The Legislature has kept the identity in respect of the sale , exchange , relinquishment of asset or the extinguishment of any right therein . Section 2(47) only defines the word transfer but as per section 45, there must be some gain on the extinguishment of any right. Moreover, the term sale is different than expression extinguishment of any right. In our opinion, the said observation of the ld. CIT is erroneous itself and contrary to the scheme of the capital gain as envisaged the Act. On this issue, the ld. CIT(A) has observed that the assessee had admitted that since the shares were transferred from Demat Account of the Company to the Demat Account of Mr. Mukesh D. Ambani, the true nature of the transaction was apparently sale of the shares by the Company to Mr. Mukesh D. Ambani and the reference of assessee s letter is given. We have perused the letter addressed to the ld. CIT, which is a reply to the notice issued under section 263 and the copy of the said letter is placed, the assessee, had made the summary of what is state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Range 7(2), Mumbai (in short the AO) passed under section 143(3) of the Act for the assessment year 2004-05 is erroneous and prejudicial to the interest of the revenue and, consequently, invoking the provisions of section 263 of the Income-tax Act (the Act of 1961) and directing the revision of the said assessment order. (2) Whether the Ld. CIT erred in holding that pledging of shares of Reliance Infocom Limited (RIL) amounts to transfer of such shares as envisaged under section 2(47) of the Act and that the fair value of the shares so pledged is the "consideration" for such alleged "transfer". (3) Whether on the facts and circumstances of the case and in law, the Ld. CIT erred in directing the Assessing Officer to assess amount of Rs. 2,974.50 crores as income of the assessee on account of Indefeasible Right of Connectivity (IRC) fees on the alleged ground that such said income accrued in assessment year 2004-05 as the assessee follows Mercantile System of Accounting. (4) Whether the Ld. CIT erred in circumscribing the power of the Assessing Officer to pass a fresh assessment order by directing that such fresh assessment order shall be in line with the directions contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed as income under the deeming provisions of section 2(24)( iv ) of the Act treating the same as benefit allowed to Shri Mukesh D. Ambani. Thus, an amount of Rs. 2,635 crores was included as income while passing order under section 143(3) on 29-12-2006 in the case of Shri Mukesh D. Ambani. On the basis of material evidences it was found that the market value of shares was Rs. 53.71 per share as against the face value of Re. 1. The claim of Shri Mukesh D. Ambani, who is also Managing Director and a related person as defined under section 40, that the shares were pledged to him against a loan of Rs. 50 crores extended to you was rejected. 3. In the case of pledge of an asset, the ownership of the asset remains with the pledgee and the physical possession of the asset is transferred to the person through during the period of trust till the obligation is discharged. This is the basic difference between pledge and sale/transfer of an asset. In this particular case, it is undisputed that the shares of RIL had been Dematerialized and transferred from a/c of RCIL to the account of having client ID No. 42646206 held under HDFC Bank Ltd., Lower Parel, Mumbai. Since there was demate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fees for grant of IRC right. The operative part of the said notice is as under : "You have received Rs. 3,073.79 crores from Reliance Infocomm Ltd. (RIL) as IRC Fees for grant of IRU right. In your letter dated 3-12-2008 submitted during the assessment proceedings, you have stated that, this amount has been credited to Advance Income in the books, as per the terms of the said agreement dated 30-4-2003. In the said letter you have also stated that IRU rights were used by the RIL for a period of 5 months (November to March 2004) for which a sum of Rs. 63,28,72,917 is credited to fees for IRU account, leaving the balance Rs. 29,74,50,27,083 in Advance Income Account, to be utilized over the remaining tenure of the agreement (19 years and 7 months). However, it is found that, this is not as per the agreement mentioned above. As per the agreement dated 23-4-2003 entered into between you and Reliance Infocomm Ltd., the IRC fees of Rs. 3,073.79 crores is the consideration for grant of exclusive IRC. As per Exhibit B of the said agreement, IRC fee accrues on Acceptance of Customer System. There is no dispute that the customer system has been accepted during the previous year relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred or to the adequacy or otherwise of the consideration. The Legislature has used the word full value of consideration and not fair value of the assets transferred in section 48 of the Act. The Notice under reply does not at all suggest anything to the contrary. ( c )In view of above, the proposed action by your Honour to compute short term capital gain of Rs. 2,635 crores by considering the Market Value of Rs. 53.71 per share is not in accordance with the provisions of the Act. ( d )Assuming that the aforesaid transaction amounts to sale of shares of Reliance Infocomm Ltd. by the Company to Mr. Mukesh Ambani, the capital gain will be Rs. NIL and not Rs. 2,635 crores as the cost of the shares is Rs. 50 crores ( i.e., 50 crores Shares of Rupee 1 each) and the selling price (being the amount of Loan received) indicated in the Notice is also Rs. 50 crores only. In view of the above, we request your Honour to drop the proceedings under section 263 of the Act. 3. If our understanding of the legal position that the maximum capital gain that can be computed in the facts and circumstances of the case (and even accepting everything which is set out in the Notice under Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner initiating proceedings under section 263, setting aside assessment and directing ITO to re-examine the matter as to whether the expenditure was revenue or Capital - Illegal - Before setting aside Assessment-Commis-sioner must have come to a conclusion that assessment was erroneous as also prejudicial to the interest of the revenue. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. This decision of the Income-tax Officer could not be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. ( c )The above decision is referred to by Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. ( 243 ITR 83). In the said decision, it has been ruled that this provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when the order is erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting year, an amount calculated on a pro rata basis is credited to the revenue account as a fees for IRC and debited to Advance Income a/c. It was contended that the advance receipt of income which was for a period of 20 years though received in the assessment year 2004-05, cannot be treated as income of the said year in the light of the terms of the agreement with RIL dated 27-1-2004. It was further contended that as per the theory of the matching principles, the entire amount cannot be brought to tax in the assessment year 2004-05, as there is no accrual of the income to the extent of Rs. 3,037.70 crores, but the accrual of the income was to the extent of the five months during the period of which the RIL used the cable network. The Ld. CIT was not satisfied with the explanation given by the assessee and rejecting the same in respect of the first issue of the transfer of 50 crores shares to Shri Mukesh D. Ambani held that there was transfer of shares and the market value of the shares was Rs. 2,685 crores and same is to adopted as the full consideration to work out the Short Term Capital Gain in place of the Rs. 50 crores shown by the assessee. The operative part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted that the transaction did attract short term capital gains. It is only on the mode of computation that there is difference of opinion. In view of this, it is held that the transaction attracts levy of short term capital gains. Since the face value of shares was Rs. 50 crores, the difference of Rs. 2,635 crores is assessable as short term capital gains." 7. In respect of the second issue i.e., the taxability of entire amount of IRC fees, rejecting the contention of the assessee that on the matching principles, only the proportionate IRC fees should be brought to tax respective of the period covered in the assessment year 2004-05 and also further rejecting the plea of the assessee that as the said fees was for the period of 20 years, there was no accrual of the income for the entire fees in the assessment year 2004-05, held that in view of the spirit of the agreement entered into by the assessee with the RIL, it is an irrevocable agreement and therefore, the receipt therein, once having been accepted of the revenue nature, shall accrue at once. The reasons given by the Ld. CIT for coming to the said finding are as under : "Accordingly, in the financial year 2003-04, IRU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation schedule enclosed with the Tax Audit Report in Form No. 3CD, it is found that there was addition under plant and machinery of Rs. 3,040.69 crores during the accounting year relevant to the assessment year 2004-05 on which depreciation at the rate of 25 per cent has been claimed. The amount of Rs. 3,040.69 crores included addition in plant and machinery of Rs. 3,035.73 crores and the balance amount is by way of addition as electrical installation and office equipments. As against the same, the assessee has received Rs. 3,037.70 crores as IRC fees which nearly equal to the plant and machinery added during the year and in respect of which IRU right was granted. Thus, whereas the assessee has claimed depreciation on the entire addition as aforesaid at the rate of 25 per cent, the amount offered as IRC fees is only on the pro rata basis i.e., what is relatable to the period covered in the previous year relevant to the assessment year 2004-05. Another feature which is noted is the claim of depreciation at the rate of 25 per cent on intangible assets "on acquisition of Unit right of connectivity" of Rs. 46.89 crores during the relevant previous year. Since the assessee has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees and as the assessment order was passed in haste, as the first hearing took place on 27-11-2006 and the last hearing took place on 22-12-2006, there was hardly any time for the Assessing Officer to apply his mind on the said issue and hence, on that count also, the assessment order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the revenue. 9. Now the assessee had challenged the impugned order passed by the Ld. CIT before us. 10. The Ld. Senior Counsel Mr. S.E. Dastur has argued that there is no justification for the Ld. CIT to initiate the proceedings under section 263 in this case as the mandate of section 263 has not been not fulfilled. The Ld. Counsel gave the summary of the facts and submitted that the assessee company was in need of the funds and instead of borrowing the funds from outside source, it was decided to take the loan from Shri Mukesh D. Ambani, who was the Managing Director of the assessee and was ready to give the loan to the Company. It is argued that Mr. Mukesh D. Ambani advanced the loan which was required for the short period and as a security, shares of RIL held by the assessee were pledged with Shri Mukesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. Counsel referred to section 172 of the Indian Contract Act, 1872 which defines pledge, Pawner and Pawnee and submitted that to constitute a pledge, the pledge property should be actually and constructively delivered to the Pawnee. The Ld. Counsel referred to the different decisions for elaborating the concept of the pledge and submitted that pledge is bailment of goods by debtor to his creditor to be kept by him till the debt is discharged and the bailment is extended to be security for the debt. He, therefore, submitted that merely because shares are dematerialized from the account of the assessee to the account of Shri Mukesh D. Ambani, that ipso facto does not make the full-fledged transfer as a sale. It is argued that the conclusion drawn by the CIT that there was actual transfer of the shares is totally baseless as after some time, particularly in the month of December 2004, the loan was repaid to Mr. Mukesh D. Ambani. He, therefore, pleaded that there is no sale of the shares, but it was a transaction of a pledge. 11. In respect of the alternate findings of the Ld. CIT that there is a extinguishment of the assessee s right completely and hence, the assessee is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the transferor in exchange for transfer of the capital asset. Earlier, in the Act of 1961, in pursuance of section 52(2), the Assessing Officer had power to reject the consideration declared by the assessee and to adopt different consideration in the cases where there was under-statement of the consideration but the said section has been omitted from the Act with effect from 1-4-1988. The Ld. Counsel further referred to section 48 and submitted that there is no concept of the market value in respect of the sale consideration. It is argued that section 50C is brought on Statute Book for substituting the consideration declared by the assessee for that of the value adopted by the Registration authority, but it has got very limited application only in the cases of the capital asset being land or buildings. The Ld. Counsel has also referred to the decision of the Hon ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and submitted that as interpretation given by the Hon ble Supreme Court to section 52, the said section never contemplated being income to accrue or to be received which, in fact, never accrued or was never received. It is argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d submitted that as per norm No. 40 of AS 19, lease income in respect of operating lease should be recognized in the P L A/C on straight line basis over the term of lease. The Ld. Sr. Counsel also placed his reliance on the decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 and submitted that if the entire advance fee received from the RIL is treated as the profit of the assessee for the assessment year 2004-05, that will give the distorted picture of the assessee s income which is against the norms prescribed by the ICAI. He further argued that the original assessment of the assessee is completed under section 143(3) and on the issue of taxability of IRC Fees, the Assessing Officer has raised the queries and the assessee had replied the queries of the Assessing Officer and as the Assessing Officer was satisfied on the replies given by the assessee, and merely because the view taken by the Assessing Officer is not acceptable to the Ld. CIT, that cannot be the ground for treating the assessment order as erroneous. The Ld. counsel also referred to the decision of the Hon ble High Court of Delhi in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved was very high. In the case of IRC Fees, the Assessing Officer has failed to include said amount while computing total income for the assessment year 2004-05. It is argued that the decisions relied on by the Ld. Sr. Counsel are distinguishable and the said decisions may not apply to the short and cryptic orders. If the Assessing Officer fails to act, then the CIT has to use the powers under section 263 to protect loss of revenue. The Ld. D.R. referred to the notice issued by the CIT under section 263 and argued that CIT has pin pointed how there was a failure on the part of the Assessing Officer to investigate the issue of transfer of shares as well as IRC Fees. The Assessing Officer should have examined in respect of all the issues of the transfer of the shares whether pledge or sale are involved, but there is no discussion in the assessment order and transaction shown by the assessee was accepted as it is. It is argued that in this case, it is not disputed that the shares were dematerialized from assessee s account to Shri Mukesh D. Ambani s account and that is sufficient to come to the conclusion that there was absolute transfer in respect of 50 crores shares of RIL. He furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as a income , when the same is not otherwise subjected to tax as per the provisions of the Income-tax Act. 16. We have given our anxious consideration to the rival submissions of the parties. The controversy before us is in respect of the order passed by the Ld. CIT, Mumbai under section 263 of the Income-tax Act setting aside the assessment order, for the assessment year 2004-05 dated 22-12-2006 with the direction to the Assessing Officer to pass a fresh assessment order in the light of the directions given by him. The Ld. CIT initiated the proceedings under section 263 on the following two reasons : (1)The assessee has transferred 50 crores shares of Reliance Infocomm. Ltd. (RIL) to Shri Mukesh D. Ambani, then Managing Director for the consideration of Rs. 50 crores, when in fact, the market value of the said shares was to the extent of Rs. 2,685 crores and hence, to the extent of Rs. 2,635 crores, there is an under-assessment of income as Short Term Capital Gain. (2)The assessee had received Rs. 3,037.39 crores from the Reliance Infocomm. Ltd. (RIL) towards for granting Indefeasible Right of Connectivity (IRC) for a term of 20 years for using the nationwide network ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the assessee were pledged. There is no dispute about the fact that the 50 crores shares which were allegedly transferred or pledged had been Dematerialized and transferred from Demat A/c of the assessee to the Demat A/C of Shri Mukesh D. Ambani. As there was a Dematerialization of the shares, hence, the Ld. CIT rejecting the contention of the assessee-company as said transaction was in fact the loan and the pledge of shares , came to the conclusion that there was a transfer of the shares and it was not a case of the pledge of the shares as a security. 18. Before us, it was argued that as per the audited Statement of Account and Annual Report (Page Nos. 1 to 65 of P/B), the amount of Rs. 50 crores received from Shri Mukesh D. Ambani was shown as loan only and not as a sale consideration for sale or transfer of 50 crores shares. As per the copy of the balance sheet filed by the assessee in the compilation, it is seen that the amount of 50 crores, received from Shri Mukesh D. Ambani, Managing Director is shown as a loan. Moreover, as per the Balance Sheet of the Company, the unquoted shares of Reliance Infocomm. Ltd.(RIL) have been shown under the head Trade investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as the audited statements and Annual Report of the assessee are concerned, which are also filed with the Registrar of the Company (ROC) and approved and passed by the shareholders in the AGM, that cannot also be totally discarded. On perusal of the reasons given by the ld. CIT in his order we find that he has come to his conclusion that there was an actual transfer of shares by way of sale or extinguishment of right and it is not the case of pledge only on the basis that the shares were Dematerialized from the account of the assessee company to the Demat A/C of Shri Mukesh D. Ambani but, at the same time Balance Sheet, Annual Report etc. have not been considered at all. 20. The ld. Counsel argued that in case of a pledge, the property placed has to be actually or constructively delivered to the Pawnee. The pledge is the bailment of the goods by the debtor to his creditor to keep as a security till the debt is discharged. In case of a pledge, there is no passing of title in the goods in the creditor, but the creditor has right to re-take the possession till the payment is made by the debtor. Under the English common law as well as under section 172 of the Indian Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same cannot be substituted with the market value of the capital asset on the date of transfer. We find force in the argument of the Ld. Counsel. Section 45 of the Act is the charging provision, but the mode of the computation of the capital gain is provided under section 48 of the Act which reads as under : "48. Mode of computation. - The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : ( i )expenditure incurred wholly and exclusively in connection with such transfer; ( ii )the cost of acquisition of the asset and the cost of any improvement thereto : Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; ( v )"Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf." 22. What is to be considered for computation of the capital gain is "full value of the consideration received or accruing". The expression full value of the consideration is totally different than the concept of the "fair market value". Nothing is there in section 48 to suggest that the said expression i.e., full value of consideration, cannot be substituted for "market value", save as provided in section 50C of the Act. Section 50C has been brought on the Statute Book by the Finance Act, 2002 with effect from the assessment year 2003-04 and the said section is applicable only in respect of the capital assets which are land or building only. In that case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value of the shares to be the full value of the con-sideration. We are unable to accept this contention as correct. It is manifest that the consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely, money or money s worth and, therefore, the very asset transferred or parted with cannot be the consideration for the transfer. It follows that the expression "full considera-tion" in the main part of section 12B(2) cannot be construed as having a reference to the market value of the asset transferred but the expression only means the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and it is not right to say that the asset transferred and parted with is itself the consideration for the transfer. The main part of section 12B(2) provides that the amount of a capital gain shall be computed after making certain deductions from the "full value of the consideration for which the sale, exchange or transfer of the capital asset is made". In case of a sale, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole price". Clause ( 2 ) of section 12B itself clearly suggests that if no deductions are made as mentioned in sub-clause ( ii ) thereof, then that amount represents the full value of the consideration or the full price. In other words, when deductions are made as specified in sub-clauses ( i ) and ( ii ), then that amount does not represent the full value. The expression "full value" means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer." 24. In our opinion, as a provision of section 48 of the Act of 1961 is analogous to section 12B(2) of the Act of 1922 and hence, the interpretation given by their Lordships to the expression "full value of the consideration" is equally applicable to the expression appearing in section 48 of the Act of 1961. Even after giving anxious consideration to the scheme of computation of capital gain, it is seen that there is no provision to substitute sale consideration declared by the assessee with that of market value , save provision of section 50C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A) has observed that the assessee had admitted that since the shares were transferred from Demat Account of the Company to the Demat Account of Mr. Mukesh D. Ambani, the true nature of the transaction was apparently sale of the shares by the Company to Mr. Mukesh D. Ambani and the reference of assessee s letter dated 12-1-2009 is given. We have perused the letter dated 12-1-2009 addressed to the ld. CIT, which is a reply to the notice issued under section 263 dated 24-7-2008 and the copy of the said letter is place at pages 155 to 157 of the P.B. In para No. 1, the assessee, had made the summary of what is stated in the notice and nowhere it is admitted that there was a transfer of the shares. Hence, in our opinion, the said statement of the ld. CIT is totally contrary to the fact. In the light of our detailed discussion in respect of the issue of the transfer of 50 crores shares, in our opinion, there is no mistake of law in the assessment order passed under section 143(3) by the Assessing Officer and hence, said order is not erroneous nor it is prejudicial to the interest of the Revenue, within the meaning of section 263 of the Act. 26. Now we will examine the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urring expenditure will continue for twenty years. (3)As per the terms of the agreement, the accrual of the income will be as per the period of use of the Network. 27. We have examined the agreement entered into between the assessee and the Reliance Infocomm. Ltd. (RIL), (copy at page Nos. 67 to 126 of P/B). Though each and every clauses may not be relevant to us to decide the present issue, but at the same time, some of the clauses needs to be considered which are as under : "2. Grant of rights in the Reliance network. A. Pursuant to the terms, covenants and conditions contained in this Agreement, RCIL hereby grants to Customer ( i ) an exclusive indefeasible right of connectivity through the Connectivity Fiber located in the Reliance Network, as described in Exhibit A, and ( ii ) a non-exclusive indefeasible right of use in the Associated Properties for the Connectivity Fibers, as described in Exhibit A, subject to the terms, conditions, representations, warranties and covenants set forth herein (collectively, the "IRC"). The IRC does not include the right of Customer to own, control, maintain, modify or revise the Customer System or the right of physical access to, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility or liability whatsoever in connection therewith. C. RCIL shall require that the stated term of any Underlying Right or Other Right shall be for a period that does not expire in accordance with its ordinary terms prior to the last day of the Initial Term or, if the stated term of any such Underlying Right or Other Right expires in accordance with its ordinary terms on a date earlier than the last day of the Initial Term, RCIL shall, at its cost, exercise any renewal rights thereunder and acquire such extensions, additions and/or replacements as may be necessary in order to cause the stated term thereof to be continued until a date that is not earlier than the last day of the Initial Term. D. Notwithstanding anything to the contrary contained in this section 3, upon the expiration or termination of any Underlying Right or Other Right that is necessary in order to grant, continue or maintain an IRC granted hereunder in accordance with the terms and conditions hereof, and so long as RCIL shall have fully observed and performed its obligations in accordance with this Section 3 with respect thereto, any Renewal Term granted hereunder shall automatically expire upon such expi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IRC Fees pertaining to the residual period of the Initial Term previously paid for such terminated IRC or under this Agreement as set forth in Exhibit B, plus interest at the Prime Rate for the period starting from the date of termination until the date of payment by RCIL. F. RCIL shall, with respect to all Underlying Rights and Other Rights, observe and perform its duties, obligations and responsibilities under such Underlying Rights and Other Rights and this Agreement, if the failure to observe and perform any such obligation or responsibility would permit the Person capable of exercising or controlling any such Underlying Rights and Other Rights the right to terminate, modify or limit any such Underlying Rights and Other Rights or would otherwise materially adversely impair or affect Customer s ability to exercise the IRC or otherwise operate the Customer System or to exercise Customer s rights with respect to the IRC, as provided and permitted hereunder. G. Throughout the term of each Underlying Right and Other Right, RCIL shall, at its reasonable cost and expense, defend and protect RCIL s rights in and interests under the Underlying Rights and Other Rights and Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacements or such Underlying Rights and Other Rights, at Customer s sole cost. D. If at any time Customer determines that the Connectivity Fibers have reached the end of their economic useful life, Customer shall have the right to terminate the IRC by written notice to RCIL. If Customer abandons the Connectivity Fibers during or after the last year of the current term of this Agreement, Customer shall peacefully and quietly surrender right to connectivity and Associated Properties to RCIL. Customer s non-use of the Connectivity Fibers, for the purposes described in this Agreement, during or after the last year of the current term, continuing for six (6) consecutive months (excluding Force Majeure Events or delays due to acts or omissions of RCIL), shall be sufficient and conclusive evidence of such abandonment and Customer s determination that the Connectivity Fibers have reached the end of their economic useful life; provided that RCIL notifies Customer in writing of its intention to treat the Connectivity Fibers as abandoned. Upon any such notice of termination or abandonment, ( i ) the current term of this Agreement shall expire, ( ii ) all rights to the Customer System shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foregoing, the Customer may, in its sole discretion at any time during the Initial Term or the Renewal Term, by written notice of 6 months to RCIL, terminate this Agreement. In such event, RCIL shall return to the Customer the portion of the IRC Fee or the Renewal Costs pertaining to the residual period of the Initial Term or the Renewal Term respectively on a monthly basis and any part of the month shall be deemed to be completed month." 28. From the above clauses in the agreement, it is seen that only the right to use the nationwide net work is granted to RIL. During the tenure of the agreement, it is a contractual duty of the assessee for obtaining of the necessary underlying rights and other rights all the legal permissions required to complete the construction of entire system. The agreement can be terminated at the sole discretion of the RIL as provided in clause 2E of the agreement and it is not the case that once the final acceptance of the system is given by the Reliance Infocomm. Ltd. (RIL), the assessee s responsibility is over. Even in respect of the maintenance and repairs of the network infrastructure, it still be the contractual obligation of the assessee to do s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d standardize the application of the fundamental rules to a variety of uncertain situations like retirement, contingencies, intangibles, consolidation, merger etc. Accounting Standards basically attempt to reduce the subjectivity and lay down rules so as to arrive at the best possible estimates. For example, net assets refer to the difference between total assets less liabilities but the value attributable to each asset and each liability is often subjective. It depends on estimates. This is where the Accounting Standards help. They reduce the subjectivity. Therefore, Accounting Standards help to arrive at the best possible estimates. This estimation/subjectivity is also on account of the conceptual difference between accounting income and taxable income . Accounting income is the real income. Tax laws lay down rules for valuation of inventories, fixed assets, depreciation, bad debts, etc., based on artificial rules and not on the basis of accounting estimates, which results in mismatch between accounting and taxable incomes. For example, a fixed rate of depreciation may, for some companies, result in computing lower than the actual income if the actual erosion in the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial Corporation Ltd. ( supra ), the appellant company had made the Public Issue of the Debenture and the debenture was so issued at discount 2 per cent, renewable after 12 years, hence the total discount was worked out to Rs. 3 lakhs. The appellant in the assessment year 1968-69 wrote off Rs. 12,500 out of total discount of Rs. 3 lakhs on proportionate basis taking into account the period of 12 years of redemption. The matter reached before the Tribunal, it was held that the expenditure of Rs. 3 lakhs was incurred during the relevant previous year although it was proportionately written off over a period of 12 years. The Tribunal allowed the entire deduction in place of Rs. 12,500 written off. When the matter reached before the Hon ble Supreme Court, it was held that ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of the business must be allowed in its entirety in the year in which it is incurred. It cannot be considered over a number of years even if the assessee has written off in its books for a period of years. However, the facts may justify and the assessee who has incurred expenditure in a particular year, to spread and claim it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the CIT as a supervisory authority. But the said section provides for certain mandatory conditions. In the case of Malabar Industrial Co. Ltd. ( supra ) while interpreting the scope of section 263, their Lordships have held as under : "6. A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, ( i ) the order of the Assessing Officer sought to be revised is erroneous; and ( ii ) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1). 7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the expressions erroneous , erroneous assessment and erroneous judgment have been defined in Black s Law Dictionary. According to the definition/ erroneous , means involving error; deviating from the law . Erroneous assessment refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, erroneous judgment means one rendered according to course and practice of Court, but contrary to law upon mistaken view of law, or upon erroneous application of legal principles . 11. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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