1. This appeal has been filed by the department against the order dated 30-6-1983 of the Commissioner (Appeals) relating to the assessment year 1980-81, the previous year of which ended on 30-12-1979.
2. The only ground taken in this appeal is that the Commissioner (Appeals) erred in holding that the expenses incurred by the assessee should be allocated between the income from consultancy fees of Rs. 7,04,225 and other income, whereas, the ITO had correctly allocated the entire expenses as pertaining to the consultancy fees of Rs. 7,04,225.
3. The assessee is a private limited company deriving income from providing technical advice to its clients both in India and abroad. During the year under consideration, the assessee received a sum of Rs. 7,04,225 as fees for the consultancy services rendered to a foreign party. The assessee also earned interest of Rs. 15,990 on moneys advances. In the return of income filed by the assessee relief under section 80-0 of the Income-tax Act, 1961 (the Act) was claimed on the entire income. But as per the assessment order, the assessees representative claimed in course of assessment proceedings, that an expenditure of Rs. 26,701 should be regarded as expenses for purposes other than earning the foreign consultancy fees. It is evident that the ITO wanted to give the relief under section 80-0 only to the net amount of foreign consultancy fees. It is evident that the ITO wanted to give the relief under section 80-0 only on the net amount of foreign consultancy fees after deducting the expenses attributable to the earning of the same. It was in that context that the assessee claimed that the entire expenses could not be related only to the foreign services because the assessee also rendered services to Indian clients though no fees were earned from them during the year under consideration. The ITO however, held that the entire expenses should be attributable to the foreign consultancy fees earned during this year. He also decided another point against the assessee. As stated earlier, the assessee earned an interest of Rs. 15,990. The net profit as per profit and loss account of the assessee was 5,58,057. The ITO deducted the sum of Rs. 15,990 from the said net profit and added back a sum of Rs. 1,650 as disallowable expenses and arrived at a figure of Rs. 5,43,717. To this figure, he added the interest receipt of Rs. 15,990 separately as income from other sources. Thus, he arrived at the gross total income of Rs. 5,59,707. Inspite of the same, the ITO allowed relief under section 80-0 only on Rs. 5,43,717. In other words, the ITO held that relief under section 80-0 can be allowed only to the extent of professional income excluding the income from other sources.
4. The assessee appealed to the Commissioner (Appeals), who held that the bifurcation of the total expenses between foreign services and Indian services as made by the assessee was quite fair and should have been accepted. In other words, he upheld the contention of the assessee that while computing the relief under section 80-0 the net amount should be taken by reducing a lower amount of expenditure and not the entire expenditure forms the foreign consultancy fees. That lower amount of expenditure should be arrived at after deducting the expenses attributable to Indian services from the total expenditure. The assessee also raised an alternative contention to the effect that the gross income from consultancy without any deduction therefrom towards expenditure qualified for exemption. It was urged that section 80AB of the Act was introduced with effect from 1-4-1981 and it had no retrospective operation covering the assessment year 1980-81, which is now under consideration. In this year, the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) would apply. The Commissioner (Appeals), however, rejected this contention. As a result, the Commissioner (Appeals) directed the ITO to allow relief under section 80-0 on a higher amount, i.e., by reducing a smaller amount towards expenditure from the gross foreign consultancy fees received by the assessee.
5. The department in appeal against the aforesaid order of the Commissioner (Appeals). Shri A. Prasad, the learned representative for the department, urged before me that the Commissioner (Appeals) erred in directing the ITO to accept the bifurcation made by the assessee and a deduct a smaller amount of expenditure from the gross fees instead of the entire income. He urged that the assessee had no other income as consultancy fees from Indian clients and so the bifurcation claimed by the assessee should not have been accepted.
6. Shri V. H. Patil, the learned representative for the assessee, on the other hand, supported the order of the Commissioner (Appeals). He stated that even assuming, but not admitting, that the relief is admissible only on the net amount after deducting the expenditure, expenses not relating to the earning of the foreign fees should not have been deducted. He stressed the point that there was no connection between the expenses incurred for earning the fees in India and the fees actually earned outside India. Without prejudice to the above he urged that in view of the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. (supra), the relief should have been given on the gross fees without deducting any expenses therefrom. He pointed out that section 80 AB did not apply to the year under consideration. He urged that it was open to him to urge this point because it has been decided against him by the Commissioner (Appeals). He relied on rule 27 of the Income-tax Appellate Tribunal Rules in this connection, as well as the decision of the Bombay High Court in the case of B. R. Bamasi v. CIT : 83ITR223(Bom) . Finally, he urged that there was no jurisdiction whatsoever to exclude the sum of Rs. 15,990 from the gross total income for the purpose of the upper limit upto which the relief under section 80-0 can be allowed.
7. I have considered the contentions of both the parties as well as the facts on record. I agree with the assessee that rule 27 enables it to urge that the relief should be given on the entire fees without any deduction therefrom. This ground taken by the assessee before me is well founded because of the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. (supra). Section 80AB does not apply to the year under consideration and so, the decision in the case of Cloth Traders (P.) Ltd. (supra) will apply. If that be so, then the question of bifurcating the expenditure does not arise at all. In other words, when the relief has to be given on the gross fees without any deduction of expenses, the question as to what amount of expense is to be deducted no longer survives. I also find force in the contention of the assessee that the sums of Rs. 15,900 should not have been excluded from the gross total income. `Gross total income as defined under section 80B (5) of the Act means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI of the Act. Evidently, this definition includes income from all heads. Hence, the sum of 15,990 assessed under the head Income from other sources was definitely a part of the gross total income. Hence, I come to the conclusion that the assessee is entitled to relied on the gross receipt of Rs. 7,04,225 without deduction of any expense therefrom; but, the relief is to be limited only to the gross total income, which I hold is Rs. 5,59,707 as computed by the ITO in the assessment order itself. Hence, I direct that the relief under section 80-0 should be given to the extent of Rs. 5,59,707 so that the total income for the year becomes nil. I direct that the assessment be modified accordingly. In view of the above decision, no further question survives for consideration.
8. In the result, the appeal is allowed as above.