NEWHOLLAND TRACTORS (INDIA) PRIVATELIMITED Vs. COMMISSIONER OF INCOMETAX

JUDGEMENT

(1.) THESE two appeals by the assessee -New Holland Tractors (India) Private Limited relate to Assessment Year 1996 -97. In ITA No. 182/2002, the issue raised is whether entire license fee of Rs.15,68,50,000/ - received or paid under the agreement dated 14th July, 1995 is taxable in the year of receipt or it should be spread over three years. In ITA No. 255/2003, the appellant -assessee has challenged order of the Income Tax Appellate Tribunal (Tribunal, for short) upholding levy of penalty for concealment in respect of the aforesaid amount under Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short).

(2.) TO have clarity and in order to appreciate the controversy, we will be first taking up ITA No. 182/2002 as it pertains to quantum addition made in the assessment order.

(3.) THE facts are that (a) in 1969 Escorts Limited (Escorts, for short) and Ford Motor Company entered into a joint venture and established a company, i.e. Escorts Tractors Limited (ETL, for short) , in India. (b) In 1990, the entire shareholding of Ford Motor was transferred to New Holland North America, U.K. (NHNA, for short) , (c) By virtue of the joint venture relationship, technology for various Ford tractor models, including technology for Ford tractor model 3610 was to be made available to ETL till the termination of the joint venture, (d) Subsequently, NHNA transferred their rights in various engineering component and technical services, including the technology for Ford tractor model 3610 to its subsidiary/appellant -assessee herein, i.e., New Holland Tractors India Private Limited ('NH India' or the assessee, for short) , (e) In July, 1995, NHNA and Escorts mutually agreed to terminate their joint venture, (f) A tripartite disengagement agreement dated 14th July, 1995 was executed between the NHNA, NH India and Escorts, whereby NHNA agreed to sell 25,50,000 shares in ETL to Escorts for a consideration for Rupees equivalent of US$ 98,00,000. (g) Further, the NH India (the appellant assessee) agreed to licence the right to use technology of the tractor model No. 3610, i.e., design engineering component for a period of three years for consideration of US$ 50,00,000, to be paid in Indian Rupees (Rs. 15,68,50,000/ - on conversion) on non -repatriable basis. (h) In order to facilitate transactions, the agreement stipulated an arrangement under which an escrow bank account was opened. (i) by specified dates Escorts/ETL had to deposit payments in the escrow for the shares as well as technical fee. (j) Upon successful implementation of the said tripartite agreement, NH India received payment of Rs.15,68,50,000/ - during the previous year relevant to the assessment year in question. (k) Rs.3,72,44,848/ - was offered for taxation in the assessment year in question and Rs 5,22,83,333, 5,22,83,333 and 1,50,38,486 were offered to be taxed in the subsequent Assessment Years 1997 -98, 1998 -99 and 1999 - 2000, respectively.