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TMI Blog1985 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... by the income-tax authorities. We would, therefore, uphold the order of the Commissioner (Appeals) on this point. 4. As regards the profit worked out by invoking the provisions of section 41(2), the learned counsel for the assessee stated that he reiterate the submissions which were made before the income-tax authorities. The learned representative for the department, on the other hand, supported the action of the income-tax authorities. 5. On due consideration of the rival submissions of the parties as well as the material already available on record, we do not find any infirmity in the order of the Commissioner (Appeals) on this point. We have, therefore, no hesitation in upholding his order in this regard. 6. The learned counsel for the assessee very seriously objected to the directions issued by the IAC under section 144B whereby he changed the head of income under which Rs. 1,40,000 was brought to tax. 7. The facts in this regard as summarised by the ITO in his draft assessment order read as under: "2. In the earlier years and for a period of one month this year, the assessee had proprietary business in the name of 'Vastushilpa' as practising architects and planners. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same should not be brought to tax in his hands. The assessee by his letters dated 2-3-1981 and 6-3-1981 has argued that both the assets are intangible assets, and, therefore, any consideration received in lieu of these intangible assets cannot be brought to tax. The assessee has further argued that both technical know-how and the goodwill are synonymous and in fact 'know-how' is nothing else but goodwill. According to the assessee, goodwill of business is not taxable and, therefore, the total amount of Rs. 2,40,000 received by the assessee is not liable to be brought to tax. 7. The assessee's arguments are carefully considered. In order to appreciate the real implication of the various aspects involved, it is necessary to go into the facts leading to the accrual of credits in favour of the assessee. As discussed above, at the close of business on 30-4-1977 certain entries were made in the books of account of the assessee's proprietary business. The assessee was carrying on profession as an architect and planner. Even earlier, the source of income of the assessee was to 'sell' to his clients his expertise and skill. It is to be noted that the assessee was not dealing in the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 1,00,000 Evaluation of technical know-how and expertise 1,40,000 ----------------- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 2,35,000 Less: 40 per cent 94,000 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d does not apply to the facts of our abovementioned client's case." Vide his letter dated 3-9-1981 addressed to the IAC, the assessee once again objected to the taxability of Rs. 1,40,000 as proposed by the ITO. 10. On 14-9-1981, the IAC invited the assessee's objections as he was of the opinion that the sale of technical know-how was revenue receipt. It is necessary to reproduce below the said letter of the IAC : "Sub : Proceedings under section 144B---assessment year 1978-79. Please refer to the discussion in the above case on 3-9-1981. After considering the arguments advanced by you and the material on record, I am of the opinion that the sale of technical know-how is a revenue receipt, which has no cost of acquisition and it is taxable under the provisions of the Income-tax Act, 1961. While the ITO has treated the sum of Rs. 1,40,000 as capital receipt. Since the change in approach will result in enhancement of income assessed, the proportionate basic exemption and the deduction of 40 per cent will not be available---you are requested to state your case before me at 3.00 p.m. on 21-9-1981. This letter is by way of a show-cause notice under the provisions of section 144B of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the assessee invited our attention to section 251(1)(a) of the Act, sections 23(5) and 24(5) of the Wealth-tax Act, 1957, sections 22(5) and 23(5) of the Gift-tax Act, 1958 and sections 62(5) and 63(5) of the Estate Duty Act, 1953, with a view to impress upon us that whenever the Legislature want to give power of enhancement to an authority under the Act, specific provisions are provided. Since such specific provisions are not to be found in section 144B the IAC could not have issued directions to the ITO to treat Rs. 1,40,000 as revenue receipt in the hands of the assessee. In this connection, he strongly relied on the decision of the Hon'ble Calcutta High Court in the case of Bengal & Assam Investors Ltd. v. CIT [1983] 142 ITR 156, more particularly, the last head note, which reads as under: "Having regard to the provisions of section 144B of the Income-tax Act, 1961, because of an enhancement of an assessment as a result of directions issued by the IAC under section 144B(4) on items not covered by a draft assessment order, the assessment will be invalid to the extent 'it was not covered by the draft', even though the enhancement has been deleted on appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of the assessee. 14.3 Finally, the learned counsel for the assessee took us through the directions issued by the IAC under section 144B, with a view to impress upon us that the IAC has not properly appreciated the ratio of various House of Lords decisions considered by him. 14.4 He, therefore, urged that Rs. 1,40,000 cannot be included in the total income of the assessee either under the head 'Income from profits and gains of business or profession' or under the head 'Capital gains'. 15. The learned representative for the department, on the other hand, strongly supported the action of the income-tax authorities. Inviting our attention to section 144B(4) and the proviso thereto, he vehemently argued that the IAC was perfectly justified in issuing directions in the manner he did. In this connection, he stated that since 'Gross total income' did not change even after treating Rs. 1,40,000 as revenue receipts, there was no enhancement as contended on behalf of the assessee. Thereafter, he invited our attention to section 292B of the Act, and strongly argued that the directions issued by the IAC should be upheld treating the same as issued under section 144A. Inviting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hadur Hardutroy Motilal Chamaria [1967] 66 ITR 443. 18. We have carefully considered the rival submissions of the parties and we find considerable force in the submissions made on behalf of the assessee. If we were to keep in mind, the circumstances under which the provisions of section 144B, were brought on the statute, it is quite clear to us that in section 144B proceedings, the IAC has no power either to change the head of income or to enhance the assessment in the manner he did, in the instant case. A draft order under section 144B is supplied to the assessee with a view to minimise litigation and unnecessary harassment at the hands of the assessing authorities. The assessee is invited to give his objections in respect of various items contained in the draft assessment order. If the assessee does not avail of this opportunity of placing his objections to the proposals made in the draft assessment order, it is obligatory on the part of the ITO to complete the assessment on the basis of the draft order---see sub-section (3) of section 144B. If, however, the assessee gives his objections to the proposals made in the draft assessment order, the ITO is required to send a copy of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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