ISMAIL J. - The assessee in this case is a private limited company and, being an Indian company, section 80-O of the Income-tax Act, 1961, applies to this company. For the assessment year 1968-69, the company returned a loss of Rs. 91,154. This loss was arrived at on the basis that, out of Rs. 3,08,698 which the company received by way of fees, as contemplated by section 80-O, the company was entitled to a deduction of 60%. The Income-tax Officer did not accept this case of the assessee. He disallowed a sum of Rs. 10,568 by way of expenditure claimed as deductible by the assessee. He added to this, 60% of Rs. 3,08,698, which was Rs. 1,85,219 and arrived at a sum of Rs. 1,95,787. Against this sum of Rs. 1,95,787 he set off the admitted loss of Rs. 91,154, and thus converted the loss into a profit of Rs. 1,04,633 and after setting off the unabsorbed loss of Rs. 4,991 of the assessment year 1967-68, he arrived at the taxable profit of Rs. 99,642. The Income-tax Officer held that this sum of Rs. 99,642 alone could be taken to be the fees mentioned in section 80-O and 60% of this Rs. 99,642 was Rs. 59,785 and deducting the same from Rs. 99,642, he arrived at the net taxable income of Rs. 39,857 under this head. The assessee preferred an appeal to the Appellate Assistant Commissioner and that Officer, after stating that the expression 'any income' occurring in section 80-O means only income by way of royalty, technical fees, etc., took the view that the word 'income' cannotes 'net income', namely, gross income earned by the assessee less expenses incurred for earning such gross income. In the result, he computed the figures and directed the Income-tax Officer to revise the assessment accordingly. It may be noticed that the Appellate Assistant Commissioner committed a mistake in this behalf, that is, he assumed that there were some expenses incurred by the assessee for the purpose of earning these fees and those expenses must be deducted from the gross fees received before arriving at the income contemplated under section 80-O. The assessee preferred a further appeal to the Income-tax Appellate Tribunal, Bangalore Bench. The Tribunal also wrongly assumed that there were some expenses incurred for the purpose of earning the fees in question. Notwithstanding this, the Tribunal held that the expression 'any income' occurring in section 80-O is admittedly referable to income by way of royalty, commission, fees, etc., received by the assessee and the expression 'any income' cannot be read in isolation and has to be read in conjunction with the succeeding words and phrase, 'by way of royalty, commission, fees, etc., received by it' and that a harmonious construction of these expressions would necessarily lead to the inevitable conclusion that the income received by the assessee is the amount that has to be considered. In this view, the Tribunal allowed the appeal and directed the Income-tax Officer to calculate 60% of the gross fees received by the assessee, namely, Rs. 3,08,698. It is the correctness of this conclusion of the Tribunal that is challenged by the Additional Commissioner of Income-tax, Madras-I, Madras, by applying for and obtaining a reference of the following question for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, it has been rightly held that deduction in respect of fees received by the assessee-company from the foreign companies should be calculated at 60% of the gross fees received by the assessee-company ?'
Since there is no controversy with regard to the facts, it is only necessary to extract section 80-O, as it stood at the relevant time. The said section was as follows :
'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 from such income of an amount equal to sixty per cent. thereof, in computing the total income of the assessee.'
There is no controversy in this case that the assessee is a company which is entitled to the benefit of section 80-O. Equally there is no controversy in this case that the assessee received a sum of Rs. 3,08,698 by way of fees for technical advice as provided for in the section. The only controversy is as to how the deduction provided for in the section has to be worked out, the Income-tax Officer as well as the Appellate Assistant Commissioner taking the view that the deduction must be worked out on the net income under the head 'Fees, royalty, etc.' mentioned in the section and the Appellate Tribunal taking the view that the deduction has to be worked out with reference to the gross receipt under the head as provided for in the section. Even in the view taken by the Income-tax Officer as well as the Appellate Assistant Commissioner, they made a factual mistake in assuming that there were certain expenses incurred by the assessee for earning the fees of Rs. 3,08,698. In fact, in the actual working out of the figure, the Income-tax Officer did not rest his conclusion on this. As we have pointed out already, the Income-tax Officer converted the loss into a profit by disallowing a certain item of expenditure and adding 60% of Rs. 3,08,698 to the figure so arrived at the setting off the loss of Rs. 91,154 returned by the assessee. Consequently, there does not appear to be any justification for the factual assumption that the assessee had incurred certain expenses specifically referable to the earning of the fees of Rs. 3,08,698.
Independent of this, it is also clear from the language of section 80-O that the conclusion of the Tribunal is correct on the construction of that section. As the Tribunal itself pointed out, the section uses the expression, 'any income by way of royalty, commission, fees or any similar payment received by it.' Consequently, what is to be taken into account for the purpose of working out the deduction is the amount actually received by the assessee and not the amount computed by way of net income under the head, after deducting the expenses, which will necessarily be a subsequent process. Therefore, the Income-tax Appellate Tribunal was right in holding that in the present case 60% has to be applied to the gross fees received by the assessee, namely, Rs. 3,08,698.
The Income-tax Officer as well as the Appellate Assistant Commissioner relied on section 80B(5). That section, as it stood on the relevant date, is as follows :
'80B. (5) gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-O and without applying the provisions of section 64.'
We are of the opinion that this definition does not affect the present question at all. That definition is concerned with what constitutes 'gross total income' as adopted in section 80-O and that, according to section 80B(5), meant total income computed in accordance with the provisions of this Act. The expression 'gross total income' is relevant only for the purpose of finding out whether that income included any income of the category mentioned in section 80-O or not and it has nothing to do with the manner in which 60% should be worked out with reference to such income. As a matter of fact, the Income-tax Appellate tribunal took note of this section and pointed out that a harmonious construction of section 80B and section 80-O will have to be arrived at and that harmonious construction cannot ignore the presence of the words in section 80-O, namely, 'any income by way of royalty, commission, fees or any similar payment received by it and that if that expression is taken into account, 'any income by way of royalty, commission, fees or any similar payment received by it' cannot mean any income of that category arrived at, after deducting the expenses referable thereto. We, therefore, held that the conclusion of the Tribunal is correct.
Under these circumstances, we answer the question referred to this court in the affirmative and against the revenue. The assessee will be entitled to its costs of this reference. Counsels fee Rs. 500 (Rupees five hundred only).