Skip to content


Petroleum India International Vs. Deputy Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2000)241ITR43(Mum.)
AppellantPetroleum India International
RespondentDeputy Commissioner of
Excerpt:
1. the appeal of the assessee, for asst. yr. 1992-93, had come up for hearing before 'a' bench, mumbai and on the recommendation of the bench, the president constituted a special bench for deciding the appeal. the issue involved is : "whether on the facts and in the circumstances of the case the first appellate authority was justified in upholding the order of the ao disallowing deduction under s. 80-o of the it act, 1961, with reference to gross convertible foreign exchange received by the assessee by way of fees for technical and consultancy services rendered by it to the parties abroad ?" 2. the relevant facts, in this case, are that the appellant is an aop and consists of nine public sector companies as its members. the appellant provides technical and consultancy services to various.....
Judgment:
1. The appeal of the assessee, for asst. yr. 1992-93, had come up for hearing before 'A' Bench, Mumbai and on the recommendation of the Bench, the President constituted a Special Bench for deciding the appeal. The issue involved is : "Whether on the facts and in the circumstances of the case the first Appellate Authority was justified in upholding the order of the AO disallowing deduction under s. 80-O of the IT Act, 1961, with reference to gross convertible foreign exchange received by the assessee by way of fees for technical and consultancy services rendered by it to the parties abroad ?" 2. The relevant facts, in this case, are that the appellant is an AOP and consists of nine public sector companies as its members. The appellant provides technical and consultancy services to various parties abroad. For asst. yr. 1992-93, for which the previous year ended on 31st March, 1992, the assessee had claimed deduction under s.

80-O of the IT Act, 1961 of Rs. 3,38,38,386 being 50 per cent of the total foreign exchange received during the year of Rs. 6,76,76,773. The assessee had incurred an expenditure of Rs. 1,10,06,689 relatable to two projects, viz., NNPC and Petromech. In computing the deduction under s. 80-O, assessee did not take into account the aforementioned expenditure of Rs. 1,10,06,689 incurred in India. It was claimed that deduction under s. 80-O is allowable on the receipt of income from abroad in foreign exchange and, therefore, the expenditure incurred in India is not deductible. This claim of the assessee was not accepted by the AO. The assessee appealed to the CIT(A) and the latter confirmed the view of the AO with the following finding : "4. I have heard the arguments of the learned counsel of the appellant. I am of opinion that deduction has to be allowed on net income after deducting the expenditure incurred in India from the gross receipts received in convertible foreign exchange in India.

The Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 115 ITR 120 (SC) and others have held that deduction under s. 80M is available only with reference to the net amount of net dividend and not with reference to gross amount received by an assessee, i.e., deduction has to be allowed on gross income from dividend as reduced by expenditure incurred to earn that income. The decision of the Tribunal Bombay Bench in the case of Tata Unisys vs. Dy. CIT (1994) 47 TTJ (Bom) 8 is applicable to the facts of the present case wherein it has been held that s. 80-O applies to income after deductions under Chapter VI-A i.e., deduction should be allowed after deducting the expenses from the gross receipt. Keeping in view the judgment of the jurisdictional bench of the Tribunal as also of the Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) the decision of the Tribunal Calcutta Bench as relied upon by the appellant for allowing deduction under s. 80-O on the gross receipts received from abroad is rejected and AO's order is upheld." 3. Aggrieved by the order of the CIT(A), the assessee appealed to the Tribunal. The Division Bench having recommended the constitution of the Special Bench, we are now seized of the matter for disposal of the appeal in the light of the reference made to us.

4. The following parties appeared as interveners and advanced their point of view regarding the issue reference to the Bench : ---------------------------------------------------------------------- ITA No. Name of the case Counsel's name ---------------------------------------------------------------------- 1. 4203/Mum/98 P. N. Writer & Co.

Shri A. M. Shah 2. 4102, Mum/96 Tata Sons Ltd. Shri Dinesh Vyas 3. 3460/Mum/92 -do- and 4. 9317/Mum/91 -do- Shri P. C. Tripathi 5. 5701/Mum/95 Datamatics Ltd. -do- 6. 1081/Mum/96 -do- -do- 7. 1470/Mum/97 -do- -do- 8. 7362/Mum/92 Tata Unisys Ltd. Shri V. H. Patil 9. 2973/Mum/94 -do- Shri Vipul Joshi & Shri S. M. Lala 10. Filed on 10-4-1997 Tandem Merchandising Shri J. P. Kapur (Del) Co. 11. 452/Bang/97 M.N. Dastur & Co.

M. S. Syali 12. Filed on 9-3-1998 BMG Enterprises Ltd. M/s Vaish Associates (Del) 13. 6701/Mum/91 Tower Ins. & Reins Shri S. R. Jha Service India Ltd. 14. 4929/Mum/94 -do- -do- 15. 5870/Mum/95 -do- -do- 16. 1508/Che/98 PG Projects & M. S. Syali and Mrs.

(Madras) Consultancy Ltd. Assem Chawla 17. 7272/Mum/98 Oceaneering Express Shri Santosh Desai & Forwarders Ltd. Shri Harshad K. Shah ---------------------------------------------------------------------- 5. The appellant has filed an application for admission of the additional ground of appeal on 8th April, 1996, which reads as under : "The CIT(A) erred in not allowing deduction under s. 80-O with reference to gross convertible foreign exchange received by the appellant by way of fees." He failed to appreciate that the appellant was entitled to deduct under s. 80-O with reference to gross convertible foreign exchange received by it by way of fees." 6. It has been contended before us that the additional ground is purely legal in nature and has been raised on becoming wiser after several Court decisions.

7. As is evident from the ground raised, the assessee is not claiming that deduction under s. 80-O is permissible in respect of the entire foreign exchange earnings without deducting any expenditure incurred even in the foreign country.

8. The learned counsel for the assessee, Shri S. E. Dastur contended that s. 80-O provides for deduction with reference to the payment received in foreign exchange. It was contended that the legislature has deliberately used the words "fifty per cent of the income so received" instead of fifty per cent of such income. It was further submitted the s. 80-O is an independent code incorporated mainly to encourage earning of the foreign exchange, inviting our attention to the relevant notes to the Finance Act, 1967, the learned counsel contended that s. 85C granted the deduction till asst. yr. 1972-73 when s. 80-O was introduced. Reference was made to cls. 42 and 43 of the Memorandum explaining the provisions of the Finance Bill as reported in 93 ITR (St) 122 at p. 145. It was contended that the object of granting deduction under s. 80-O was to earn foreign exchange and that the trend of the legislature was to widen the scope of s. 80-O. The learned counsel further contended that the legislature has used the term 'income' to connote different meanings in different places. At certain places the income denotes the net income as computed under the Act, but at several places the word 'income' does not connote the same meaning.

Reference has been made to s. 10(15) of the IT Act, 1991, which refers to income by way of interest, premium on redemption or other payment on such securities.

9. The learned counsel pointed out that the word "income" used in s.

80-O should not be given undue weightage. Reference was also made to s.

10(15)(iib) where the legislature has used the words "interest on such Capital Investment Bonds' for purposes of grant of exemption. Reliance was placed on the decision of the Bombay High Court in the case of CIT vs. Industrial Investment Trust Co. Ltd. (1968) 67 ITR 436 (Bom) in support of the contention that a reference to the dividend in the notification was to the gross dividend and not to the net income.

Reliance was also placed on the decision of the Bombay High Court in the case of CIT vs. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Bom) where their Lordships held that any dividend received must necessarily imply the dividends received by the assessee from Indian company. In this case the Bombay High Court held that the word 'received' immediately follows the word 'dividend' and it shows that the exemption is in regard to the dividend received and not in regard to the dividend as assessed or the dividend income. Reliance was also placed on the decision of the Supreme Court in the case of CIT vs.

South Indian Bank Ltd. (1966) 59 ITR 763 (SC) where their Lordships held that interest receivable was an unambiguous expression; it could only mean the amount of interest calculated in accordance with the terms of the securities; it could not mean interest receivable minus the amount spent in receiving the same. It was accordingly contended that in s. 80-O the legislature having consciously used the words "the income so received" connotes the gross income received in India and not the income as computed under the Act.

10. According to the learned counsel, the computation of income does not come into play in interpreting the words 'the income so received" in s. 80-O. It was reiterated that s. 80-O is a stand alone section.

Referring to the decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 155 ITR 120 (SC), the learned counsel contended that in s. 80M the words 'such income' appears three times as against which the s. 80-O uses the expression the income received in India in convertible foreign exchange. It was contended that s. 80-O is different in structure than s. 80-M. It was accordingly contended that the decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) is inapplicable in the present case. Shri S. E. Dastur reiterated that s.

80M was not comparable to s. 80-O. The learned counsel further contended that in s. 80-O the words 'such income' connotes the type of income and not the net income included in the gross total income. The learned counsel also contended that in s. 80M deduction is provided on the income so included but in s. 80-O the language used is totally different. The objects behind incorporation of s. 80M are totally different than the objects for incorporation of s. 80-O. It was contended that it is important to bear in mind the intention of the legislature in interpreting the provisions of the Act.

11. The learned counsel for the assessee further contended that in order to ascertain the meaning of s. 80-O it is necessary to find out as to what are the conditions for grant of deduction under that section. Then it has to be determined as to what is the quantum on which deduction is allowed. It has also to be ascertained as to whether there are any restrictions on the grant of deduction. It was contended that one of the conditions for grant of deduction under s. 80-O is that the gross total income must include specified income referred to in s.

80-O. There is no dispute, according to the learned counsel, that the income included in the gross total income should be the net income as computed under the provisions of the Act. Then the second condition to be satisfied for applicability of s. 80-O is that the assessee having the income from specified source must receive that income in convertible foreign exchange in India. The words 'such income' referred to in s. 80-O, according to the learned counsel, refer to the nature of income and not to the quantum of income. When these conditions are satisfied, then deduction has got to be calculated with reference to the foreign exchange remittances from the specified source. The learned counsel pointed out that s. 80-O does not use the words that deduction shall be allowed from such income. Reliance was placed on the following decisions of the Tribunal in support of the contention that deduction under s. 80-O is permissible with reference to foreign exchange earnings and the expenditure incurred in India is not to be deducted for the purpose of computation of the deduction.

(ii) M. N. Dastur & Co. Ltd. vs. Dy. CIT (1997) 58 TTJ (Bang) 748 : (1997) 62 ITD 113 (Bang); and 12. Reference was also invited to the decision of the Tribunal in the case of J. B. Boda & Co. (P) Ltd. vs. ITO ITA Nos. 1850 and 1851 (Bom) of 1991. The learned counsel contended that the decision of the Tribunal in the case of Tata Unisys Ltd. vs. Dy. CIT (1993) 47 TTJ (Bom) 8 is not based on correct appreciation of facts. Referring to the decision of the Tribunal in the case of Tata Unisys Ltd. (supra), the learned counsel contended that the Bench has not decided the issue on the basis of language of s. 80-O but on the basis of restriction placed by s. 80AB. It was further contended that s. 80AB applies in such cases where deduction is required to be allowed with reference to the income which is included in the gross total income of the assessee. In the case of s. 80-O, the learned counsel contended that deduction is not required to be allowed with reference to gross total income of the assessee but with reference to the foreign exchange receipts.

13. On behalf of M/s Star Alloys (P) Ltd. and the interveners, viz. M/s M. N. Dastur & Co. Ltd. and S.P.G. Projects and Consultancy Ltd., Shri M. S. Syali contended that the controversy is to be examined from two angles. One is while calculating the deduction whether the direct or indirect expenditure incurred in India is to be reduced from the net convertible foreign exchange received in India and secondly even if s.

80-O does not permit deduction of expenditure whether the provisions of s. 80AB allows to do so. It was further contended that deduction under s. 80-O de hors s. 80AB is only on the prescribed percentage of the net income convertible foreign exchange received in India. It was further contended that s. 80-O does not provide a deduction in respect of sums included in the gross total income. It was further contended that the intention in introducing s. 80-O was to encourage export of Indian technical know-how and augmentation of foreign resources of the country. In this connection reliance was placed on the decision of the Bombay High Court in the case of Gannon Dunkerly & Co. Ltd. vs. CBDT (1986) 159 ITR 162 (Bom). It was pointed out that in the abovementioned decision the Bombay High Court has referred to the CBDT circular in this regard.

14. It was further contended that the legislature had changed the language of s. 80-O in 1974 and if the language had remained the same then the deduction would have been with reference to the income included in the gross total income and deduction of expenditure incurred in India may have been possible. It was further contended that s. 80-O was different to s. 80M in structure, language and content. In this connection reference was made to the observations of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) at p. 128.

It was contended that the decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) was inapplicable for interpreting s. 80-O as the language was different. It was further contended that the decision of the Calcutta High Court in the case of CIT vs. Darbhanga Marketing Co. Ltd. (1971) 80 ITR 72 (Cal) and that of the Madras High Court in the case of CIT vs. Madras Motor & General Insurance Co. Ltd. (1975) 99 ITR 243 (Mad) had not been overruled by the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra). Reliance was also placed on the decision of the Calcutta High Court in the case of Pilani Investment Corpn. Ltd. vs. CIT (1987) 165 ITR 138 (Cal) in support of the contention that the aforementioned cases referred to in the decision of the Cloth Traders (P) Ltd. vs.

Addl. CIT (1979) 118 ITR 243 (SC) have not been overruled in Distributor (Boarda) (P) Ltd. case (supra) and, therefore, these are still binding. It was further contended that the legislative history should be taken into account in determining the meaning of s. 80-O.15. The learned counsel further contended that s. 80AB has limited application and it applies to such cases where the deduction is to be made with reference to the income included in the gross total income.

Since in this case deduction is not provided with reference to the gross total income, s. 80AB inapplicable. It was further contended that it is the duty of the Court to find out the extent to which the legislature had intended to give one provision overriding effect on another provision. Reliance is placed on the decision of the Supreme Court in the case of Vadrajulu A. 1998 SC 1388 and 1392 para 16. It was further contended that if s. 80-O does not fall within the s. 80AB, the non obstante clause does not make any difference. It was further contended that s. 80AB by a non obstante clause overrules the provisions of relevant section and stipulates that the amount of income of the nature specified in the section as computed in accordance with the Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee. It is important to note that section does not stop here. It goes to added that such income as computed in accordance with the Act shall be deemed to be the income of that nature which is derived or received by the assessee and which is included in his gross total income. It was contended that the words "which is included in his gross total income" clearly will be superfluous if this argument was not to be accepted.

16. Referring to the decision of the Delhi High Court in the case of CIT vs. Marketing Research Corpn. it was contended that it relates to asst. yr. 1968-69 for which the wording of s. 80-O was different and that from 1st April, 1972, the wording of s. 80-O was changed with an intention of granting deduction with reference to the convertible foreign exchange received in or brought into India. It was contended that prior to such insertion the deduction was with reference to such income included in the gross total income.

17. Shri Dinesh Vyas, appearing for M/s Tata Sons Ltd. reiterated the contentions advanced by Shri Dastur on behalf of the appellant. He further invited our attention to certain rules of interpretation from "Maxwell on the Interpretation of Statutes". It was contended that before adopting my proposed construction of a passage susceptible of more than one meaning, it is important to consider the effects or consequences which would result from it, for they often point out the real meaning of the words. There are certain objects which the legislature is presumed not to intend and a construction which would lead to any of them is, therefore, to be avoided.

"Thus in Maxwell in many other cases where it was evident that a literal construction would have carried the operation of the Act far beyond the object with which it was acted have been given restricted construction." "Where a statute made it an offence in certain cases for any person to intimidate any other person, but provided that nothing in the Act should apply to seamen (to whom a special disciplinary code was applicable), it was held that the proviso only operated where the offence was committed by a seaman, and not where it was committed against a seaman." 19. Shri Vaish representing M/s BMG Enterprises (P) Ltd. could not reach Mumbai but filed written submissions which we have considered.

The learned counsel has relied upon the legislative history of s. 80-O and sought to support the view that the deduction under s. 80-O is permissible with reference to the gross foreign exchange earnings and the expenses incurred in India have not to be deducted. Reliance has been placed on the decision of the Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT (1992) 196 ITR 188 (SC) in support of the contention that an enactment should be interpreted in such a manner so as to advance the purpose for which it has been incorporated. It was contended that since the s. 80-O has been incorporated as an incentive provision which needs to be interpreted in a manner to advance the purpose for which it has been incorporated.

20. The counsel appearing for other interveners have reiterated the contentions advanced by Shri Dastur on behalf of the appellants.

21. Shri Chandrachood, Additional Solicitor General of India, appearing for the respondents contended that s. 80-O is a part of Chapter VI-A.The heading of the Chapter VI-A is "Deductions to be made in computing total income". Sec. 80A, it was contended by the learned counsel, provides that the deduction will be allowed from the gross total income under s. 80C to 80U. It is, therefore, evident that these sections stipulate the deduction allowed from the gross total income in computing total income. It was further contended that the nature of the deductions may vary in each individual section. It was further contended that gross total income means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. According to the learned counsel, s. 80-O has the following ingredients : (1) Gross total income of an assessee must include the income by way of royalty, commission, fee or similar payments.

(2) Income must be received by the assessee from any one of the sources specified in the section.

(3) The consideration must be rendering of prescribed service for the provision of the prescribed skill outside India.

(4) Such income from the specified sources must be received in convertible foreign exchange and brought into India through an authorised channel.

22. It was further contended that s. 80-O first refers to the gross total income and then to any income by way of royalty, etc. and then finally such income in convertible foreign exchange is referred to and deduction at the rate of 50 per cent of the income so received or brought into India is provided. Shri Chandrachood contended that the remittance from abroad is a condition for grant of deduction under s.

80-O. The entire foreign exchange remitted from abroad does not qualify for deduction. It was further contended that the object of s. 80-O is not only to bring in foreign exchange from specified sources. Foreign exchange can be earned by various modes. Reliance was placed on the decision of the Supreme Court in the case of Petron Engg. Construction (P) Ltd. vs. CBDT (1989) 175 ITR 523 (SC) in support of the contention that the object of s. 80-O was to ensure and promote the spread of Indian technology to developing countries and in that process foreign exchange would also be realised. It has been pointed out that this principle has been reiterated in the case of J. B. Boda & Co. (P) Ltd. vs. CBDT (1997) 223 ITR 271 (SC) at p. 278. The learned counsel further contended that the interpretation advanced on behalf of the appellants is misconceived. The contention is not borne out by the object and purpose underlying the introduction of the provision, it was contended.

23. The learned counsel further contended that the decision of the Supreme Court in the case of Cloth Traders (P) Ltd. (supra) lead to the amendment of Chapter VI-A and insertion of s. 80AA and s. 80AB.Reliance was placed on the decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) in support of the contention that s. 80AA was only declaratory provision as it had always been.

Reliance was also placed on the decision of the Supreme Court in the case of H. H. Sir Rama Varma vs. CIT (1994) 205 ITR 433 (SC) in support of the contention that on parity of reasoning the insertion of s. 80AB was also declaratory of the provision as it stood in any case. It was contended that whereas s. 80AA applies to s. 80M, s. 80AB applies to other provisions forming part of sub-heading 'C' of Chapter VI-A. It was further contended that in view of s. 80AA there is no doubt that in the case of dividends which forms part of the gross total income the computation is to be made in accordance with the provisions of the Act as provided under s. 80AA. Similarly, deduction under s. 80-O by way of royalty, etc. has also to be computed in accordance with the provisions of the Act as provided under s. 80AB.24. The learned counsel further contended that the consistent strain of thought in the judicial interpretation of the provisions of Chapter VI-A is that deduction under Chapter VI-A is allowable with reference to the net income as computed under the Act and not in respect of the gross income. Reliance has been placed on the following decisions : (3) Industrial Consulting Bureau (P) Ltd. vs. CIT (1991) 189 ITR 346 (Bom); and 25. Our attention was also invited to the decision of the Kerala High Court in the case of CIT vs. V. T. Joseph (1997) 225 ITR 731 (Ker) where it was held that s. 80AB applies to s. 80HHC. It was contended that on the basis of this decision the view taken by the Tribunal in Salgaocar Mining Industries Ltd. vs. Dy. CIT (1997) 58 TTJ (Pune) 468 : (1997) 61 ITD 105 (Pune) and Expo Machinery Ltd. vs. IAC (1989) 31 ITD 41 (Del) relied upon by the assessee is contrary to the judgment of the High Court.

26. Reliance was also placed on the decision of the Hyderabad Bench of the Tribunal in the case of IAC vs. Dredging Corpn. of India Ltd. (1987) 27 TTJ (Hyd) 226 : (1987) 23 ITD 49 (Hyd) and the decision of the Bombay Bench of the Tribunal in the case of Tata Unisys Ltd. (supra) in support of the contention that deduction under s. 80-O is permissible with reference to the net income included in the gross total income and that provisions of s. 80AB are applicable in respect of deduction under s. 80-O. The learned counsel further contended that legislative history in the course of judicial interpretation supports the view that deduction under s. 80-O must be based on income by way of specified sources calculated in accordance with the provisions of the Act. It was accordingly contended that the appeal of the assessee be dismissed.

27. We have given our thoughtful consideration to the rival contentions. The issue to be resolved by this Bench is whether the quantum of deduction admissible under s. 80-O of the IT Act, 1961 is admissible on the gross income brought into India in convertible foreign exchange or the income computed after reducing the expenses incurred abroad as well as in India.

28. Chapter VI-A of the IT Act, 1961, provides for deduction to be made in computing the total income of an assessee. This Chapter is divided into four parts. Part A is General. Part B deals with deductions in respect of certain payments. Part C deals with deductions in respect of certain incomes. Part D deals with other deductions. Sec. 80-O finds its place in Chapter VI-A, Part C. This section as applicable to asst.

yr. 1992-93 is reproduced hereunder : '80-O. Where the gross total income of an assessee, being an Indian company or a person other than a company who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with the subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into, India, in computing the total income of the assessee : Provided that such income is received in India within a period of six months from the end of the previous year, or where the Chief CIT or CIT is satisfied for reasons to be recorded in writing that the assessee is, for reasons beyond his control, unable to do so within the said period of six months within such further period as the Chief CIT or CIT may allow in this behalf.

(i) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange; (iii) services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India.

29. The various Benches of the Tribunal and some High Courts have taken divergent views in regard to the interpretation of s. 80-O. The Madras High Court in the case of Addl. CIT vs. Isthmian India Maritime (P) Ltd. (1978) 113 ITR 570 (Mad) held that deduction under s. 80-O is permissible with reference to the gross receipts without deducting the expenditure incurred in India. The same High Court in the case of Addl.

CIT vs. Crompton Engg. Co. (Madras) Ltd. (1979) 119 ITR 921 (Mad) while interpreting s. 80E held that deduction was permissible with reference to the gross amount of royalty, etc. These cases were decided before the decision of the Supreme Court in the case of Distributors' (Baroda) (P) Ltd. (supra).

30. The Calcutta Bench of the Tribunal in the case of M. N. Dastur & Co. vs. Dy. CIT (supra) held that deduction under s. 80-O was allowable on income brought in India in the shape of convertible foreign exchange without taking into account expenses incurred in India. This decision of the Tribunal has again been followed in the case of M. N. Dastur & Co. vs. Dy. CIT (1997) 58 TTJ (Bang) 798 : (1997) 62 ITD 113 (supra).

However, the Delhi High Court in the case of Marketing Research Corpn.

(supra), relying upon the decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) held that deduction under s.

80-O of the Act is to be computed on the basis of the net income and not gross income. It may be pertinent to mention that the Delhi High Court interpreted s. 80-O as applicable for asst. yr. 1968-69 where a deduction was provided of the whole of income in computing the total income of the assessee.

31. The Hyderabad Bench of the Tribunal in the case of Dredging Corpn.

of India Ltd. (supra) held that under s. 80-O deduction was to be computed with reference to the income as computed in accordance with the provisions of Act, that is the net income.

32. In the case of Tata Unisys Ltd. (supra) the Bombay Bench of the Tribunal held that s. 80AB is applicable in computing the deduction under s. 80-O and accordingly held that deduction under s. 80-O is permissible with reference to the net income as computed under the Act.

33. In order to comprehend the meaning of s. 80-O, it will be useful to give certain rules of interpretation. These rules are based on various decisions of the High Courts and Supreme Court. Some rules are quoted from Maxwell on the Interpretation of Statutes 12th Edn. and some from Odgers Construction of Deeds and Statutes Fifth Edn. by G. Dworkin, Second Indian Re-print 1998.

In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only took fairly at the language used. - Smt. Tarulata Shyam vs. CIT (1977) 108 ITR 345 (SC).

Where a literal construction would defeat the obvious intention of the legislation and produce a wholly unreasonable result, the Court must "do some violence to the words" and so achieve that obvious intention and produce a rational construction. This rule is based on the decision of the Supreme Court in the case of CIT vs. National Taj Traders (1980) 121 ITR 535 (SC) at p. 542.

A judicial interpretation should be so geared as to fairly serve the legislative intent. This rule is based on the decision of the Bombay High Court in the case of Eastman Consultants (P) Ltd. vs. CBDT (1981) 132 ITR 637 (Bom).

In the case of CIT vs. B. N. Bhattacharjee (1979) 118 ITR 461 (SC) at p. 480 their Lordships of the Supreme Court quoted the following by Per Denning L.J. Seaford Court Estates Ltd. vs. Asher (1949) 2 All ER 155 (CA) : It would certainly save the Judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament ... A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out He must then do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases.

A statute is to be read as a whole. This rule is based on the decision of the Supreme Court in the case of National Taj Traders (supra).

A provision for deduction, exemption or relief should be so construed as to effectuate the object of the legislature and not to defeat it.

This rule is based on the decision of the Supreme Court in the case of - CIT vs. Canara Workshops (P) Ltd. (1986) 161 ITR 320 (SC).

The Court is entitled, and indeed bound, when construing the terms of any provision found in a statute, to consider the context - CGT vs. N.S. Getti Chettiar (1971) 82 ITR 599 (SC).

The Court is also bound to consider any other parts of the Act which throw light upon the intention of the legislature and which may serve to show that the particular provision ought not to be construed as it would be if considered alone and apart from the rest of the Act. - CIT vs. Narsee Nagsee & Co. (1960) 40 ITR 307 (SC). National Taj Trader's case (supra), CIT vs. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC), K.P. Varghese vs. ITO (1981) 131 ITR 597 (SC).

Intention of legislature to be preferred to technical language Our duty is to find out what the legislature must be taken to have really meant by the expressions which it has used, without necessarily attributing to "it" a precise appreciation of the technical appropriateness of its language. These observations are from Viscount Simon LC, St. of London ITC vs. Gibbs 4 Tax Cases 221 (HL) which have been adopted in the case of CIT vs. Simpson & Co. (1980) 122 ITR 283 (Mad) at p. 286-7.

Simpson vs. Jones 44 Tax Cases. 599 : "Before adopting any proposed construction of a passage susceptible of more than one meaning, it is important to consider the effects or consequences which would result from it, for they often point out the real meaning of the words. There are certain objects which the legislature is presumed not to intend, and a construction which would lead to any of them is therefore, to be avoided. It is not infrequently necessary, therefore, to limit the effect of the words contained in an enactment (especially general words), and sometimes to depart, not only from their primary and literal meaning, but also from the rules of grammatical construction in cases where it seems highly improbable that the words in their wide primary or grammatical meaning actually express the real intention of the legislature. It is regarded as more reasonable to hold that the legislature expressed its intention in a slovenly manner, than that a meaning should be given to them which could not have been intended." In thickets so dense and statute-laden as the law of income-tax, commmon-sense, is I suppose, a frail guide. Certainly it cannot become the master, for then it would usurp the function of the statute book.

But in territory which remains unoccupied by either statute law or case law, I do not see why commonsense should be abjured - B. C. Srinivasa Setty's case (supra).

We cannot aid the legislature's defective phrasing of an Act, we cannot add and mend, and, by construction, make up deficiencies which are left there". In 1951, in Magor and St. Mellons R.D.C. vs. Newport Corpn. it was held by the House of Lords that a Court has not power to fill any gaps disclosed in an Act. To do so would be to usurp the function of the legislature.

In other words, the language of Acts of Parliament, and more especially of modern Acts, must neither be extended beyond its natural and proper limits, in order to supply omissions or defects, nor strained to meet the justice of an individual case. "If, said Lord Brougham, in Gwynne vs. Burnell, we depart from the plain and obvious meaning on account of such views (as those pressed in argument on, 43 Geo 3 c. 99), we do not in truth construe the Act, but alter it. We add words to it, or vary the words in which its provisions are couched. We supply a defect which the legislature would easily have supplied, and are making the law, not interpreting it. This becomes peculiarly improper in dealing with a modern statute; because the extreme conciseness of the ancient statutes was the only ground for the sort of legislative interpretation frequently put upon their words by the Judges. The prolixity of modern statutes, so very remarkable of late affords no grounds to justify such a sort of interpretation." The above rules of construction have been crystalised by the Supreme Court in the case of Kehar Singh vs. State (Delhi Admn) AIR 1988 SC 1883 as under : "During the last several years, the 'golden rule' has been given a go bye. We now look for the 'intention' of the legislature or the 'purpose' of the statute. First, we examine the words of the statute. If the words are precise and cover the situation in hand, we do not go further. We expound those words in the natural and ordinary sense of the words. But, if the words are ambiguous, uncertain or any doubt arises as to the terms employed, we deem it as our paramount duty to put upon the language of the legislature rational meaning. We then examine every word, every section and every provision. We examine the Act as a whole. We examine the necessity which gave rise to the Act. We look at the mischiefs which the legislature intended to redress. We look at the whole situation and not just one-to-one relation. We will not consider any provision but of the framework of the statute. We will not view the provisions as abstract principles separated from the motive force behind. We will consider the provisions in the circumstances to which they owe their origin. We will consider the provisions to ensure coherence and consistency within the law as a whole and to avoid undesirable consequences." 35. It is established from the rules of interpretation that the expositors of laws are duty bound to examine the words of the statute and expound the words in the natural and ordinary sense of the words.

Since there is a difference of opinion amongst various. Benches of the Tribunal, it cannot be presumed that the language of s. 80-O is free from doubt. In case of doubtful meaning of a provision it becomes the paramount duty of the Court to put upon language a rational meaning. It becomes its duty to examine every word, every section and every provision of the Act to be examined as a whole. The necessity which gave rise to the incorporation of the provision, the mischief which the legislature intended to redress are to be taken into account. The provision is also not to be considered in isolation. The provision is not to be separated from the motive force behind. The provision is to be considered to ensure coherence and consistency within the law as a whole and to avoid undesirable consequences.

36. The task of interpretation of a statutory enactment is not a mechanical task. In the case of K. P. Varghese (supra) their Lordships of the Supreme Court held that construing of a provision in an attempt to discover the intent of legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for expression of human thought and as pointed by Lord Denning it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity". We can do no better than repeat the famous words of Judge Learned Hand when he said : "It is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing; be it a statute a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative (discovery is the surest guide to their meaning".

This principle was reiterated by the Supreme Court in the case of CIT vs. J. H. Gotla (1985) 156 ITR 323 (SC).

37. In order to comprehend the meaning of s. 80-O in the light of the rules of interpretation it is, therefore, necessary to first ascertain the object behind incorporation of s. 80-O.38. The object behind incorporation of s. 80-O. - The object of the provision when it was first introduced as s. 85C in the IT Act, 1961, was stated in Board's Circular No. 4P(LXXVI-61) of 1966 to be to encourage Indian companies to export their technical know-how and skill abroad and augment the foreign resources of the country. This was reiterated in Board's Circular No. 72, dt. 6th January, 1972, while explaining the amendment made by the Finance (No. 2) Act of 1971.

39. While explaining the scope of amendment under s. 80-O by the Finance Bill of 1974, it was stated that the main objective of the taxation concession under s. 80-O is to encourage Indian companies and resident non-corporate tax-payers to develop technical know-how and make it available to foreign Governments and foreign companies so as to augment our foreign exchange resources.

40. The Mumbai High Court in the case of Gannon Dunkerley & Co. Ltd. (supra) at 165 held as under : "The object of s. 80-O of the Act is indicated by the Board in its Circular dt. 27th December, 1975 (exhibit C), is to encourage the export of Indian technical know-how and augmentation of foreign exchange resources of the country." 41. The objective of s. 80-O is encouraging the export of Indian technical know-how and augmenting foreign exchange resources of the country also emerges from the decision of the Supreme Court in the case of Petron Engg. Construction (P) Ltd. (supra). We quote from the above decision at pp. 531-32 : "Although there is no indication in s. 80-O regarding the supply of technical know-how or rendering technical services to newly developing countries, yet it may be reasonable to infer from the said speech of the Finance Minister that at the time when s. 85C was introduced in the Act, one of the objectives was to supply technical know-how and render technical services to newly developing countries. Foreign exchange can be earned by various other modes, but that will not, in all cases, entitle the assessee to a deduction of income-tax. Sec. 80-O, as it stood during the relevant period with which we are concerned, grants cent per cent deduction of tax.

In the context of such deduction of tax, it will not be unreasonable to presume that the principal objective of s. 80-O is to supply technical know-how or render technical services to developing countries. In the circumstances, the contention of the appellants that as the appellant company has fulfilled the principal object of s. 80-O by earning foreign exchange, respondent No. 1 should have approved the agreements for the purpose of s. 80-O cannot be accepted." In the case of CBDT vs. Oberoi Hotels (India) (P) Ltd. (1998) 231 ITR 148 (SC), the Supreme Court held as under : "The basic purpose of s. 80-O is the spread by an Indian assessee of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill of the assessee for use outside India and in that process to receive income to augment the foreign exchange resources of the country. The assessee can also make available to the foreign enterprise, technical and professional services, expertise of which it possesses for earning foreign exchange for the country." 42. We have, therefore, no hesitation in accepting the contention on behalf of the appellant that the objective of s. 80-O besides encouraging the export of Indian technical know-how was to augment the foreign exchange resources of the country.

43. Once the objective of the legislature is ascertained it is our duty to find out the intention of the Parliament in regard to the quantum of deduction. If the intention of the Parliament is available it will not be permissible for the expositors of laws to take upon themselves for providing as to how the objectives of the legislation can better be achieved. If we do so, we are entering into an area which exclusively belongs to the legislature. The job of expositors of laws, as already demonstrated from the rules of interpretation, is not to make the laws but to iron out the creases.

44. If we keep the object of incorporation sought to be achieved in one hand and s. 80-O on the other hand ignoring the other rules of interpretation a blurred picture may appear in favour of the interpretation advanced on behalf of the taxpayers. However, as already pointed out, it is not permissible under the rules of interpretation to ignore the scheme of the Act, the intention of the Parliament and the other relevant provisions of the Act. In the case of Kehar Singh (supra) the golden rule of interpretation laid down by the Supreme Court has been quoted by us elsewhere in our order which gives the direction in which the expositors of the law have to proceed in the event of any doubt in the meaning of a provision of the Act. It is provided that in the event of doubtful meaning of a provision beneficial interpretation in favour of the assessee should be adopted.

However, it is to be borne in mind that such interpretation is to be adopted only when the intention of the legislature is not available.

The rules permitting the interpretation which will advance the object of a provision is also applicable when the intention of the legislature is not explicit.

45. When object is to encourage export of Indian technical know-how and augmentation of foreign exchange resources, it becomes our duty to ascertain the intention of the legislature in regard to achieving such object. The contention cannot be accepted that the object of augmenting foreign exchange resources can be achieved only by providing a deduction of the gross income from the specified sources of income. The Supreme Court in the case of Petron Engg. Construction (P) Ltd. (supra), held that the foreign exchange resources can be augmented by various modes. Therefore, the presumption that the legislature would have granted deduction to the taxpayers in excess of the income included in the gross total income may not be well-founded. Sec. 80-O is a provision of tax concession. To presume that the legislature would have allowed a deduction in excess of the income earned from a specified source, in our view would give rise to absurdity. In the case of CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1993) XXIII Tax Gazette 55 the Supreme Court held that it is well established principle of law that the interpretation which gives rise to absurdity are to be avoided at any cost. Similar view was taken by the Supreme Court in the case of K. P. Verghese (supra). The learned counsel for the assessee had given us an example of this very case to support his contention that by interpreting s. 80-O to provide for a deduction on the gross receipts in foreign exchange would not give rise to more deduction than the income disclosed from the specified source. We will considered this at the appropriate stage in this order.

46. It may also be borne in mind that s. 80-O is a provision providing a tax concession out of the income chargeable to tax. This is evident from the memo, explaining provisions in Finance Bill 1974 93 ITR (St) 145, we quote as under, even at the cost of repetition : "The main objective of this tax concession is to encourage Indian companies and resident non-corporate tax payers to develop technical 'know-how' and make it available to foreign Governments and foreign companies so as to augment our foreign exchange resources. The Bill seeks to make the following two changes in this provision. ....." 47. We have referred to certain rules of interpretation in para 34. A recap of these rules and the above discussion does not leave us in doubt that ascertaining the intention of legislature is key to the process of interpretation. The intention of legislature can be ascertained by various modes. The legislative history is one of the modes. The legislative history is an eligible aid to the construction of any provision of law. If any authority is required we quote one in the case of Rajendra Kumar Sethia vs. CWT (1992) 194 ITR 218 (Cal). We, therefore, give hereunder the legislative history of s. 80-O.48. The benefit in respect of income from royalty, commission, fees, etc. arising out of use of Indian technical know-how, abroad was first introduced in the form of s. 85C of the Act by the Finance Act, 1966, w.e.f. 1st April, 1966. At the time of its introduction, this section provided for tax at the rate of 25 per cent of such income.

Sec. 80-O of the Act was introduced for the first time by the Finance (No. 2) Act, 1967, to replace s. 85C as it stood then. The new s. 80-O allowed deduction of 60 per cent of income by way of royalties, commission, fees, etc. received by an Indian company from a foreign company in consideration for its supply of technical know-how or technical services under approved agreements.

Sec. 80-O was amended by the Finance Act, 1968, to enhance the deduction available under that section to 100 per cent of the income by way of royalties, etc. The Department's Circular No. 72, dt. 6th January, 1972 (Chaturvedi & Pithisaria Compendium of Circulars Vol. 1 p. 1369), explained that the underlying purpose of the amendment was to encourage Indian companies to develop an export technical know-how and expertise.

The Finance (No. 2) Act, 1971, substituted the provisions of s. 80-O w.e.f. 1st April, 1972 as follows : "80-O. Deduction in respect of royalties, etc. from certain foreign enterprises. - (1) Where the gross total income of an assessee, being an Indian company or a person (other than a company), who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign state or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise; by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, under an agreement approved by the Board in this behalf, there shall be allowed, in accordance with subject to the provisions of this section, a deduction of the whole of such income, in computing the total income of the assessee." The Finance Act, 1974, amended s. 80-O retrospectively w.e.f. 1st April, 1972, to allow deduction only with reference to the income which is received in or brought into India in convertible foreign exchange.

The amended provision read as under : "and such income is received in convertible foreign exchange in India, for having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of the whole of the income so received in, or brought into, India." The Notes on Clause to Finance Bill, 1974; 93 ITR (St) 117 at p. 122 stated that the deduction under s. 80-O will be allowed only to the extent such income is received in or brought into India in accordance with the law for regulating payments and dealings in foreign exchange".

The Memo, explaining provisions in Finance Bill, 1974; 93 ITR (St) 145 while explaining the scope of the amendment under s. 80-O of the Act stated as follows : "The main objective of this tax concession is to encourage Indian companies and resident non-corporate taxpayers to develop technical 'know-how' and make it available to foreign Governments and foreign companies so as to augment our foreign exchange resources. The Bill seeks to make the following two changes in this provision : (a) As one of the main objects of the aforesaid tax concession to augment our foreign exchange resources, it is proposed to specifically provide that the deduction under this provision will be allowed only to the extent the income by way of royalty, commission, etc. is received in or is brought into India by the taxpayer in accordance with the law regulating payments and dealings in foreign exchange. The existing provision in the law is being amended, retrospectively, from 1st April, 1972, i.e. the date from which the relevant provision as it stands at present, was brought into force." The Finance Act, 1984, reduced the quantum of deduction to 50 per cent w.e.f. 1st April, 1985. The CBDT Circular No. 387, dt. 6th July, 1984 (Chaturvedi & Pithisaria Compendium of Circulars Vol. 1 p. 1382), while explaining the amendment made by the Finance Act, 1984, stated that the deduction was introduced primarily to stimulate flow to technology from India and that the said objective could be attained with reduced deduction on that account.

Prior to its amendment by the Finance Act, 1988, the operative portion of s. 80-O as it stood after amendment by the Finance Act, 1987, read as under : "............ and such income is received in convertible foreign exchange in India, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to 50 per cent of the income so received in India in computing the total income of the assessee." A proviso was also inserted by the Finance Act, 1987, w.e.f. 1st April, 1988, which laid down as under : "Provided also that such income is received in India within a period of six months from the end of the previous year, or where the CIT is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the CIT may allow in this behalf." Notes on Clauses of Finance Bill (1987) 165 ITR (St) at p. 135, explain the amendment to s. 80-O by the Finance Act, 1987, in the following words : "Since the provisions of the section are intended to provide incentive to earning foreign exchange, the proposed amendment seeks to provide that the deduction will be allowed only if the amount has been brought into India within a period of six months from the end of the relevant previous year or within such extended period as may be allowed by the CIT after taking into account the difficulties of the assessee in not getting the amount remitted to India within the stipulated period. ......" While explaining the provisions of Finance Act, 1987, CBDT Circular No.495 dt. 22nd September, 1987 explained the modification in the provisions of s. 80-O at para 33.1 [168 ITR (St) 108] as under : "The basic purpose of this incentive provision is to earn foreign exchange for the country. This can be done effectively only be ensuring inward remittance of foreign exchange within a reasonable period. Therefore, Expln. (ii) to s. 80-O as it stood earlier has been deleted and a third proviso has been inserted in s. 80-O, laying down that a deduction will be allowed under that section only in respect of income which is received in India in convertible foreign exchange or has been brought into India within a period of six months. However, where the CIT is satisfied (for reasons to be recorded in writing) that the assessee is unable to do so within the time specified above, because of reasons beyond his control, he may allow such further time as may be considered necessary." The Finance Act, 1988, made certain modifications to the operative part of s. 80-O which continue till this date. The nexus between quantum of deduction admissible under this section and inward remittance of convertible foreign exchange continues unaffected.

49. It is observed from above that s. 85C enacted by the Finance Act, 1966, provided concessional tax in respect of income from specified sources at the rate of 25 per cent of such income. It is abundantly clear that the intention of the legislature was to give deduction with reference to the income as computed under the Act. Sec. 80-O introduced by the Finance (No. 2) Act of 1967 provided a deduction of 60 per cent of the income from the specified sources. It is noteworthy that deduction provided under s. 80-O at the time of its introduction was related to the income the income as computed under the Act. The Finance Act of 1968 enhanced the deduction under s. 80-O to hundred per cent of the income by way of specified sources. The income for purposes of deduction is the income as computed under the Act. Finance (No. 2) Act, 1971, w.e.f. 1st April, 1972, provided for deduction in respect of the whole of income from the specified sources. It is nobody's case that deduction from 1st April, 1972, was intended to be with reference to the gross income and not in the net income as computed after reducing the expenses incurred abroad as well as in India. This in fact is admitted by the parties.

50. There was an amendment by the Finance Act of 1974 of s. 80-O retrospectively from 1st April, 1972. This amendment is important for construing s. 80-O. It is this amendment which incorporated the words "the income received in foreign exchange" and provided the deduction on the income so received. When we consider the intention of the legislation behind the amendment a clear picture will emerge. The Notes on Clauses to Finance Bill, 1974, [93 ITR (St) 117 at p. 122] states that the deduction under s. 80-O will be allowed only to the extent such income is received in or brought into India in accordance with the law for regulating payments in dealings in foreign exchange. The Memo explaining the provisions in Finance Bill, 1974, explaining the scope of amendment stated as follows : "The main objective of this tax concession is to encourage Indian companies and resident non-corporate taxpayers to develop technical 'know-how' and make it available to foreign Governments and foreign companies so as to augment our foreign exchange resources. The Bill seeks to make the following two changes in this provision : (a) As one of the main objects of the aforesaid tax concession to augment our foreign exchange resources, it is proposed to specifically provide that the deduction under this provision will be allowed only to the extent the income by way of royalty, commission, etc. is received in or is brought into India by the taxpayer in accordance with the law regulating payments and dealings in foreign exchange. The existing provision in the law is being amended, retrospectively, from 1st April, 1972, i.e. the date from which the relevant provision, as it stands at present, was brought into force.

51. The comparison of the provisions of s. 80-O w.e.f. 1st April, 1972, before amendment by the Finance Act of 1974 and s. 80-O after the amendment by the Finance Act of 1974 would be extremely useful in appreciating the intention of the legislature : "Sec. 80-O as inserted by Finance Act, 1967, w.e.f. 1st April, 1968.

- Where the gross total income of an assessee being an Indian company includes any income by way of royalty, commission, fees or any similar payment received by it from a foreign company in consideration for the use of any patent, invention, model, design, secret formula or process, or similar property right or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to the foreign company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessee, under an agreement approved by the Central Government in this behalf before the 1st day of October of the relevant assessment year, there shall be allowed a deduction of the whole of such income, in computing the total income of the assessee." "Sec. 80-O as it stood for asst. yr. 1992-93 - Where the gross total income of an assessee, being an Indian company or a person (other than a company) who is resident in India, includes any income by way of royalty, commission, fees or similar payment received by the assessee from the Government of a foreign state or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with the subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into India, in computing the total income of the assessee." 52. It is observed from the above comparison that before the amendment in 1974 the deduction under s. 80-O was permissible in respect of the whole of income from the specified sources. The income undisputedly is the income as computed under the Act, i.e. after reducing the expenses incurred abroad as well as in India. The purpose of amendment in 1974, as has been brought out above in the Memo explaining the provisions of the Finance Bill, 1974 (see (para 50 of this order), was to provide that the deduction under s. 80-O will be allowed only to the extent of the income by way of specified sources is received in or is brought into India by the taxpayer. When we interpret s. 80-O in granting deduction with reference to the gross receipts received in or brought into India from the specified sources, we are clearly interpreting the law in a manner which is not intended by the Parliament. Such a construction of a statutory provision is not permissible. We may also refer to the amendment made by the Finance Act of 1984 (see para 48 of this order) (which reduced the quantum of declaration to fifty per cent of the income from 1st April, 1985). While explaining the amendment by the Finance Act, 1984, it was stated that deduction under s. 80-O was introduced primarily to stimulate flow of technology from India and that the said objective could be attained with reduced deduction on that account.

53. The legislative history of s. 80-O speaks loud of the intention of the Parliament in regard to the quantum of deduction. It also becomes abundantly clear that by the relevant amendment the legislature imposed a condition of the receipt of earnings in India for grant of deduction and that the intention was not to relate the deduction with reference to the foreign exchange earnings.

54. It was contended before us that the language of s. 80-O before it was amended in 1974 was totally different than the language used after the amendment and, therefore, it is presumed that the legislature intended to grant higher deduction. This contention is not well-founded. From the Explanatory notes to the amendments it is clearly established that the legislature in fact wanted to impose a condition for grant of deduction under s. 80-O. In order to give effect to the legislative intention the s. 80-O has been enacted in a different language. The intention of the legislature, we have observed earlier, was not to give higher deduction but to ensure that the deduction is allowed only to those who bring the foreign exchange.

55. On perusal of the legislative history and the background under which the amendments have been made to s. 80-O from time to time, it becomes abundantly clear that the legislature never intended to grant deduction under s. 80-O at more than the income included in the gross total income. When it is the duty of the Court to give effect to the legislative intent, it becomes absolutely necessary to find out the intention of the legislature from every possible source. In our considered view, the decision of the Calcutta Bench of the Tribunal in the case of M. N. Dastur & Co. (supra) would have been different provided the attention of the Bench had been drawn to the legislative history of s. 80-O.56. In the opinion of the Calcutta Bench of the Tribunal in the case of M. N. Dastur & Co. (supra) the provision of s. 80-O cannot be construed in a manner which would defeat the purpose and intention of the legislature. In other words, it has been held that by granting a deduction to the assessee with reference to the net income the twin objectives of this s. 80-O would be defeated. We are unable, with due respects to the Bench, to subscribe to this view. As held by their Lordships of the Supreme Court in the case of Petron Engineering Construction (P.) Ltd. (supra), the foreign exchange resources can be augmented by various other modes. Moreover, encouraging the export of Indian technical know-how and augmenting the foreign exchange resources need not necessarily be achieved by granting deductions with reference to the gross foreign exchange earnings. The objectives could be achieved by providing some incentive. It is for the legislature to decide the manner in which the objectives can be achieved. In this case we have seen from the legislative history, as also the scheme of the Act below, that the legislature always intended to give deduction under s. 80-O with reference to the net income included in the gross total income.

57. We have found the object of s. 80-O. We have also ascertained the intention of the legislature in regard to the quantum of deduction. For appreciating the meaning of s. 80-O, we have also to keep in mind the scheme of the Act, a provision of which is subject-matter of interpretation. As already pointed out, it is the duty of the Tribunal to find out the intention of the Parliament if any with regard to the quantum of deduction. It is necessary for the Bench to examine the necessity giving rise to the amendments on the basis of which the controversy has arisen to look at the mischief which the legislature intended to redress by making amendments. We are duty-bound to look at the whole situation and not just one-to-one relation. It is necessary for us to consider not only one provision of the statute but all the framework of the statute. It is, therefore, necessary to consider the scheme of the Act and to interpret the provisions of the statute in consonance with the scheme of the same.

58. The IT Act, 1961, provides for taxation of income. There are several provisions of the Act providing the procedure for computation of income. Sec. 4 of the Act provides that income shall be charged to tax. Sec. 14 provides various heads of income under which the income is to be computed. Income from profits and gains of business is one of the heads of the income provided under s. 14. Sec. 29 provides that income from profits and gains of business shall be computed in accordance with ss. 30 to 43V. Chapter VI-A provides for deductions in computing the income. Therefore, if we keep in mind the scheme of the Act, the deductions under Chapter VI-A are not to be isolated from the process of computation of income. The whole process is the computation of taxable income. Sec. 80B defines the gross total income to mean the income computed in accordance with the provisions of the Act without making the deduction under Chapter VI-A. It is, therefore, evident that s. 80-O provides a deduction out of the income included in the gross total income. It cannot, therefore, be presumed that a deduction in excess of the net income was intended to be granted to the assessee under s. 80-O. It is to be remembered that s. 80-O is a provision providing tax concession from the income derived from specified sources. If we keep in mind the scheme of the Act, it will not be difficult to appreciate that the "income so received" in third part of s. 80-O means the net income derived from the specified source subject to the condition that the income is received in India in convertible foreign exchange.

59. It may be pertinent to mention that several provisions of Chapter VI-A have come up for consideration before various Courts as well as in the Supreme Court and the trend of the decisions supports the view that deductions under Chapter VI-A are permissible with reference to the net income as computed under the statute.

60. Their Lordships of the Bombay High Court in the case of Industrial Consulting Bureau (P) Ltd. (supra) have held that deduction under s.

80MM is allowable with reference to the net income and not with reference to the actual amount of income by way of consulting fees received.

61. The Supreme Court in the case of P. K. Jhaveri (supra) held that deduction under s. 80K was allowable on the amount of dividend after deduction of interest on money borrowed for such investment and that the deduction was not permissible with reference to the gross amount received. In this case the Tribunal had relied upon the decisions of the Bombay High Court in the case of New Great Insurance Company Ltd. (supra) in the case of Industrial Investment Trust Co. Ltd. (supra) and in the case of CIT vs. Jupiter General Insurance Co. (1975) 101 ITR 370 (Bom) and held that deduction under s. 80K was allowable on the gross dividend. Reference was made to the Hon'ble Supreme Court under s. 257 of the IT Act, 1961. Their Lordships of the Supreme Court held that deduction under s. 80K was allowable on the net amount of dividend after taking into account the interest paid on money borrowed specifically for investment in shares. Their Lordships of the Supreme Court referred to its earlier decision in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT (1978) 113 ITR 84 (SC) as also its decision in the case of Distributors (Baroda) (P) Ltd. (supra). Their Lordships also noted the fact that w.e.f. 1st April, 1981, the law has also been amended by incorporation of s. 80AB.CIT vs. Industrial Finance Corporation of India (1992) 198 ITR 539 (Del) held that deduction under ss. 80K, 80L and 80M was allowable with reference to the net income and not with reference to the gross income.

63. Again the Delhi High Court in the case of Motilal Pesticides (India) (P) Ltd. vs. CIT (1994) 207 ITR 636 (Del) held that deduction under ss. 80M, 80K and 80HH is allowable with reference to the net income as these provisions are more as less similarly worded.

64. The Rajasthan High Court in the case of CIT vs. Vishnu Oil & Dal Mills (1996) 218 ITR 71 (Raj) held that deduction under s. 80HH was allowable only on the net income and not on the gross total income of the assessee.

65. The Hon'ble Supreme Court in the case of H. H. Sir Rama Varma (supra) held that deduction under s. 80T was allowable with reference to the net income which is included in the gross total income. It is important to note that their Lordships of the Supreme Court further held that s. 80AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head "C" of Chapter VI-A.66. Keeping in view of the above findings it will not be difficult to comprehend the meaning of s. 80-O. This section as applicable for asst.

yr. 1992-93 has been reproduced by use in para 28 of this order.

(1) Where the gross total income of an assessee, being an Indian company or a person other than company who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to the rendered outside India to such Government or enterprise by the assessee.

(2) Such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating : Payments and dealings in foreign exchange, in accordance with, and Subject to the provisions of the section.

(3) A deduction of an amount equal to fifty per cent of the income so received in, or brought into India in computing the total income of the assessee.

68. In the first part, it is provided that the income from the specified sources is included in the gross total income of the assessee. Thus, the first condition is that the gross total income of the assessee must include income by way of specified source(s). The gross total income is defined in s. 80B cl. (5) to mean total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or s. 80-O. The income included in the gross total income from the specified source(s) would obviously be the income computed in accordance with the provisions of Act, i.e. after deducting the expenses incurred abroad as well as in India. If income by way of specified source(s) computed in accordance with the provisions of the Act is included in the gross total income, the condition specified in the first part of s. 80-O would be satisfied.

There is no dispute relating to the interpretation of this part of s.

80-O.69. In the second part of the section the crucial words used are "such income is received in convertible foreign exchange". In the first part the words "the income" refers to the income as computed under the Act and in the second part the reference to such income, must be referable not only to the category of income included in the gross total income but also to the quantum of income so included. The Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra), while interpreting provisions of s. 80M, held that the words "such income" by way of dividends must be referable not only to the category of income included in the gross total income but also to the quantum of income so included. In that case it was held we quote "it is obvious as a matter of plain grammar, that the words 'such income by way of dividends; must have reference to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income." This part of the section added by Finance Act of 1974, w.e.f. 1st April, 1972, has given rise to the present dispute.

70. Then we come to the third part of the section. This part of the section is crucial as it refers to the quantum of deduction. The foundation of the claim on behalf of the taxpayers revolves on this part of s. 80-O. As per the law applicable for asst. yr. 1992-93, a deduction of 50 per cent of "the income so received" is provided. Going by the grammatic expressions, the income so received in the third part of s. 80-O must, necessarily refer to the income referred to in the second part of s. 80-O. Therefore, "the income so received" in third part of s. 80-O must also necessarily mean the income included in the gross total income and received in convertible foreign exchange. The receipt in foreign exchange is not the basis for deduction but a condition precedent for grant of deduction.

71. We may now consider some of the contentions advanced on behalf of the appellants. It was pointed that the Calcutta Bench in the case M.N. Dastur & Co. Ltd. (supra) has relied upon the decision of the Calcutta High Court in the case of Darbhanga Marketing Co. Ltd. (supra) and the decision of the Bombay High Court in the case of New Great Insurance Co. Ltd. (supra). The Calcutta High Court had held that the aforementioned two decisions had not been overruled by the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) and are still binding. It was argued before us that whereas the Calcutta High Court decisions may not be binding upon this Bench but the decisions of the Bombay High Court in the case of New Great Insurance Co. Ltd. (supra) and in the case of Industrial Investment Trust Co. Ltd. (supra) not having been overruled by the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) these decisions are binding upon the Bench. In our view, this contention advanced on behalf of the assessee is not well-founded. As held by the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra). "It is most unsafe to try to arrive at the true meaning of a statutory provision by reference to an interpretation which might have been placed on an earlier statutory provision which may be couched in different language and also may be structurally different. Similar view has been taken by the Supreme Court in the case of CIT vs. Sun Engg. Works (P) Ltd. (1992) 198 ITR 297 (SC) : 72. The reference to the decision of the Supreme Court in the case of P. K. Jhaveri (supra) may also be relevant. In this case the AAC had decided that deduction under s. 80K was to be allowed on the gross dividend receipt and not on the net amount by relying upon the decisions of the Bombay High Court in the case of New Great Insurance Co. Ltd. (supra), CIT s. Jagmohandas Kapadia (1966) 61 ITR 663 (Bom) and Industrial Investment Trust Co. Ltd. (supra) and on appeal the matter came up before the Tribunal. The Tribunal dismissed the appeal of the Revenue by relying upon the decisions of the Bombay High Court in the case of New Great Insurance Co. Ltd. (supra), Industrial Investment Trust Co. Ltd. (supra) and another decision in the case of Jupiter General Insurance Co. (supra). The Supreme Court in a reference under s. 257 held that in view of the decisions of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) and Distributors (Baroda) (P) Ltd. (supra) the question was to be decided against the assessee and in favour of the Revenue. It has further been pointed out by the Supreme Court that the statutory provisions have been modified w.e.f. 1st April, 1985, by insertion of s. 80AB. In view of the decision of the Supreme Court referred to above, the contention advanced on behalf of the assessee is liable to be rejected.

73. It may also be pertinent to mention that s. 99(1)(iv) differs in language as well as in structure with the provisions of s. 80-O.Reference may also be made to the decision of the Bombay High Court in the case of Industrial Consulting Bureau (P) Ltd. (supra) where it was held that deduction under s. 80MM was allowable with reference to the net income and not on the gross income. The aforementioned deduction of the Bombay High Court is in regard to a deduction allowable under a provision of the Act contained in Chapter VI-A. There may be similarities in the provisions of s. 80MM and s. 80-O to a great extent. Sec. 80-O is also part of Chapter VI-A. The two sections are part of the same structure. On the other hand s. 99(1)(iv) differs in language as well as in structure with provisions of s. 80-O. The interpretation on the provisions of s. 99(1)(iv) does not guide us in interpreting the provisions of s. 80-O in view of the later decisions of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra), and in the case of P. K. Jhaveri (supra).

74. In any case the Supreme Court having provided guidance in the case of Distributors (Baroda) (P) Ltd. (supra) in interpreting a similar provision of the Act i.e. ss. 80M and 80K, should there be any conflict in the principles laid down by the High Court and the Supreme Court, the decision of the Supreme Court shall have to be preferred to the rules of construction laid down by the Bombay High Court. The decision of the High Court would be binding if it had been rendered with reference to s. 80-O. Interpretation of a different provision of law does not have binding effect. This contention on behalf of the assessee is accordingly rejected.

75. We may now refer to the other contentions on behalf of the appellant that the decision of the Kerala High Court in the case of CIT vs. A. V. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker) holding that s.

80AB is not applicable to s. 80HHC is preferable to the decision of the same High Court in the case of V. T. Joseph (supra) to the contrary as the former decision is dt. 10th January, 1997, but the latter decision is dt. 26th September, 1996. It was contended that the later decision of the High Court should be preferred to the earlier decision of the same High Court. In this connection we agree with the contention on behalf of the Revenue that the later decision dt. 10th January, 1997, in the case of A. V. Thomas & Co. Ltd. (supra) is per incuriam as a contrary decision of the same High Court taken earlier was neither brought to the notice of the High Court nor considered by it. When a decision is per incuriam the same is not binding and it will be the former decision which will hold the field. In any case the controversy is inconsequential insofar as we have held that s. 80-O grants deduction with reference to net income even without the aid to s. 80AB.76. It was contended before us that the basis of deduction in some of the provisions contained in Chapter VI-A, Part C is not related to income and therefore, it must be held that the deduction under s. 80-O is with regard to gross receipts and not relating to income. It is true that deductions under various provisions in Part C, Chapter VI-A, such as 80CCA, 80CCB, 80CCC, 80D, 80DD, 80DDA, 80DDB, 80G, 80GG, 80GGA may not be with reference to income but fact of the matter is that s. 80-O belongs to family of sections providing deduction related to income.

The dispute in this case is whether the deduction is on gross income or net income. We have found that the deduction is with reference to the net income. Therefore, the contention raised does not advance the case of the assessee.

77. Our attention was also drawn to the Circular of the Board No. 281, dt. 22nd September, 1980, [131 ITR (St) 4 at p. 20] containing explanatory note on provisions of the Finance (No. 2) Act, 1980, by which s. 80AB was inserted in the statute. In this circular it was clarified that the deduction specified in the aforesaid section will be calculated with reference to the net income as computed in accordance with the provisions of the Act (before making any deductions under Chapter VI-A and not with reference to the gross amount of such income, subject, however, to the other requirements of the respective sections). On the basis of this circular it was contended that s. 80AB is not applicable to s. 80-O as the requirement of s. 80-O is other than the net income. We have pointed out earlier that s. 80-O is a provision providing a deduction related to income from the specified sources. We, therefore, do not find any merit in the contention advanced before us in this regard.

78. It was contended that there is no merit in the contention on behalf of the Revenue that the assessee would get more deduction than the income if the interpretation of s. 80-O advanced by them is accepted.

It was contended that the assessee has earned foreign exchange of Rs. 8,52,59,173 out of which an expenditure of Rs. 1,32,10,173 had been incurred abroad. A sum of Rs. 6,76,76,773 approximately had been brought into India in convertible foreign exchange. The assessee has incurred an expenditure of Rs. 1,10,06,689 in India and has accordingly earned net income of Rs. 5,66,70,084 which was included in the gross total income of the assessee computed without deductions under Chapter VI-A. Since s. 80-O provides deduction at the rate of 50 per cent of the gross income, the assessee would be entitled to deduction to the extent of Rs. 3,38,38,386. It is thus seen that the deduction permissible to the assessee would be less than the income included in the gross total income. This explanation of the learned counsel for the assessee is attractive but at the same time it gives a distorted picture when seen in the light of the fact that the deduction under s.

80-O was reduced to 50 per cent with a view to restrict the deduction.

It is, therefore, necessary for us to consider the implications of the interpretation of ss. 80-O on the basis of law as it stood before the deduction was restricted to 50 per cent.

79. Before the amendment of s. 80-O by the Finance Act of 1981 w.e.f.

1st April, 1985, deduction under s. 80-O was permissible on the whole of income received in foreign exchange from the specified sources. Let us test the facts of the present case with the law as it existed before the deduction under s. 80-O was reduced. It may be contended on behalf of the appellant that there is no justification for considering the provisions of the Act as they existed prior to 1st April, 1985.

However, we consider it necessary as the words "the income so received" in the third part of s. 80-O existed even as per the law applicable prior to 1st April, 1985. It has also been clarified by the CBDT that from 1st April, 1985, the quantum of deduction has been reduced to 50 per cent. Therefore, the only change is with regard to the quantum of deduction having been restricted. We are, therefore, considering the provisions of s. 80-O as applicable for assessment years prior to 1st April, 1985.

80. The assessee has earned foreign exchange of Rs. 8,52,59,173 out of which an expenditure of Rs. 1,32,10,173 has been incurred abroad. A sum of Rs. 6,76,76,773 had been received in India in foreign exchange out of which Rs. 1,10,06,689 have been spent in India, living the net income of Rs. 5,66,70,084. If the deduction to be allowed to the assessee is with regard to the foreign exchange received in India, then the assessee would get a deduction of Rs. 6,76,76,773 out of the income of Rs. 5,66,70,084 which is included in the gross total income.

Considering the fact that s. 80-O is a provision providing a deduction in computing the taxable income of the assessee, there cannot be a presumption that the legislature intended to give more deduction than the income included in the gross total income. It would give rise to absurdity, which is to be avoided.

81. On the basis of our findings and the detailed discussions we sum up our conclusions as under : That the object of s. 80-O is to encourage export of Indian technical know-how to the developing countries so as to augment the foreign resources of the country; that the interpretation which advances the object of the provision is to adopted only in the absence of any express or implied intention of the legislature in regard of the quantum of deduction; that it is for the legislature to lay down as to how the object of a provision can be achieved. The rule of interpretation that the meaning of a provision which advances its object is to be preferred is applicable only if the intention of the Parliament regarding quantum of deduction were doubtful. We have ascertained the intention of the legislature in regard to the quantum of deduction under s. 80-O; that s. 85C as well as s. 80-O before its amendment in 1974 provided a deduction with reference to the income from specified sources (this is not even disputed by the parties); that amendment in 1974 was with a view to impose a condition for grant of deduction that the income from the specified sources should be brought to India in order to avail of the deduction; that the language of s. 80-O was changed by the Finance Act, 1974, to give effect to the legislative intent of imposing a condition of bringing the foreign exchange in India. The amendment was not with the intention of granting more deduction from the income derived from specified sources; that in 1984 the quantum of deduction was further reduced to 50 per cent of the income. We have also considered the scheme of the Act and found that s. 80-O is part of Chapter VI-A, Part C, which deals with deduction from gross total income in regard to the specified sources and that s. 80-O is a provision of tax concession; that deduction under s. 80-O is allowable with reference to the net income and not with reference to the gross income. The receipt of foreign exchange is one of the conditions for grant of deduction under s. 80-O and not the basis for calculation of deduction. As per s. 80-O the income from the specified source should be included in the gross total income out of which deduction would be permissible at 50 per cent of the income received in convertible foreign exchange out of the income included in the gross total income. Keeping in view the above findings the inescapable conclusion that emerges is as under : "That deduction under s. 80-O is not admissible on the gross foreign exchange receipts but on the income computed after deducting the expenses incurred abroad as well as in India out of foreign exchange receipts from specified source(s)." 82. We find support for our view from the decision of the Delhi High Court in the case of Marketing Research Corpn. (supra). The Delhi High Court has held that deduction under s. 80-O is permissible with reference to the net income as computed under the provisions of the Act. The decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) has been relied upon.

83. It was contended before us that the decision of the Delhi High Court related to asst. yr. 1968-69 and that the language of s. 80-O as applicable for that assessment year did not provide a deduction with reference to the receipt of income in convertible foreign exchange. We have demonstrated elsewhere that the intention of the Parliament has always been to allow deduction under s. 80-O with reference to the income as included in the gross total income which is the income arrived at after deducting the expenses incurred abroad as well as in India. Subsequent amendments at no point of time had been made with a view to grant more deduction than the income included in the gross total income. We have also given the comparison of s. 80-O pre-and post amendment is para 51 of this order. The change in the language of s.

80-O was with a view to give effect to the legislative intent of imposing a condition and not to give more deduction.

84. We are, therefore, of the considered view that the decision of the Delhi High Court in the case of Marketing Research Corpn. (supra) holding that deduction under s. 80-O is allowable with reference to the net income as computed under the provisions of the IT Act, 1961, also applies to subsequent assessment years notwithstanding the amendment in s. 80-O for the purpose of imposing the condition of receipt of foreign exchange.

85. Since we have not considered the provisions of s. 80AB so far, we further hold that deduction under s. 80-O was allowable with reference to the income as computed under the Act and not with reference to the gross income even before enactment of s. 80AB. After enactment of s.

80AB by the Finance Act of 1981 w.e.f. 1st April, 1981, there should be no doubt about the deduction under s. 80-O being with reference to the income as computed under the Act. Sec. 80AB as applicable for asst. yr.

1992-93 reads as under : "80AB. Where any deduction is required to be made or allowed under any section (except s. 80M) included in this Chapter under the heading "C-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." 86. It was contended before us that s. 80-O is a stand alone section and, therefore, s. 80AB is not applicable. In order to examine this contention advanced on behalf of the assessees, it would be useful to refer to certain relevant rules of interpretation.

"The office of a good expositor of an Act of Parliament", is to make construction on all parts together, and not of one part only by itself Nemo enim aliquam partem recte intelligere potest aniequam totum iterwn arque iterum perlegerit. "It is the most natural and genuine exposition of a statute to construe one part of a statute by another part of the same statute, for that best expresses the meaning of the markers ...... and this exposition is exvisceribus actus. But this rule of construction is never allowed to alter the meaning of what is of itself, clear and explicit; it is only when any part of an Act of Parliament is penned obscurely and when other passages can elucidate that obscurity, that recourse ought to be had to such context for that purpose; for no rule of construction can require that when the words of one part of a statute convey a clear meaning it should be necessary to introduce another part of a statute for the purpose of controlling or diminishing the efficacy of the first part. It is not the duty of a Court of law, said Selwyn L.J. in Simith's case "to be astute to find out ways in which the object of an Act of the legislature may be defeated." In Bywater vs. Brandling (1828) 7B & C 643 Lord Tenterden said : "In constructing Acts of Parliament we are to look into not only at the language of the preamble or of any particular clause, but at the language of the whole Act. And if we find in the preamble or in any particular clause an expression not so large and extensive in its import as those used in other parts of the Act, and upon a view of the whole Act we can collect from the more large and extensive expressions used in other parts the real intention of the legislature, it is our duty to give effect to the larger expressions, notwithstanding the phrases of less extensive import in the preamble or in any particular clause.

In Colquhoun vs. Brooks, Lord Herschell said : "It is beyond dispute, too, that we are entitled, and indeed bound, when construing the terms of any provision found in a statute, to consider any other parts of the Act which throw light on the intention of the legislature, and which may serve to show that the particular provision ought not to be construed as it would be alone and apart from the rest of the Act." And Lord Davy in Canada Sugar Refining Co. vs. R said : "Every clause of a statute should be construed with references to the context and other clauses in the Act, so as, as far as possible, to make a consistent enactment of the whole statute of senes of statutes relating to the subject-matter." In Mersey Docks, etc. Board vs. Henderson Lord Halsbury L.C. said : "It certainly is not a satisfactory method of arriving at the meaning of a compound phrase to severe it into several parts, and to construe it by the separate meaning of each of such parts when, severed. Many examples will occur to the mind where such a process could lead to absurdity." 87. On consideration of the above rules of interpretation it becomes abundantly clear that it is the duty of the expositors of laws to consider the entire provisions of the statute as a whole. Applying the above rules of interpretation, we are of the considered view that s.

80-O cannot be considered in isolation. Every section contained in Chapter VI-A has an independent role in regard to deductions referred to in respect to provisions of the Act. Nevertheless, these provisions cannot be isolated from other provisions of the Act. Sec. 80AB has been specifically incorporated in Chapter VI-A and it cannot be overlooked in interpreting a provision of the statute contained in the same Chapter. Sec. 80-O provides a deduction from the gross total income.

The deduction is with reference to the income. Therefore, s. 80AB clearly applies to s. 80-O.88. Reverting back to the language of s. 80AB the first part of s. 80AB provides that whenever any deduction is required to be made or allowed under any section included in this Chapter under the heading "C-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in gross total income of the assessee. Sec. 80-O provides for deduction in respect of royalties, etc. from certain foreign enterprises in respect of the income which is included in the gross total income. Therefore, first part of s. 80AB gets attracted in regard to s. 80-O. In second part of s. 80AB it is provided that for the purposes of computing the deduction, the amount of income of that nature as computed in accordance with the provisions of this Act before making any deductions under this Chapter, shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in the gross total income. When we keep this provision of s.

80AB in view it is not difficult to appreciate the meaning of s. 80-O.The first part of the s. 80-O provides a condition that the gross total income of the assessee must include income from the specified sources.

The second condition to be satisfied for application of s. 80-O is that the income from specified source should be received in India in convertible foreign exchange, etc. Then the third part provides for a deduction of 50 per cent of the income so received. The third part of s. 80-O when read in conjunction with s. 80AB has got to be read as under : ".......... The deduction of an amount equal to 50 per cent of the income so received in or brought into India (as included in the gross total income of the assessee (s. 80AB) in computing the total income of the assessee)".

89. We accordingly hold that s. 80-O read in conjunction with s. 80AB does not leave any doubt about the meaning of words "the income so received" and the quantum of deduction permissible under s. 80-O.90. It is pertinent to mention that the Supreme Court in the case of H.H. Sir Rama Varma (supra) at p. 480 held that s. 80AB is clarificatory.

This decision supports our view that even without enactment of s. 80AB the deduction under s. 80-O was allowable with reference to the income as computed under the Act. After the enactment of s. 80AB there is no room for any doubt or ambiguity in regard to the quantum of deduction.

"On the facts and in the circumstances the case of the first Appellate Authority was justified in upholding the order of the AO disallowing deduction under s. 80-O of the IT Act, 1961, with reference to the gross convertible foreign exchange received by the assessee by way of fees for technical and consultancy services rendered by it to the parties abroad." 92. In view of our above decision the additional ground of appeal raised by the assessee becomes infructuous. The same is accordingly dismissed.

93. The appeals of the interveners are to be decided by the respective Benches in the light of this decision and in accordance with law.

I have perused the order of my learned Brother with which I am in general agreement. I would only like to add that, while the object of s. 80-O is to encourage the bringing in of foreign exchange into India through exports of technical know-how, etc. the quantum of incentive granted has to be considered in the light of the provisions of s. 80AB r/w 80-O. To my mind, there is no reason to think that the legislature desired to give incentive to the activity mentioned in s. 80-O to such an extent that an amount higher than the income included in the gross total income from the activities specified in s. 80-O has to be allowed as a deduction in the computation of the total income. The provisions of s. 80AB clearly mandate that the amount of income of the nature specified in the relevant section which in the present case is s. 80-O and included in the gross total income is the amount as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. This provision clearly excludes the concept of gross receipt being included in the gross total income and that is also the ratio of the decision of the Apex Court in the case of Distributors (Baroda) (P) Ltd. (supra). If a deduction under s. 80-O is allowed with reference to the gross receipts of foreign exchange brought into India as claimed by the assessee, the deduction may go to reduce even the other incomes of the assessee included in the gross total income from activities other than those specified in s. 80-O. I do not find any reason to think that, while the legislature clearly intended to encourage export of technical know-how in terms of s. 80-O, it wanted to encourage it to such an extent that the incentive amount goes to reduce not only the income from the activities specified in s. 80-O to a Nil figure but also reduce the incomes other than those specified in this section. On the other hand, the provisions of s. 80AB, as mentioned by my learned Brother, clearly preclude an interpretation that assumes such open-ended liberality on the part of the legislature.

In this view of the matter, I agree with the conclusion of my learned Brother.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //