TMI Blog1979 (8) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... s of selling its expertise and technical know-how. It entered into an agreement with M/s. Hindustan Steel Ltds. at Rourkela (hereafter referred to as the " company ") in terms of which the Corporation undertook to provide a team of experts for assisting the company in the matter of supervising the operation of the hot-strip mill and to train a team of Indian personnel for the purpose. The agreement became effective from 1st June, 1961, and under art. 4, the company undertook to pay to the Corporation : (i) 5,00,000 U.S. Dollars net free of tax, fee and/or levy ; and (ii) 1,78,000 U.S. Dollars net to be paid in rupees after payment of Indian taxes, fees and levies. Income-tax, if any, was to be borne by the company. The contract was initially for a period of 2 years with effect from June 1, 1961. It was, however, extended up to December 31, 1965. Under the agreement, the Corporation received from the company, the following amounts : --------------------------------------------------------------------------------------------------------------------------------------------------- Assessment In Indian In the shape of Total amount Year Currency dollars (when convert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO to make appropriate investigation and the assessee could have been called upon to produce further material. There was no justification for insisting on physical production of accounts particularly when the public accountants had certified the statements placed and relied upon by the Corporation before the assessing officer. The Tribunal came to the conclusion that without proper examination of the statements produced by the Corporation, the Revenue was not justified in rejecting the accounts and resorting to estimates. The Tribunal in the cirumstances accepted the accounts. The Tribunal took the view that the undertaking of the company to meet the tax liability was in the nature of a benefit or perquisite contemplated in cl. (iv) of s. 28 of the Act, introduced by s. 7 of the Finance Act of 1964, and for the period prior to the amendment the benefit or perquisite was not liable to be charged to tax under the head " Profits and gains of business. " The Tribunal thus allowed the appeals of the assessee-corporation and vacated the assessment. At the instance of the revenue, the following question has been referred to this court for opinion : " Whether, on the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uce the books of account after the lapse of so many years. But no material was produced before us to show that the assessee did not produce the books of account even after a reasonable opportunity to do so was afforded to it by the Income-tax Officer..." The Tribunal extracted a portion of the appellate decision rendered in respect of the earlier two assessment years and observed : " ...This direction of the Appellate Tribunal is clear from the last sentence of paragraph 14 of their order wherein they say that the profits arising from the payments received by the assessee were to be computed as directed by them. Considering all the facts and circumstances of the case, we hold that the Income-tax Officer was not justified in rejecting the book results and resorting to the estimate without properly examining the state ment filed before him. We, therefore, direct that the Income-tax Officer should recompute the income of the assessee by examining the statement produced before him. He can call for the details of any particular item of expenditure and examine the same but it is not necessary to insist on the physical production of the books from U.S.A. when admittedly certified st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business." Having reached this conclusion, the Tribunal proceeded to determine the extent of such benefit and decided that the value of the benefit or perquisite should be limited to the amount of actual tax due. The Tribunal admitted a new contention, namely, whether the perquisite had been received during the year. Dealing with the question, the Tribunal came to the conclusion : " ..... It is true that the tax liability of a particular assessment year is attached to the income of that year and does not depend upon its quantification subsequently. In other words, the tax liability arises as soon as the income was earned. But, this does not answer the point raised by Sri Pal (for the assessee). In a case, where the accounts are maintained according to mercantile system, the income and expenditure are to be accounted from the moment they accrue. But, if the system of accounting is cash, the income and expenditure are to be accounted for not at the time of their accrual but only at the time of their receipt or payment, either actual or constructive. In this case, no doubt, the tax liability accrued during the previous years but its receipt and payment were subsequently made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above came into the Act. There is force in the stand taken by Mr. Mohanty for the assessee that in the absence of a provision as introduced with effect from April 1, 1964, there could be no force in the stand of the revenue. Mr. Mohanty has drawn inspiration from the position that Parliament found a deficiency in the statutory, provision and brought-about an amendment with a view to bringing the amount into the net of taxation. In addition to what has been stated by the Tribunal, we are of the opinion that this feature goes a long way to support the view of the tribunal in the matter of addability of the amount for determining profits. Whether the method of grossing up would be available or not is another matter, but it could have no footing if the undertaking by the company to pay the tax for the Corporation could not be available to be taxed by way of perquisite by being roped into the net of taxation. In the two years under consideration, there being an absence of the requisite statutory provision, we are inclined to agree that the amount was not liable to be added for computation of profit. So far as the accounting is concerned, the Tribunal has taken the view that the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash basis. This seems to be a pure finding of fact and is not open to challenge before us. On that footing, the Tribunal has further held that the liability to tax with reference to the benefit would arise during the year in which the benefit is received and not in the assessment year to which the benefit relates. It is well settled under the taxing Act that in a case where accounts are maintained on receipt basis, it is the actual receipt that gives rise to liability. Mere provision for conferring the benefit would not indeed bring in liability in a case of the present type until there is actual disbursement of the benefit. The Tribunal has settled this legal position and has left the matter to the ITO for determination. So far as the direction is concerned, we do not find any mistake and the conclusion of the Tribunal is unexceptionable. The next question for consideration is as to whether the direction of the Tribunal that the value of the benefit or perquisite has to be confined to the actual tax demand leviable on the profit of the Corporation or has to be reached by a method of grossing up. Article 4 of the contract stipulated that the payments made under the contract wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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