9911796707
TMI Blog1983 (11) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate the legal issue involved in section 92 of the Income-tax Act, 1961, and as such the addition of Rs. 7,39,528 should be restored." 3. The assessee entered into an agreement on 13-3-1975 with Peter, Cremer, a company of West Germany, to establish a limited company in Indonesia. The name of the limited company which was to be floated in Indonesia was P.T. Kusum Products Ltd., Indonesia. The authorised and issued capital of the new company was U.S. Dollar 10,00,000 divided into 10,000 shares of Dollar 100 each. The assessee-company was to contribute 50 per cent of the capital of the new company. The RBI vide its letter dated 28-7-1975 permitted the assessee to contribute U.S. Dollar 5 lakhs by way of export of new and ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in lieu of cash contribution to the share capital of the new company. It was also urged that all the terms of such scheme was known and approved by the Government of India and, hence, it cannot be said that the appellant has arranged the matter in such a way as to have nil or very little profit out of the transaction in question. The price of the plant and machinery in the international market was much less and as a matter of fact this was also pointed out by the other parties of the collaboration agreement. The letters written to the Indonesian company from the other collaborators pointing out that the price charged by the appellant for the plant and machinery was much higher than when considered with other international prices were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 92 and urged that section 92 is not applicable in the present case at all. The assessee was not dealing in plant and machinery. The assessee's business was a different one. The assessee was establishing a new company in Indonesia with others. The assessee was to contribute its capital of US Dollar 5 lakhs. The RBI did not permit the assessee to contribute in cash. The assessee was only permitted to export plant and machinery and equipment. Therefore, the plant and machinery and equipment were exported to Indonesia as capital of the assessee and not as a trader. Shri R.R. Bajoria further referring to the paper book urged that this fact is clear from the agreement dated 13-3-1975 and the letters issued by the RBI and the Ministry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered equity shares. Article 4 -- Subscription of shares, ratio and payment. 4.01 The parties hereto shall subscribe and pay for, at par, the shares to be issued by the new company in the following ratio : (a) 'KPL' 50 per cent (b) 'P.C.' 30 per cent (c) 'TEKNIK' 20 per cent 4.02 On incorporation, 2,000 shares of US Dollar 100 each will be subscribed by the promoters on which 10 per cent shall be paid up initially. The promoters shall arrange for the subscription of the remaining capital of the company and the amount to be called up on the shares shall be determined by the promoters as and when required for the purpose of the company. The authorised capital of US Dollar 10,00,000--shall be fully paid up in accordance with the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donesian 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 Dollar 5,00,000 towards the capital of the new company which was going to be established in Indonesia. The RBI did not allow the assessee-company to drain out foreign exchange and vide its letter dated 28-7-1975, directed the assessee-company to invest the required capital by export of plant and machinery and equipment. This was also approved by the Ministry of Commerce, Government of India. Pursuant to the agreement dated 13-3-1975 and the approval of the RBI, the Ministry of Commerce, Government of India, the assessee participated in the new company by contributing its capital by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the close connection between the parties, the business is so arranged that the business did not result in any profit or less profit than the ordinary profit which might have been earned in the regular course of business and if so, the ITO will estimate the fair profit. If the ingredients of the above section are characterised, the following points may emerge : (i) The transaction may be between a resident and a non-resident. (ii) It should be a business transaction. (iii) The business may be with the motive of profit. (iv) The profit earned by the assessee may not be fair due to the close relation. (v) The ITO in such a situation may estimate the fair profit. So far as the first point is concerned, it was a transaction between a res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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