PFA
(i) ALP of interest on loan granted to European AE has to be based on Euribor, (ii) If technical know-how is transferred by reserving certain rights, there is no "transfer" for s. 2(47) capital gains, (iii) interest u/s 244A is not taxable if withdrawn
(i) As the assessee has advanced the loan in foreign currency PLR rate of interest will not be applicable. Moreover, since the AE is situated at Belgium EURIBOR rates would be more appropriate (Tata Autocomp Systems Ltd. Vs. ACIT, 2012(5) TMI 45 followed);
(ii) Though, technical know-how is a capital asset, it does not necessarily follow that all receipts from exploitation of such asset are to be treated as capital receipts. Revenue receipts can also be generated by exploiting capital assets. On reading of the agreement, it is absolutely clear that assessee retains its right to use the know-how and the intellectual property over the four ARVs and manufacture the products. Further, clause 6.1 of agreement for transfer of know-how makes it clear that any improvements made to the know-how subsequent to the effective date would be owned by the party that carries out such improvement. While agreement for development and transfer of know-how relating to three ARVs to be developed by assessee in future specifically provdes for Astrix having ownership of know-how, whereas there is no such vesting of ownership of know-how on Astrix relating to four ARVs already developed, as per agreement for transfer of know-how. Therefore, it cannot be said that by entering into the agreements and allowing Astrix to use the know-how for manufacturing the four ARVs, assessee has completely divested itself of its ownership rights over the technical know-how relating to the four ARVs. Therefore, neither there is relinquishment of assessee's right over the asset nor extinguishment of any rights therein. Consequently, the consideration is assessable as business profits;
(iii) If the interest granted u/s 244A was subsequently withdrawn by the department, effectively no income on account of interest granted under section 244A accrues to the assessee. Therefore, the income already shown by the assessee by taking into account the interest granted earlier under section 244A requires to be reduced from the taxable profit for assessment year. The fact that the assessee's appeal is pending is not relevant.
It is trite law that in penalty proceedings, the assessee needs to be made aware of the exact nature of charge which is leveled against him. This is so because the assessee is suppose to give a reply on the specific allegation and not on the assumptive allegation
PFA
S. 92D/ 271G: Penalty for non-filing of transfer pricing documents cannot be levied in a general manner
It clearly emerges that during TP proceedings no intimation was given to the assessee alleging any delayed filing of TP report. There is no allegation of any specific non-compliance. The assessee on receipt of show cause notice reverted back to TPO asking for details of alleged non-compliance. In reply, the TPO instead detailing the nature of allegation again made a vague assertions that assessee's case was liable for penalty u/s 271G of the Act. From the record, we are unable to comprehend as to what exact nature of non-compliance is made by the assessee. It is trite law that in penalty proceedings, the assessee needs to be made aware of the exact nature of charge which is leveled against him. This is so because the assessee is suppose to give a reply on the specific allegation and not on the assumptive allegation. In our considered view the reliance in the case of Cargil India (P) Ltd. vs. DCIT (ITAT, Delhi Bench), 110 ITD 616 and CIT vs. Bumi High Way (P) Ltd. (Del.) (2014) DTR 110 321 (Del) covers this controversy. The Hon'ble Delhi High Court ordained that in order to impose any penalty, it is obligatory on the part of the Officer to indicate specific allegation. In the absence whereof, the penalty proceedings are not sustainable. Thus in our
considered view and the fact of the assessee's case are in parity with these judgments (supra).
considered view and the fact of the assessee's case are in parity with these judgments (supra).
The order passed by the assessing authority extracted above unmistakably shows that even at that stage it had no fresh material available to it so as to exercise the jurisdiction available under Sections 147/148 of Income Tax Act. It was, thus, taking a fresh call on the subject of assessment of income (i.e. re-assessment), drawing conclusions and inferences from the same very material that had been scrutinized in the original assessment proceedings
PFA
S. 147: Assessment cannot be reopened in the absence of "fresh material"
(i) Undoubtedly, Explanation – 1 to Section 147 indicates that mere production of account books or other evidence before the Assessing Officer would not necessarily amount to disclosure of the material information by the assessee. But then, the explanation clarifies the said general refrain by the words "not necessarily". Therefore, the burden is equally placed on the Assessing Officer to exercise due diligence in examining the record (account books or evidence) produced before him in the light of declarations made in the return or responses (to the notices, questionnaire etc.). As has been noted above, the sine quo non for action under Section 147 (to deal with escapement of income) is gathering or availability of some "tangible material" requiring the matter to be re-opened;
(ii) The order passed by the assessing authority extracted above unmistakably shows that even at that stage it had no fresh material available to it so as to exercise the jurisdiction available under Sections 147/148 of Income Tax Act. It was, thus, taking a fresh call on the subject of assessment of income (i.e. re-assessment), drawing conclusions and inferences from the same very material that had been scrutinized in the original assessment proceedings. The case at hand is concededly not covered by other exceptions as indicated by second and third proviso or explanation to Section 147 quoted earlier.
PFA
Important law on recognition of revenue in the context of taxability of advance received for transfer of home video & satellite broadcasting for a period of five years explained
The Tribunal had to consider whether the advance received for transfer of rights (home video rights and satellite rights) of various films from the assessee to Moser Baer for a period of 5 years is assessable in the first year or over the life of the agreement. The AO held that as the assessee has transferred to the assignee i.e. MBIL all rights irrevocably and assessee has got irrevocable rights to use the advances received against the rights sold, the whole consideration should have been offered for taxation during the year itself and that the assessee was not entitled to defer revenue recognition by dividing the whole consideration over the period of the agreement. HELD by the Tribunal:
In CIT Vs Birla Gwalior Pvt. Ltd. 89 ITR 266, the Supreme Court had occasion to consider the question of accrual and the effect of subsequent events thereon. In this case Supreme Court made a distinction between "Real Income" and "hypothetical income" and stated that it is the real accrual of income that has to be taken into consideration and not a hypothetical accrual of income. On facts, the rights would commence in respect of each of the films on different dates and accordingly the assessee has offered the income in subsequent years. These facts are so clear and it is difficult to hold or even to contend that there was accrual in the very first year.
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