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1990 (11) TMI 412 - Calcutta High Court

1990 (11) TMI 412 - Calcutta High Court - TMI - IT REFERENCE NO. 288 OF 1987 - Dated:- 5-11-1990 - Ajit K. Sengupta, And Bhagabati Prasad Banerjee, JJ. For the Applicant : A.C. Moitra and R.C. Prasad For the Respondent : R.N. Bajoria. JUDGMENT Sengupta, J.- In this reference under section 256(1) of the Income-tax Act, 1961 ('the Act') for the assessment year 1980-81 the following questions of law have been referred to this Court: "1. Whether, on the facts and in the circumstances of .....

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T. Kusum Products, Indonesia, by invoking the provision of section 92 of the Income-tax Act, 1961?" It is not in dispute that the first question is now concluded by the decision of this Court in the case CIT v. Hindusthan Motors Ltd. (IT Reference No. 134 of 1985, dated 23-2-1990]. Following the said decision we answer the first question in this reference in the affirmative and in favour of the assessee. 2. The facts relating to the second question are that during the relevant accounting ye .....

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sessee and the non-resident, P.T. Kusum Products, Indonesia, and there was close connection between the resident- assessee and the non-resident company. Thus, the sale of machineries and equipments was so arranged that the transaction between them produced no profit at all, rather there was a loss of ₹ 34,198 to the resident-company. So the ITO invoked the provision of section 92 of the Act and ₹ 34,198 (Rs. 2,00,805 - ₹ 1,66,607) was added and included in the assessment as inc .....

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ssee's own case upheld the order of the Commissioner (Appeals). 5. The question which calls for determination is whether section 92 has any application to the facts of this case. 6. Mr. Moitra, the learned counsel appearing for the revenue, has contended that the Tribunal has not considered section 9(1) of the Act which is relevant as there is a business connection; since the Tribunal did not advert to this aspect of the matter, the matter may be remanded to the Tribunal for fresh considerat .....

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The assessee's business was a different one. It only established a new company in Indonesia with others. He has also highlighted the facts and circumstances as appearing from the orders of the authorities below. 9. We have considered the rival contentions. Section 92 provides as follows: "Where a business is carried on between a resident and a non-resident and it appears to the Income-tax Officer that, owing to the close connection between them, the course of business is so arranged th .....

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any to be established at Indonesia shall be US $ 10,00,000 divided into 10,000 shares of US $ 100 each. The assessee and two other companies shall subscribe and pay for, at par, the shares to be issued by the new company in the following ratio: (a)KPL-assessee - 50 per cent (b)West German company - 30 per cent (c)Indonesian company - 20 per cent. 10. On incorporation, 200 shares of US $ 100 each will be subscribed by the promoters on which 10 per cent shall be paid up initially. The promoters sh .....

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at the rate of 2 per cent per month will be charged by the company until the respective amount has been fully received. This interest will be applicable if payment is delayed beyond 21 days of call. 11. The payment for the shares subscribed and paid up shall be made either in cash or in kind as may be agreed by the promoters. The amount of share money payable by KPL shall be exclusively in the form of machinery and plant and equipment coming in from India and for any other expenditure in connec .....

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nonesia. The authorised capital of the company was US $ 10,00,000. There were three promoters - the assessee, the West German company and Teknik Umum P.T. of- Indonesia. The share capital of the new company was U.S. $ 10,00,000. The assessee-company, the West German company and Indonesian company were to share 50 per cent, 30 per cent and 20 per cent, respectively, of the share capital. The assessee-company was thus to subscribe US $ 5,00,000 towards the capital of the new company which was goin .....

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ing its capital by way of exporting plant and machinery and equipment. The assessee was entitled for export incentive and moreover the prices of plant and machinery, it was reported, which were to be exported towards the capital of the assessee, as quoted by the assessee, were high. The assessee took into consideration the export incentive which it was to get on the export of the plant and machinery and, accordingly, though the machineries were purchased for ₹ 67,74,174. It charged ₹ .....

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The ITO added to the sale proceeds of the plant and machinery the export incentive. This is not warranted by the provisions of the Act. Section 92 is applicable where it is found by the ITO that in a business deal between a resident and non-resident due to the close connection between the parties, the business is so arranged that the business did not result in profit or resulted in less profit than the ordinary profit which might have been earned in the regular course of business and in that ev .....

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