Commissioner of Income Tax vs Hindustan Zinc Ltd.

This appeal has been filed by the Revenue against the judgment of the Tribunal dt. 30th Oct., 2001 u/s 260A of the IT Act.

This appeal was admitted on 29th Jan., 2003 by framing the following substantial question of law:

Whether on the facts and in the circumstances of the case the Tribunal was justified in law in directing the AO to allow the deduction of Rs. 4,13,37,165 disallowed by him u/s 40(a) of the IT Act and confirmed by the CIT(A) out of the claim of the assessee u/s 35AB amounting to Rs. 8,10,37,633 ignoring the facts and material brought on record?

Arguing the appeal it was contended by the learned Counsel for the appellant that in Paragraph 15 after taking into account the stipulations contained in the agreement between the assessee and the contractor which agreement was entered on 28th Feb., 1987 that the amount was payable by the assessee to the contractor, and negativing the contention of the assessee it was held as under:

We, therefore, reject this contention of the learned Counsel for the assessee and held that the liability in respect of fees for technical services provided by DML to the assessee company had actually accrued as per the terms and conditions of the agreement entered into by these two parties...

Prior to this it has also been held as under:

In that view of the matter, we find no merit in the contention of the learned Counsel for the assessee that the fees was never payable by the assessee company to M/s DML and, therefore, the income from the same having not been deemed to accrue or arise in India within the meaning of Section 9(1)(vii), was not chargeable under the IT Act, 1961.

As against this while passing the impugned order, in Paragraph 18 the learned Tribunal has arrived at diametrically contrary finding by holding as under:

From the perusal of the above, it is evident that the amount of fees for technical services was never payable by the assessee company to M/s DML outside India.

It appears that while recording this finding in paragraph 18, the learned Tribunal went into the question of manner and method of making payment agreed upon between the concerned parties. It is contended that as a matter of fact from the record it is clear that the amount was payable by the assessee to M/s DML outside India, and therefore, the deduction could not be allowed in view of the provisions of Section 40(a).

On the other hand, learned Counsel for the respondent submits that in view of the clear finding as recorded in Paragraph 18 the deduction was rightly granted, and the findings as recorded in Paragraph 15 are not the findings to the effect that the amount was payable by the assessee to M/s DML outside India. According to learned counsel, it is clear on record that the amount was to be paid to the assessee to the Government of India, and thereafter what was to be done by the Government of India is not concerned with the assessee rather the amount was paid to DML by Crown Agents from out of the grant made by the UK Government, and therefore, the findings recorded in Paragraph 18 do not require any interference by this Court.

We have considered the submissions, and have gone through the impugned judgment.

In our view, it is more than clear from the above quoted portions of the judgment of the learned Tribunal that wholly irreconcilably contrary findings have been recorded by the learned Tribunal in Paragraphs 15 and 18, and therefore, instead of going into the merits of the question as to whether the assessee is entitled to deduction u/s 35AB, or that it is disentitled to deduction by virtue of provisions of Section 40(a) as it then existed for the relevant period, we think it appropriate to set aside the impugned judgment, and send the matter back to the learned Tribunal to consider the matter afresh after hearing both the parties, and thereafter arrive at a categorical conclusion as may be deducible from the record and in accordance with law. The parties are directed to appear before the learned Tribunal on 17th Dec., 2007. Obviously since the matter is very old, the learned Tribunal is expected to decide the matter most expeditiously.

Accordingly, the appeal is allowed. The impugned judgment of the learned Tribunal is set aside, and the matter is remitted back to the Tribunal as above.