DIRECTOR OF INCOME TAX Vs. ERICSSON COMMUNICATIONS LTD.

JUDGEMENT

(1.) The Revenue has preferred this Appeal under Section 260A of the Income Tax Act, 1961 (hereafter the 'Act') against a common order dated 14th December, 2001 passed by the Income Tax Appellate Tribunal (hereafter 'Tribunal') in ITA No. 4494 & 4495/Del/2000, whereby the appeals preferred by the Assessee against the order dated 26th September, 2000 of the Commissioner of Income Tax (Appeals) [hereafter 'CIT(A)'] confirming the demands made by the Assessing Officer (hereafter 'AO') under Sections 201(1) and Section 201(1A) of the Act, were allowed.

(2.) The controversy in the present appeals relates to the obligation of the Assessee to deduct tax at source (hereafter 'TAS') in respect of the amount of Rs.2,24,96,669/- credited to the account of Telefonaktiebolaget L.M. Ericsson, Sweden (hereafter 'TLME') in the books of the Assessee. The said amount was credited on account of royalty payable; however, the said entry was subsequently reversed, as according to the Assessee, the payment of royalty to TLME was not permissible as per the Industrial policy in force at the material time. Admittedly, no part of the amount in question was ever paid by the Assessee to TLME. According to the Revenue, the fact that such amount had been credited in the books by the Assessee, itself gave rise to an obligation for the Assessee to deduct TAS on such amount as the same represented the accrual of income. This is stoutly disputed by the Assessee.

(3.) The present appeal was admitted and this Court framed the following questions of law on 1st February, 2005:-