Assistant Commissioner Of Income-Tax v. Abcon Engineering And Systems P. Ltd.

R. Gururajan, J.:— All these cases are disposed of by this common order.

I.T.A No. 86/99:

2. This appeal is at the instance of the Revenue. In relation to the assessment year 1995–96, the assessment was concluded in the respondent-assessee's case, disallowing deduction as claimed under Section 80-O of the Income-tax Act. An appeal was filed before the Appellate Commissioner. The appeal stood dismissed. Thereafter, an appeal was preferred to the Tribunal. The Tribunal allowed the appeal in terms of an order dated April 8, 1999. Aggrieved by the order of the Tribunal, the Revenue is before us. The following questions of law are framed by this court:

“Whether, on the facts and in the circumstances of this case, the Tribunal is correct in law in holding that the appellant is entitled for the relief in respect of deduction under Section 80-O of the Act?

Whether, on the facts and circumstances of the case, the Tribunal is correct in law in entertaining the appeal by condoning the delay?”.

I.T.R.C No. 25/2000:

3. This reference is again at the instance of the Revenue. The assessee received income in foreign currency and it was brought into India. The assessee claimed deduction under Section 80-O of the Income-tax Act, 1961, to the extent of 50 per cent of the amount so brought to India. The amount of foreign currency that was brought to India was Rs. 26,41,795 and 50 per cent of this was Rs. 13,20,877 which was claimed as deduction. The same was rejected by the Assessing Officer. An appeal was filed and the appeal was allowed. Aggrieved by the same the Revenue went in appeal before the Tribunal. The Tribunal dismissed the appeal filed by the Revenue. Thereafter a reference was sought for by the Revenue and the Tribunal has chosen to refer the following questions of law:

“(i) Whether the Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80-O of the Income-tax Act, 1961, to the extent of 50 per cent of the gross amount of convertible foreign exchange brought into India without deducting any expenses that are incurred in India?

(ii) Whether the Tribunal was right in law in holding that the provisions of section 80AB of the Income-tax Act, 1961, do not override the provisions of Section 80-O of the Act and thereby the amount of deduction allowable has to be with reference to that calculated under Section 80-O but restricted to the amount of available gross total income?”

I.T.A No. 3254/2005:

4. This appeal is at the instance of the assessee. The appellant is an engineering and management consultant. It received income in foreign currency by way of fees in consideration of technical services rendered outside India to foreign enterprises and the income by way of such fees was brought into India. The appellant claimed deduction under Section 80-O at 50 per cent of such income. The Assessing Officer rejected the claim. Aggrieved by the same an appeal was filed by the appellant. The appeal was allowed. Aggrieved by the same the Revenue filed an appeal before the Tribunal. The said appeal was allowed. The appellant is before us challenging the said order of the Tribunal. The following question of law is framed by this court:

“Whether the Tribunal was correct in law in holding that deduction under Section 80-O of the Act would have to be with reference to the net income and not the gross receipts?”

I.T.A No. 3270/2005:

5. This appeal is at the instance of the assessee. The appellant is engaged in the business of manufacture and supply of conveyer components, erection and commissioning of conveyor systems. For the assessment years 1996–97 and 1997–98, the appellant claimed exemption under Section 80-O of the Income-tax Act. Deduction was allowed taking into consideration section 80AB of the Act. Aggrieved by the said order, an appeal was filed by the assessee. The appeal stood allowed. Thereafter the Revenue went in appeal to the Tribunal. The Tribunal allowed the appeal filed by the Revenue. Aggrieved by the same the assessee is before us. The following questions of law are framed by the assessee:

“(a) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have followed its own decisions rendered in identical circumstances and in respect of identical claims arising under Section 80-O of the Act?

(b) Whether, on the facts the Tribunal was at liberty to ignore the judgment of the jurisdictional High Court in the case of CIT v. M.N Dastur and Co. rendered on June 4, 2001, in C.P No. 580/1998?

(c) Whether, on the facts and circumstances of the case, the appellant was entitled to deduction under Section 80-O in respect of the gross receipts from professional or technical services rendered abroad and not in respect of net receipts?”

6. Heard learned counsel for the parties. Sri Kumar, learned senior counsel for the assessee, would essentially argue that Section 80-O, if read carefully would show that what is referable is total income. Total income has been defined under section 80AB of the Act. Learned counsel refers to section 80AB to say that section 80AB has to be excluded from the purpose of total income and for the purpose of deduction in the matter of foreign exchange. He would say that the Tribunal has committed a serious error in reading section 80AB also for the purpose of deduction under Section 80-O of the Act. Learned counsel also would argue that the Tribunal has grossly erred in not following the jurisdictional High Court's order dated June 4, 2001, in C.P No. 580 of 1998 wherein the questions of law were answered in favour of the assessee in similar circumstances.

7. Sri Shankar, learned counsel while supporting the argument of Sri Kumar would add that the total income would depend upon the facts in a particular case. He would say that quantification can be done only on the facts of each case. Ms. Vani H., learned counsel says that she would adopt the argument of Sri Shankar, learned counsel.

8. Sri Seshachala, learned counsel to say that the Revenue is fully justified in rejecting the deduction under section 80AB. It has overriding effect on Section 80-O of the Act. According to him this very submission has been considered by various High Courts and ultimately all the High Courts have answered in favour of the Revenue. In so far as the judgment of this court in C.P No. 580 of 1998 is concerned, he would say that the said judgment is not available to the assessee on the facts of this case. Even otherwise, he would say that the judgment of the Calcutta High Court which was accepted by this court is not accepted later by the Calcutta High Court itself. He wants the questions to be answered in favour of the Revenue.

9. The relevant question that requires to be considered by us is whether section 80AB overrides the provisions of Section 80-O of the Act.

10. Section 80-O of the Act reads as under:

80-O. Deduction in respect of royalties, etc., received from certain foreign companies.—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 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 and 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.

11. A careful reading of Section 80-O of the Act would show that 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.

12. The gross total income has been defined in clause (5) of section 80AB, the same would read as under:

“80AB. Where 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 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.

“8013.(5) ‘gross total income’ means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter.”

13. Section 80AB has been considered by various High Courts for the purpose of deduction under Section 80-O of the Act. All the High Courts have considered that section 80AB provides for a non obstante clause by way of “notwithstanding anything contained in that section”. After noticing this overriding effect of section 80AB all the High Courts have noticed that for the purpose of deduction under section 80AB, Section 80-O has to be taken note of by the authorities. In these circumstances, we are unable to hold that section 80AB is not available to the appellant as argued by Sri Kumar, learned counsel.

14. Various judgments are placed before us for our consideration.

15. A Full Bench of the Delhi High Court has considered in a judgment reported in Commissioner Of Income-Tax. v. Chemical & Metallurgical Design Co. Ltd, [2001] 247 ITR 749 as under (headnote):

“Section 80AB of the Income-tax Act, 1961, appears in Chapter VI-A reading ‘deductions to be made in computing total income’. Section 80-O appears in the heading ‘C’ which deals with ‘Deductions in respect of certain incomes’. Section 80AB provides that in respect of any deduction which is required to be made or allowed under any section (except section 80M) included in the Chapter under the heading ‘C’—Deductions in respect of certain incomes’ in respect of any income specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the manner of computation has to be in accordance with the provisions of section 80AB. The expression ‘notwithstanding anything contained in that section’ is of great relevance and significance. Use of the expression ‘notwithstanding anything contained’ is known as non obstante clause. Sometimes it is placed at the beginning of a. provision and sometimes in the middle of it. The effect of the expression ‘notwithstanding anything contained’ is that in case of conflict between two provisions overriding effect has to be given over the provisions or statute mentioned in the non obstante clause. The Supreme Court in Motilal Pesticides (I.) P. Ltd. v. CIT, [2000] 243 ITR 26 observed that section 80AB was enacted to declare the law as it always stood in relation to the decisions to be made in respect of the income specified under the head ‘C’ of Chapter VI-A of the Act. In view of the stipulation contained in section 80AB one thing which emerges clearly is that the mode of computation as indicated in section 80AB has full application to the case relating to Section 80-O.”

16. Recently, a Division Bench of the Delhi High Court again ruled that deduction under Section 80-O was available only on the net income and not on the gross receipts of fees in convertible foreign exchange. Therefore the adjustments could be made by the Assessing Officer under section 143(1)(a).

17. The Calcutta High Court in CIT v. M.N Dastur and Co. P. Ltd., [2000] 243 ITR 10 has ruled as under (headnote):

“A careful reading of the provisions of section 80AB of the Income-tax Act, 1961, makes it clear that whatever deductions are allowed in respect of any type of income specified in the various provisions under the head ‘C’ of Chapter VI-A will be subject to the provisions of section 80AB. The provision of section 80AB starts with a 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’. Therefore, where income 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.”

18. The Supreme Court has considered section 80AB in a judgment in Motilal Pesticides (I) P. Ltd. v. CIT, [2000] 243 ITR 26 and rules as under (head-note):

“Two sections 80AA and 80AB of the Income-tax Act, 1961, were introduced by the Finance (No. 2) Act, 1980. While section 80AA was to have retrospective effect from April 1, 1968, section 80AB was to have operation with effect from April 1, 1981. Section 80AA had the effect of effacing the decision of the Supreme Court in Cloth Traders (P) Ltd. v. Additional Cit, Gujarat-I, [1979] 118 ITR 243 which had interpreted section 80M. Section 80AB was made applicable to all the sections in Chapter VI-A except section 80M. In Distributors (Baroda) P. Ltd. v. Union of India, [1985] 155 ITR 120 (SC), however, the Supreme Court specifically overruled its earlier decision in Cloth Traders (P) Ltd. v. Additional Cit, Gujarat-I, [1979] 118 ITR 243 (SC) and held that deduction is to be allowed only on the net dividend income and not on the gross income. With reference to section 80AB, the Supreme Court said that it was merely of a clarificatory nature. In H.H Sir Rama Varma v. CIT, [1994] 205 ITR 433, the Supreme Court observed that on a parity of reasoning with section 80AA as given in Distributors (Baroda) P. Ltd. v. Union of India, [1985] 155 ITR 120 (SC), it must be held that section 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’ in Chapter VI-A of the Act. The special deduction under section 80HH is allowable on the net income and not the gross income.”

19. In the light of these decisions, the contention of the Revenue has to be accepted.

20. We would be failing in our duty if we do not refer to the argument of Sri Kumar, learned counsel for the assessee. He refers to a judgment of this court in C.P No. 580 of 1998. It is no doubt true that the Division Bench of this court has chosen to reject the reference application filed by the Commissioner in the said order. A reading of the said judgment would show that the dismissal was on the peculiar facts of that case. The Division Bench noticed in para. 3 of its order that on an earlier occasion the Calcutta High Court answered the questions of law in favour of the assessee in I.T.P No. 112 of 1998 in G.A No. 2692 of 1998. Noticing the judgment of the Calcutta High Court in respect of the very assessee in that case, the Division Bench answered the questions of law against the Revenue and the Division Bench has chosen to add by way of a rider that it is being done to avoid contradictions in orders relating to the same assessee on the same questions of law. The Division Bench ruled in favour of the assessee only in the light of another order passed by the Calcutta High Court in favour of the assessee. That judgment is not available to the assessee in the case on hand. The judgment as referred to in the Division Bench order, i.e, the judgment of the Calcutta High Court in I.T.P No. 112 of 1998 in G.A No. 2692 of 1998 has subsequently been overruled by the Supreme Court in Motilal Pesticides (I) P. Ltd. v. CIT, [2000] 243 ITR 26. This is an additional factor which compels us not to accept the case of the assessee.

21. Sri Kumar, learned counsel, also would argue that the method of calculation adopted by the Assessing Officer is not correct. We are not inclined to express any opinion at all on that issue. We in the light of our answer to the question of law in favour of the Revenue remanded the matter only for the limited purpose of consideration in terms of this order by the Tribunal.

22. Parties in I.T.A No. 86 of 1989, I.T.R.C No. 25 of 2000 and I.T.A No. 3254 of 2005 are to appear without waiting for any notice on or before August 21, 2006. The Tribunal is to consider the objections with regard to deduction for the purpose of arriving at the net income in terms of Section 80-O of the Act and remand is only for the limited purpose in terms of this order. The Tribunal is to complete the proceedings on or before December 31, 2006, without in any way being influenced by the earlier order of this order. The Tribunal at the time computation may also take into consideration the nature of deduction in the light of section 80AB and pass orders in accordance with law. In so far as I.T.R.C No. 3270 of 2005 is concerned, we deem it proper to answer all the questions in favour of the Revenue and against the assessee.

23. Ordered accordingly. No costs.