TMI Blog2006 (1) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for the assessment year 1998-99 is directed against the order of the Commissioner of Income-tax (Appeals)-XXI at Mumbai passed on October 17, 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. 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 March 3, 1987 continues to govern the computation of income even after March 31, 1987 and would apply to the assessment years subsequent to the assessment year 1987-88 ? 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 disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rheads 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 the 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. The assessee-companies as well as the 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 (the 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 Central Board of Direct Taxes made extensive study on the subject and made discussions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee-company against the assessment orders were allowed by the Commissioner of Income-tax (Appeals). It is, for that reason, the Revenue has come before us in appeals for the said three assessment years. But, the first appeal for the assessment year 1998-99 was decided by another Commissioner of Income-tax (Appeals) who did not follow the decision in favour of the assessee. The Commissioner of Income-tax (Appeals) held that the circular issued by the Central Board of Direct Taxes dated March 3, 1987 would not be applicable beyond March 31, 1987. The Commissioner of Income-tax (Appeals) relied on a clarification issued by the Central Board of Direct Taxes on January 6, 1992 to one Mr. D. F. Pereira to come to the above conclusion. He also referred to the decision of the Income-tax Appellate Tribunal, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would not be applicable for the period subsequent to March 31, 1987. 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 March 31, 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 March 3, 1987 continues to govern the computation of income even after March 31, 1987 and would apply to the assessment years subsequent to the assessment years 1987-88 ? 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 Departmental Representative. 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 Central Board of Direct Taxes. He explained that it was only a letter dated March 3, 1987 written to the concerned Commissioner of Income-tax at Mumbai, clarifying the settlement proposed up to March 31, 1987. It was a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that ground they cannot rely on the terms of the settlement which no more existed beyond March 31, 1987, as evident from the subsequent clarifications issued by the Central Board of Direct Taxes stating in a clear voice that the settlement dated March 31, 1987 did not apply to assessments for the period falling after March 31, 1987. The learned Commissioner invited out attention to page 7 of his paper book where a copy of the clarification issued by the Central Board of Direct Taxes is placed for our reference. In the said clarification in the form of a letter dated February 19, 1998 issued to one Mr. Dinesh, the Board has clarified that the settlement dated March 3, 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 March 3, 1987 is construed as a circular issued by the Central Board of Direct Taxes, the said circular ceased to be operative beyond March 31, 1987 as clarified in the subsequent letter of the Central Board of Direct Taxes issued on February 19, 1998. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the court has held that the fact that the assessee was treated as an investor in assessment related to 1943 would not stop the taxing authorities from considering when the trading activity began. The learned Commissioner submitted that the wrong precedent could not be relied on as res judicata. He also relied on the following decisions : M. M. Ipoh v. CIT [1968] 67 ITR 106 (SC) ; A. Ranganathan v. CED [1963] 49 ITR (E. D.) 137 (Mad) ; Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574 (SC) ; and CIT v. B. N. Bhattachargee [1979] 118 ITR 461 (SC). He concluded that the settlement relied on by the assessee was only a one-time clarification applicable for a short period ending on March 31, 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 Central Board of Direct Taxes 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 March 31, 1987. He, therefore, submitted that the decision of the Income-tax Appellate Tribunal Mumbai Bench I in Joint CIT v. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larifications 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 March 3, 1987 continued 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 Columbia Picture Industries Inc. of which the order is dated October 23, 2003. Learned counsel further submitted that the assessments completed in various cases on the basis of the settlement even after March 31, 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 Income-tax Appellate Tribunal, I Bench, Bombay, in the case of Columbia Picture Industries Inc., relied on by the Revenue, the Commissioner of Income-tax (Appeals)-XXXI at Mumbai has decided the appeal vide his order dated January 10, 2005 holding that the income need to be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 per cent. 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 March 31, 1987. At the same time, the 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 had expired since March 31, 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 per cent. of the gross receipts. 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. Learned counsel further submitted that the settlement need to be followed by the Revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. The points highlighted by the Revenue are to be stated as follows : 1. That the settlement covered only the period up to March 31, 1987. 2. That it was withdrawn by the letter issued on January 6, 1992. 3. That this position was reiterated by letter issued by the Board on February 19, 1998. 4. That the Tribunal, while passing orders in the case of Columbia Pictures Inc. on May 25, 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 efflux 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. We considered the merits of the issue raised bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the settlement did apply only for those assessment years up to March 31, 1987 and more particularly to those assessments pending at that point of time when the relevant notification was issued on March 3, 1987. The Board has made it clear through its subsequent clarifications that the said settlement of March 3, 1987 would not be applicable for cases of assessments falling for the period beyond March 31, 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 March 31, 1987 and not beyond that period, it is technically not feasible to hold that the said settlement applied for the period even after March 31, 1987. Therefore, the simple answer to the controversy whether the settlement dated March 3, 1987 did apply to the period falling after March 31, 1987, is that the said settlement might not be applicable to be period falling after March 31, 1987 as clarified by the Central Board of Direct Taxes from time to time which fact is known to the assessee-company as well. Even though it might be possible to hold that the settlement may not be applicable for the period falling after March 31, 1987, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the Revenue that such assessments even after March 31, 1987 were only instances of mistakes seems to be difficult to accept. In many cases where the assessing authority has refused to follow the settlement , the Commissioner of Income-tax (Appeals) have held that the assessment 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 . The assessee has cited a number of instances where the Revenue has completed the assessments on the basis of the same settlement even after March 31, 1987. It is also brought to our notice that only for the 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 March 31, 1987 on the basis of the settlement were instances of mistakes. On the other hand, the pattern of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssments of Columbia Picture Ind. Inc. for the assessment year 1994-95 ; 20th Century Fox International Corporation for the assessment years 1993-94 to 1995-96 and Columbia Picture Ind. Inc. for the assessment year 1990-91. Therefore, we agree with the argument of 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 Central Board of Direct Taxes on the subject. Therefore, the thrust placed by the Revenue on the reasoning of the order of the Tribunal in the case of Columbia Picture Industries Inc. dated October 23, 2003 is little exaggerated. As a matter of fact, as considered above, the settlement dated March 3, 1987 has been followed by the Department in completing many assessment even after March 31, 1987 and the Tribunal has consistently upheld the applicability of the settlement after March 31, 1987 and that too, after considering the subsequent notifications issued by the Central Board of Direct Taxes 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 bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to assessments subsequent to the assessment year 1986-87. The members companies of MPEAA contend that this settlement would be applicable for all future years although the Board has clarified to the contrary. The members 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 account are not complete, as the production expenditure is not properly debited to the books of account, the books of account of the assessee are rejected and the profit of the film distribution is estimated at Rs. 50 lakhs. If the assessing authority is to follow the regular provisions of the Income-tax Act to complete the assessment, the situation is not at all attractive to the Revenue. The income computed as per the accounts would be less than the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in film distribution in India. 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 motto 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 Central Board of Direct Taxes on March 3, 1987. We do not find that the Revenue has invented any better method to replace the agreement/settlement entered into by the Central Board of Direct Taxes on March 3, 1987. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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