1 srk IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 194 OF 2003 M/s Jewel of India ..Appellant Vs. The Assistant Commissioner of Income Tax & Ano. ..Respondents Mr. J.D. Mistry a/w P.C. Tripathi i/b Atul K. Jasani for the Appellant. Mr. P.S. Sahadevan for the Respondent. CORAM :- V.C.DAGA & J.P. DEVADHAR ,JJ. DATE : 15th June,2009 P.C. 1 Heard Learned counsel for the Parties. This appeal was admitted on following substantial question of law. 1. Whether on the facts and in the circumstances of the case and in law the income Tax Appellate Tribunal was justified in upholding the order of the Commissioner of Income Tax (respondent No.2) in exercising revisional power vested in him under Section 263 of the Income Tax Act, 1961 whereby the respondent No.2 set aside the assessment order passed by the Assessing Officer? 2. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in its view that the payment made by the assessee to M/s Nehru Centre entitled ‘goodwill’ was capital in nature? 2 The first question raised in this appeal relates to the question of invocation of the power under section 263 of the Income Tax Act, 1961. In order to answer this question, it is not necessary to go in to the factual aspects of matter.. We are reproducing the order passed by the Revisional Authority, the relevant portion is as under: 2 “Having considered the submissions made by the assessee’s representative on various issues and after going through the copies of the Supplement and Extention agreements, so far as the question of payment of goodwill is concerned, it would be appropriate to set aside the assessment on the limited issue of allowability of the payment in question. For, the assessee is in the business of running a restaurant since 1986. As such, goodwill of the business rightfully belongs to the assessee and not to Nehru Centre. Under the circumstances, the payment of goodwill made by the assessee to Nehru Centre appears to be unwarranted and for extraneous considerations. The assessee has not been able to substantiate the goodwill payment over and above the monthly rent vis-a-vis the benefits derived by it. Perusal of the records indicate that while making the assessment the A.O. has not dealt with this issue in depth and has allowed the payment of goodwill without ascertaining the exact nature of the payment and the commercial expediency for incurring such expenditure.” 3 Section 263 of the Income Tax Act 1961, has already been interpreted by the Apex Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax (2000) Vol.243 ITR 83, wherein Apex Court held that a bare reading of section 263 of the Income Tax Act 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo-motu under it, is that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to interests of the Revenue. The Commissioner has to be satisfied following conditions, namely, (i) the order of Assessing Officer sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income Tax Officer is erroneous but it is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263 (1) of the Income Tax Act. 3 4 In the case of Commissioner of Income-Tax Vs. Max India Ltd.(2007) 295 ITR 282 (Supreme Court) the Apex Court had an occasion to explain earlier decision in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income-Tax wherein the Apext Court has held as under: “At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 this court has taken the view that the phrase “prejudicial to the interests of the Revenue” under section 263 has to be read in conjunction with the expression “erroneous” order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word “profits” in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were 4 inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act.” 5 Bearing in mind the interpretation of the Apex Court as per the provisions of section 263 of the Income Tax Act, if one turns to the order of the Commissioner of the Income Tax 18, Mumbai revisional order passed under section 263 of th Income Tax 1961, it would be clear that no finding is recorded by the Revisional Authority that the order is prejudicial to the interest of the Revenue. The tenor of the aforesaid paragraph only lead to the conclusion that the order was found to be erroneous by the revisional authority, however, no where the finding is recorded that the impugned order passed by the Assessing Officer is prejudicial to the interest of the revenue. 6 In absence of positive finding that the order was not in the interest of the revenue, it was not open for the revisional authority to assume jurisdiction. In this view of the matter, the impugned order invoking under section 263 of the Income Tax Act was erroneous. Consequently, the Revisional Authority was not justified any setting aside the order passed by the Assessing Officer. In view of the aforesaid finding we answer the first question in negative i.e. in favour of the assessee and against the Revenue. 7 In view of the findings recorded on the first question, the second question does not survive. The matter is remanded back to the Assessing Officer for the decision afresh on its own merits in accordance with law. It is made it clear that the Assessing Officer should not get influenced by this order. (J.P. DEVADHAR, J.) (V.C.DAGA,J.)