TMI Blog1989 (6) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant company and the Indian parties. The appellant company had been receiving this royalty since the assessment year 1965-66 onwards. For claiming deduction in respect of expenditure incurred for research and development against income from royalty, the assessee had adopted pro-rata basis of global turnover and the turnover of their licence in India. After comparing turnover of products manufactured according to Brown Boveri design by their licences in India and in various countries and by Brown Boveri in Baden with the turnover of company's licence in India, the percentage was obtained for allocation of the research and development expenses to be set off against royalty income received from the licences in India and such proportionate expenses were claimed as deduction against royalty income by the assessee. According to the assessee's representative these figures claimed as deduction on account of expenses incurred for research and development have been certified by the licensed auditors who had certified that the proportionate expenses claimed by the appellant company is true and fair proportion of the total research and development cost attributable to royalty payments rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The total world sales of the company for the period covering the relevant previous years should be ascertained. The royalty received in India over the said period should also be so determined and a percentage of the royalty received in India to the total world sales should be worked out. Such percentage should be applied to the total research and development expenditure and the resultant sum should be deducted from the royalty received in India. It was submitted by the assessee that the aforesaid method suggested by the Commissioner is inconsistent inasmuch as a comparison is sought to be made between the royalty income received in India to the total world sales. The total world sales are made up of recoveries for cost of materials, cost of labour and recoveries of other charges, which augment the profits of the appellant. It was further submitted that a more correct comparison should be on a like to like basis. The Indian royalty should be compared to the total income or the Indian sales should be compared to the total sales. The other matters are not in dispute. 4. The learned counsel for the assessee argued that the Commissioner had no jurisdiction to invoke the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeared to be excessive, but he has not pointed out as to how the deduction allowed by the Income-tax Officer in respect of research and development expenses was excessive and has also not given any basis for holding the same as erroneous. He further submitted that the Commissioner has observed in the order under section 263 that the Income-tax Officer should have considered the various methods by which allowable research and development expenditure can be computed. The learned counsel submitted that the adoption of an alternate method by itself would not be within the scope of section 263 unless it is conclusively established that the method adopted by the Income-tax Officer for allowing such research and development expenditure was erroneous and prejudicial to the interests of revenue. The learned assessee's counsel submitted that merely because some alternate method may bring some more revenue will not render the assessment orders passed by the Income-tax Officer as erroneous in law. He further submitted that the method adopted by the assessee is the one which has been consistently adopted from year to year and the method adopted by the assessee has been accepted in the past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way the appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the Commissioner under section 263." In view of the above, the learned counsel for the assessee contended that the order passed by the Commissioner under section 263 deserves to be quashed. 5. The learned Departmental Representative contended that the Commissioner had validity invoked the provisions of section 263. He further relied upon the decision of the Hon'ble Andhra Pradesh High Court in the case of Torson Products Ltd. v. CIT [1988] 173 ITR 611/38 Taxman 72 in which it was held that an assessment order passed in accordance with the directions given by the Inspecting Assistant Commissioner under section 144B continues to be one passed by the Income-tax Officer and such an order cannot be regarded as an order passed by the Inspecting Assistant Commissioner. It was further held in the aforesaid judgment that the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which has been consistently adopted from year to year. The mere fact that by adopting some other alternative method for computing the allowable amount of expenditure on account of research and development would fetch some more revenue will not render the assessment orders passed by the Income-tax Officer erroneous and prejudicial to the interests of the revenue. We find that the assessee claimed deduction in respect of research and development expenses by allocating such proportionate expenses by adopting pro-rata basis of global turnover and the turnover of their licences in India and such method of allocating research and development expenditure attributable to royalty income in India has been consistently accepted in the past several years. The assessee had made claim for deduction of such expenses for research and development amounting to Rs.27,74,998 in assessment year 1975-76 and Rs.11,58,211 in assessment year 1976-77. The Income-tax Officer had examined the question relating to the allowability of the said expenditure at great length in the assessment orders passed by him and the aforesaid point relating to the allowability of research and development expenditure was also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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