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Commissioner of Income Tax Vs. M.N. Dastur and Co. (P) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIT Ref. No. 161 of 1992 14 January 2000
Reported in(2000)159CTR(Cal)417
AppellantCommissioner of Income Tax
RespondentM.N. Dastur and Co. (P) Ltd.
Advocates: P.K. Mullick & S.K. Mookherjee, for the Revenue M.S. Syali, R.M. Dutta, Satyen Sethi, for the Assessee
Cases ReferredCloth Traders (P) Ltd. v. Addl.
Excerpt:
- .....the point whether relief under section 80-o of the income tax act, 1961, will be allowable on the gross income from foreign exchange ?4. whether, on the facts and in the circumstances of the case, the tribunal was justified in law in cancelling the order of the commissioner under section 263 of the income tax act, 1961 ?in r.a. no. 8/cal/1992 following questions are referred'' 1. whether, on the facts and in the circumstances of the case and on a correct interpretation of sections 80-o and 80ab of income tax act, 1961, the tribunal was justified in law in holding that the deduction under section 80-o of the said act would be admissible to the assessee on the gross convertible foreign exchange brought into india without taking into account expenses, direct or indirect, incurred in india.....
Judgment:
ORDER

Y.R. Meena, J.

On applications under section 256(1) of the Income Tax Act 1961 following questions are referred for our opinion.

In R.A. No. 259/Cal/1990 following questions are referred

1. 'Whether, on the facts and in the circumstances of the case and on a correct interpretation of the sections 37(3A), 37(3B) of the Income Tax Act, 1961, read with Expln. (c) thereof, the Tribunal was justified in law in holding that since it is not the case of the Commissioner that the expenditure incurred on the motor cars on running and maintenance is on hire charges for engaging cars plied for hire the view taken by the assessing officer was not incorrect ?

2. Whether, on the facts and in the circumstances of the case and in view of the fact that the assessee at the first assessment claimed relief under section 80-O of the Income Tax Act, 1961, only on the net income from the foreign exchange, the Tribunal was justified in law in allowing the assessee to agitate against the issue whether the relief under section 80-O of the Income Tax Act, 1961, will be allowed on the gross or net income ?

3. Whether in view of the insertion of section 80AB with effect from 1-4-1981 and in view of the decision of the Supreme Court in Distributors (Baroda) Ltd. v. Union of India & Ors. : [1985]155ITR120(SC) : the Tribunal was justified in holding that two views are possible on the point whether relief under section 80-O of the Income Tax Act, 1961, will be allowable on the gross income from foreign exchange ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order of the Commissioner under section 263 of the Income Tax Act, 1961 ?

In R.A. No. 8/Cal/1992 following questions are referred

'' 1. Whether, on the facts and in the circumstances of the case and on a correct interpretation of sections 80-O and 80AB of Income Tax Act, 1961, the Tribunal was justified in law in holding that the deduction under section 80-O of the said Act would be admissible to the assessee on the gross convertible foreign exchange brought into India without taking into account expenses, direct or indirect, incurred in India ?

2. Whether, on the facts and in the circumstances of the case and in view of the ratio of the decision of the Supreme Court in Distributors (Baroda) Ltd. the Tribunal was justified in law in holding that relief under section 80-O of the Income Tax Act, 1961, would be admissible to the assessee on gross amount of convertible foreign exchange brought into India without taking into account the expenses incurred to earn the income ?'

2. Since basic common issue does arise in both the reference applications whether the assessee is entitled for deduction under section 80-O of the Act on gross amount of convertible foreign exchange brought into India, without taking into account the expenses direct or indirect incurred in India.

3. The assessee was engaged in the business of consulting and engineering with a number of major engineering projects in India and abroad during the assessment years. 1984-85 and 1985-86. In the assessment year 1984-85 original assessment was completed on 24-10-1985. The assessing officer allowed deduction under section 80-O of the Income Tax Act on gross amount of convertible foreign exchange brought into India without taking into account the expenses incurred in India to earn the income.

The assessing officer has also allowed the expenses on motor car repairs and insurance amounting to Rs. 5,93,678 in computing the total income of the assessee company.

The Commissioner has examined and on scrutiny of the assessment order dt. 24-10-1985, for assessment year 1984-85, he found that assessing officer has allowed excess relief under section 80-O and assessing officer had also not deducted 20 per cent from expenses on motor car repairs and insurance amounting to Rs. 5,93,678 under section 37(3A) of the Income Tax Act. According to him the assessment made by the assessing officer was erroneous and prejudicial to the interest of the revenue. He accordingly issued a show-cause notice under section 263 of the Income Tax Act, to the assessee and passed the order under section 263 of the Income Tax Act, directing the Income Tax Officer to disallow 20 per cent under section 37(3A) and (3B) and withdraw excess amount allowed under section 80-O of the Act.

Being aggrieved assessee-company agitated the matter before Tribunal. Tribunal has considered the order passed by the Commissioner under section 263 of the Act. According to Tribunal the provisions of section 37(3A) and (3B) is not applicable as the expenses on motor car repairs and insurance or otherwise allowable under sections 30 to 36 of the Act. For claim under 80-O the Tribunal has considered the decision of Apex Court in case of Cloth Traders (P) Ltd. v. Addl. CIT : [1979]118ITR243(SC) and in case of Distributors (Baroda) (P) Ltd. v. Union of India : : [1985]155ITR120(SC) . The decision of Cloth Traders (P) Ltd. (supra) still hold field for purpose of deduction under section 80-O though in case of Distributors (Baroda) (P) Ltd. the decision in Cloth Traders has been overruled. In case of Distributors (Baroda) (P) Ltd. the judgment was with reference to section 80M of the Act. Tribunal also held that the provisions of section 80AB do not override the provisions of section 80-O. Finally, the Tribunal held that assessee is entitled for deduction under section 80-O on gross foreign exchange receipts.

4. In a reference application for the assessment year 1985-86 the questions referred are related only to the deduction under section 80-O whether the deduction should be on gross amount of convertible foreign exchange or whether the expenses incurred in India should be taken into account for relief, the deduction under section 80-O.

5. The basic common question for our consideration in both the reference applications is whether the deduction under section 80-O of the Income Tax Act, 1961 is to be allowed on gross convertible foreign exchange receipt brought into India without taking into account the expenditure incurred in India for earning such income.

6. Learned counsel for the assessee Shri Syali submits that deduction under section 80-O should be allowed on convertible foreign exchange received in India. He further submits that after amendment in section 80-O with effect from 1-4-1972, the basis of deduction under section 80-O was changed to whole convertible foreign exchange so received and brought in India.

Shri Syali further argued that since wordings of section 80-O is pari materia with section 99(i)(iv), for a parity of reasoning, the decision of Distributors (Baroda) (P) Ltd. (supra) is not an authority on issue. Since the Apex Court has upheld the decisions in CIT v. Darbhanga Marketing Co. Ltd : [1971]80ITR72(Cal) and CIT v. New Great Insurance Company Ltd. : [1973]90ITR348(Bom) in a decision of Cloth Traders (P) Ltd. (supra) that view holds the field even as on date. Shri Syali, therefore, submits that to the extent the decision of the Supreme Court in Cloth Traders (P) Ltd. (supra) has not been overruled by the decision in Distributors (Baroda) (P) Ltd. to that extent the decision of Apex Court in Cloth Traders (P) Ltd. (supra) vis-a-vis Darbhanga Marketing Co. Ltd. still holds the field. Therefore, deduction under section 80-O should be allowed to gross income so received or brought into India.

Shri Syali further submits that the provisions of section 80AB are also not applicable while allowing the deduction under section 80-0. Though section 80AB starts with non obstante clause, only governs what it covers and cannot govern what the section itself does not deal with. The words 'convertible foreign exchange received in or brought into India' is income. The provision of section 80AB has no further role to play. Therefore, if the convertible foreign exchange received in India that is income for the purpose of deduction under section 80-O of the Act, then the words 'convertible foreign exchange received in or brought into India' will be superfluous. On this line he submits that the deduction under section 80-O should be allowed on convertible foreign exchange received in or brought into India without any deduction of the expenditure incurred in India.

7. On the other hand learned counsel for the revenue Shri Agarwal submits that after decision of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) no scope is left to the assessee to claim deduction on the gross foreign exchange received in India. The deduction under section 80-O will be on the net income that is after computing the gross total income in accordance with the provisions of the Act, as provided under section 80AB of the Act.

8. The facts are not in dispute that deduction under section 80-O has been allowed by the Tribunal on the gross foreign exchange received in India by the assessee without taking the expenses incurred in India to earn that income. The issue whether deductions permissible under various provisions of Chapter VI-A of the Act should be on the gross receipts or on the net under taxable income. The issue has been considered by various High Courts and the Apex Court regarding deduction under different provisions of Chapter VI-A. Therefore, before we proceed further we would like to quote some observations of the various High Courts and Apex Court in this regard.

9. In case of CIT v. Darbhanga Marketing Co. Ltd. (supra) the issue before this court was that whether the gross dividend income exempted from super-tax or the dividend income received by the assessee minus the amount of interest for earning the same is exempted. This court has taken the view that assessee is entitled for exemption from super-tax on gross dividend income.

10. In CIT v. New Great Insurance Co. Ltd. (supra) again raised the issue before the Bombay High Court that whether exemption available in respect of gross dividend under section 99(1)(iv) Bombay High Court also has taken the same view as taken by this court that exemption from super-tax is available on the gross dividend income. Thereafter, section 85A was introduced which provides the exemption from the income-tax and except for minor differences the wording of section 99(1)(iv) and section 85A are similar. Later on the provisions of section 85A is substituted by section 80M. Similarly, along with section 85A, section 85C was introduced and section 85C has been substituted by section 80-O. The decision of Bombay High Court in New Great Insurance Company Ltd. (supra) and decision of this court in Darbhanga Marketing Co. Ltd. (supra) has been approved by the Apex Court in Cloth Traders (P) Ltd. v. CIT (supra). In the wordings of section 85A except some minor changes is same as that of section 80-O as stand during the previous year relevant to the assessment years in question.

11. In Cloth Traders (P) Ltd. v. CIT (supra) the issue before the Apex Court whether the relief in respect of dividend received from domestic company is available on the actual amounts of dividend received or only to net amount under section 80M. The Apex Court has held the words 'such income' cannot have reference to the quantum of the income included but refer only to the category of the income included, viz., income by way of dividends from a domestic company which can only mean the full amount of dividend from an Indian company and the Apex Court has approved the decision of Bombay High Court in New India Great Insurance Company Ltd. (supra) and Darbhanga Marketing Company Ltd. (supra) of this court.

12. In case of Distributors (Baroda) (P) Ltd. (supra) the Apex Court has overruled its earlier decision in Cloth Traders (P) Ltd. (supra) and at p. 141 their Lordships observed as under :

' ..... The decision in Cloth Traders (P) Ltd. v. Addl. CIT : [1979]118ITR243(SC) case is inconsistent with that in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) . Both cannot stand together. If one is correct, the other must logically be wrong and vice versa. It is, therefore, necessary to resolve the conflict between these two decisions and harmonise the law and that necessitates an inquiry into the correctness of the decision in Cloth Traders' case. It is for this reason that we have reconsidered and reviewed the decision in Cloth Traders' case and on such reconsideration and review, we have come to the conclusion that the decision in Cloth Traders' case is erroneous and must be overturned. ' However, their Lordships also observed at p. 137 that whatever might have been the interpretation placed on clauses (iv) of sub-section (1) of section 99 and section 85A, the correctness of which is not in issue before the Apex Court, so far as sub-section (1) of section 80M is concerned the deduction required to be allowed under that provision is liable to be calculated with reference to the amount of dividend in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee.

13. In CIT v. Marketing Research Corporation (1987) 61 CTR (DelHI) 204 the Delhi High Court has considered the issue whether deduction should be allowed under section 80-O on the net income or on the gross income. Following the decision of the Apex Court in case of Distributors (Baroda) (P) Ltd. (supra) Delhi High Court has answered the question in favour of revenue and against assessee.

14. In CIT v. M.K. Raju Consultants (P) Ltd. : [1999]239ITR232(Mad) there was issue before the Madras High Court that whether the deduction under section 80-O should be allowed on gross total income before set off of loss and unabsorbed depreciation of earlier years. Court held, no. Whether the Tribunal was also wrong in further directing that the amounts claimed as unabsorbed depreciation relating to previous years were required to be carried forward, court answered, yes. While answering this question Madras High Court has followed the decision of the Apex Court in case of Distributors (Baroda) (P) Ltd. (Supra), No decision under section 80-O of any High Court, in favour of the assessee, has been brought to our notice, specially after insertion of section 80AB in the Act.

15. For deduction of tax on royalties, etc., received from certain foreign companies were initially allowed under section 85C of the Act. The provision of that section was substituted by section 80-O in the year 1968 and that section 80-O is further amended by Finance Act, 1971, with effect from 1-4-1972, and also amended by Finance Act, 1974, but made effective from 1-4-1972. By amendment in 1974 the deduction was reduced from all of such income to an amount equal to fifty per cent of the income so received in, or brought into India.

16. Learned counsel for the assessee Shri Syali emphasized on the fact that in case of Distributors (Baroda) (P) Ltd. the Supreme Court has not overruled the decision in Cloth Traders (P) Ltd. (supra) so far the interpretation given of Bombay High Court in New great Insurance Company Ltd. (supra) and decision of Calcutta High Court in Darbhanga Marketing Co. Ltd.

Their Lordships in the case of Distributors (Baroda) (P) Ltd. (supra) has considered the provisions of section SOM as exist in the relevant assessment year. Therefore, to that extent the decision of Apex Court in Cloth Traders (P) Ltd. (supra) has not been overruled.

17. It is true that in case of Distributors (Baroda) (P) Ltd. their Lordships has observed at p. 129 that they are not concerned with regard to the correctness of the view taken by three High Courts on the interpretation of sub-section (1) of section 99, as no similar construction can be placed on section 80M which is different in material respects from clauses (iv) of sub-section (1) of section 99.

18. In Darbhanga Marketing Co. Ltd. (supra) this Court has quoted the words from the language of section 99 'amounts of any dividend received by it', 'which are included in his total income', 'incomes forming part of the total income' 'dividend received' expression 'income' but the words in computing the income of the assessee appeared in sections 80M and 80-O and are not in section 99(i)(iv) of the Act. Therefore, deduction under section 80M and 80-O can be allowed on the income computed in accordance with the provisions of the Act and not with reference to full amount of dividend.

The words 'deduction should be allowed in computing the income of the assessee' do not find place in section 99(i)(iv) of the Act.

19. Provisions of section 80AB of the Act provides that in computing the total income of the assessee there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deduction specified in sections 80C to 80U. Thus, the deduction will be subject to the provisions of this section while computing the income of the assessee, provisions of section 80AB which is part of this Chapter provides where any deduction is required to be made or allowed under 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.

20. From the discussion above it is made clear that after insertion of section, 80AB, the argument of Shri Syali has no force that the decision of Bombay High Court in case of New Great Insurance Co. Ltd. (supra) and decision of this court in case of Darbhanga Marketing Co. Ltd. (supra) has been approved by Supreme Court in its decision in the case of Cloth Traders (P) Ltd. (supra). Therefore, the deduction should be allowed on gross income received in India without taking into account the expenses incurred in India.

21. The careful reading of the provisions of section 80AB made it clear that whatever the deductions are allowed in respect of any type of income specified in the various provisions under head 'C' Chapter VI-A that will be subject to the provision of section 80AB. Provision of section 80AB starts with non obstante clause 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 provisions of this Act', shall alone be deemed to be amount of income for the purpose of deduction under that section. Thus, though anything contained in that particular section, the deduction shall be allowed on the income, which is computed in accordance with the provisions of this Act. Therefore, the income which is received by way of convertible foreign exchange, it shall be computed in accordance with the provisions of this Act and then only the net income after computation shall be deemed to be the amount of income derived or received by the assessee for the purpose of deduction under section 80-O.

22. In R.A. No. 259 (Cal) of 1990 one additional question has been referred for our opinion that is whether on the facts and in the circumstances of the case and on a correct interpretation of section 37(3A) and 37(3B) of the Act, 1961, read with Explanation (c) thereof, the Tribunal was justified in holding that the insurance and repairs are allowable under section 31 of the Act and, therefore, these expenses are beyond the purview of section 37(3A) and 37(3B). In an Explanation to section 37(3A) it is made clear that if the expenses are allowable otherwise under sections 30 to 36, the provision of section 37(3A) and 3(3B) are not applicable. Considering the explanation and also the decision of Punjab High Court in CIT v. Chawla Truck House cannot be said that view taken by Income Tax Officer was erroneous.

We answer the questions in R.A. No. 259(Cal) of 1990 as under:

In the light of the above discussion we answer the question No. 1 in affirmative i.e., in favour of the assessee and against revenue. Question No. 2 where the relief under section 80-O of the Income Tax Act, 1961, should be allowed on the net income from the foreign exchange or on the gross income received in India. We answer this question in negative i.e., in favour of the revenue and against assessee. Similarly we answer the question No. 3 in negative i.e., in favour of the revenue and against assessee. Question No. 4 whether the Tribunal was justified in law in cancelling the order of the Commissioner under section 263 of the Income Tax Act, 1961, we answer in negative i.e., in favour of the revenue and against assessee.

The questions referred in R.A. No. 8(Cal) of 1992 we answer the questions as under :

Whether the Tribunal was justified in holding that deduction under section 80-O should be allowed on gross convertible foreign exchange brought into India, without taking into account expenses direct or indirect incurred in India. We answer this question in negative i.e., in favour of the revenue and against assessee. Question No. 2 also be answered in negative that is in favour of the revnue and against assessee.

Both the reference applications shall stands disposed of accordingly.


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