Decided on March 25,1982



K.B. Menon, Judicial Member - (1.) THIS appeal by the assessee relates to the assessment year 1977-78, for which the relevant previous year ended 31-12-1976.
(2.) The assessee is a non-resident. During the relevant previous year, the assessee received from Associated Bearing Co. Ltd., Bombay, an amount of Rs. 9,98,618 by way of fees for technical services rendered by the assessee. In appeals relating to the earlier assessment years, the Tribunal had held that the research and development compensation received by the assessee to the extent of 50 per cent thereof related to the exploitation of the trade mark 'SKF' in India and would, therefore, be assessable in India. On this basis, 50 per cent of the fees mentioned above, being Rs. 4,99,309, was treated as the income of the assessee under the said item. In the earlier years, the Tribunal had also held that the expenses of the assessee relating to this item of income should be treated as 50 per cent and this was being allowed. But a new development took place in the form of introduction of Section 44D of the Income-tax Act, 1961 ("the Act"), by the Finance Act, 1976, with effect from 1-6-1976. So far as it is relevant for the present purpose, the section provides that the deductions admissible under Sections 28 to 44C in computing income by way of royalty or fees for technical services received from an Indian concern, shall not exceed in the aggregate 20 per cent of the gross amount of such royalty or fees. The ITO held that 50 per cent expenditure allowable to the assessee as per the earlier orders of the Tribunal should now be restricted to 20 per cent under Section 44D and he, accordingly, reduced the allowable expenditure to Rs. 99,861. The correctness of the above order of the ITO was questioned by the assessee before the Commissioner (Appeals) by taking an additional ground. The contention of the assessee was that Section 44D was effective only from 1-6-1976 and that expenses should, therefore, be allowed at the earlier rate of 50 per cent up to 31-5-1976 and that only the expenses after 1-6-1976 should be reduced to 20 per cent. In support of the contention, the assessee relied upon the ruling of the Madras High Court in CIT v. Bent & Co. (P.) Ltd. [1979] 119 ITR 830. The contention was rejected by the Commissioner (Appeals), who held that as Section 44D was in force on 1-4-1977, it will be applicable for the assessment year 1977-78 and that the expenses for the whole of the previous year should be confined to 20 per cent as per Section 44D.
(3.) THE first ground taken by the assessee is against the above finding. It is to the effect that the Commissioner (Appeals) erred in confining the allowance of expenditure to 20 per cent for the entire previous year and that he should have allowed expenses at 50 per cent for the period up to 31-5-1976. It was contended by the learned counsel for the assessee that the proposition that the law as on the first day of April of any assessment year should govern the assessment for that year, is not absolute and that it is subject to qualification by an express provision or necessary implication. In support of this contention, the learned counsel relied upon the ruling of the Madras High Court in Best & Co. (P.) Ltd. (supra). According to the learned counsel, the fact that Section 44D was introduced with effect from 1-6-1976 clearly indicates that it was to operate only from that date. It was claimed that the ruling of the Calcutta High Court in CIT v. Bombay Photo Stores (P.) Ltd. [1970] 76 ITR 84 also supports the stand taken by the assessee.;

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