Citation Codes

Equivalent Citations

citation codes

Case Number

I.T Ref. No. 161 of 1992

Judges

The Hon'ble Justice Y. R. Meena
The Hon'ble Justice R. K. Mazumder

Acts

clause (iv) of sub-section (1) of section 99 and section 85-A,
provision of section 80-AB. Provision of section 80-AB
sections 30 to 36, the provision of section 37(3A)
section 80-O and 80-AB of Income-tax Act, 1961,
clause (iv) of sub-section (1) of section 99.28.
SECTION 80 O INCOME TAX ACT 1961
sections 37(3A), 37(3B) of the IT Act, 1961
section 37(3A) of the Income-tax Act.
SECTION 263 INCOME TAX ACT
section 80-O. Though section 80-AB
section 80-O of the I.T Act, 1961,
section 263 of the I.T Act, 1961,
sub-section (1) of section 80-M
section 80-O of the I.T Act
provisions of section 37(3A)
provisions of section 80-AB
sub-section (1) of section 99,
provisions of section 80-O.
provision of section 80-AB
provisions of section 80-M
section 99(1)(iv) and 85-A
section 99(1)(iv). Bombay
section 85-A, 85-C
Finance Act, 1971
FINANCE ACT 1974
section 80-AB

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Smart Summary

Judgment Summary — Yad Ram Meena, J.

Factual and Procedural Background

The opinion arises from two reference applications — R.A. No. 259 (Cal) of 1990 and R.A. No. 8 (Cal) of 1992 — referred for the court's opinion under section 256(1) of the Income-tax Act, 1961.

The assessee was engaged in consulting and engineering work with projects in India and abroad for the assessment years 1984–85 and 1985–86. For the assessment year 1984–85, the Assessing Officer (AO) allowed a deduction under section 80-O of the Income-tax Act on the gross amount of convertible foreign exchange brought into India, without taking into account expenses incurred in India to earn the income. The AO also allowed motor car repairs and insurance expenses amounting to Rs. 5,93,678 in computing the assessee's total income.

The Commissioner of Income-tax reviewed the assessment order dated 24.10.1985 and issued a show cause notice under section 263, concluding that the AO had allowed excess relief under section 80-O and had not applied a 20% disallowance under section 37(3A) to the motor car expenses. The Commissioner passed an order under section 263 directing the ITO to disallow 20% under section 37(3A) and (3B) and to withdraw the excess amount allowed under section 80-O.

The assessee appealed to the Tribunal. The Tribunal held that (a) the provisions of section 37(3A) and (3B) were not applicable because the motor car insurance and repair expenses were otherwise allowable under sections 30 to 36, and (b) the assessee was entitled to deduction under section 80-O on gross foreign exchange receipts. The Tribunal relied on precedents including Cloth Traders (P.) Ltd. and Distributors (Baroda) Pvt. Ltd., and also held that section 80-AB did not override section 80-O.

The references to the High Court ask, broadly, whether deduction under section 80-O should be allowed on gross convertible foreign exchange receipts brought into India without taking into account expenses (direct or indirect) incurred in India, and related questions about the application of sections 37(3A), 37(3B) and the validity of the Commissioner’s order under section 263.

Legal Issues Presented

Whether, on the facts and on a correct interpretation of sections 37(3A) and 37(3B) read with Explanation (c), the Tribunal was justified in holding that motor car running and maintenance expenses (insurance and repairs) were allowable (i.e., beyond the purview of section 37(3A)/(3B))?
Whether the assessee may agitate whether relief under section 80-O of the Income-tax Act, 1961, will be allowed on gross or net income (i.e., whether section 80-O deduction is to be computed on gross convertible foreign exchange or after taking into account expenses incurred in India)?
Whether, in view of insertion of section 80-AB w.e.f. 1.4.1981 and the Supreme Court decision in Distributors (Baroda) Ltd., two views are possible on whether relief under section 80-O will be allowable on gross foreign exchange?
Whether the Tribunal was justified in law in cancelling the order of the Commissioner under section 263?
Whether, on a correct interpretation of sections 80-O and 80-AB, the deduction under section 80-O is admissible on the gross convertible foreign exchange brought into India without taking into account expenses incurred in India?
Whether, in view of the ratio of Distributors (Baroda) Ltd., relief under section 80-O is admissible to the assessee on the gross amount of convertible foreign exchange brought into India without taking into account expenses incurred to earn the income?

Arguments of the Parties

Assessee's Arguments (as advanced by Shri Syali / Shri Shyali)

Deduction under section 80-O should be allowed on convertible foreign exchange received in India (i.e., on the gross amount brought into India).
After the 1.4.1972 amendment, section 80-O's basis for deduction became the whole convertible foreign exchange so received and brought into India.
Section 80-O's wording is, in substantial respects, pari materia with section 99(1)(iv); for parity of reasoning, Distributors (Baroda) is not an authority on the issue of section 80-O.
The decisions in Darbhanga Marketing Co. Ltd. and New Great Insurance Co. Ltd., which were approved by the Supreme Court in Cloth Traders, continue to be good law to the extent they support deduction on gross receipts.
Section 80-AB does not apply to negate the plain words "convertible foreign exchange received in or brought into India"; section 80-AB governs only what it covers and cannot govern matters section 80-O itself does not deal with.
Allowing deduction on gross receipts follows from the plain wording and legislative history of section 80-O, and avoids making those words superfluous.

Revenue's Arguments (as advanced by Shri Agarwal)

Following the Supreme Court decision in Distributors (Baroda) Pvt. Ltd., the assessee cannot claim deduction on gross foreign exchange receipts; deduction under section 80-O must be on net income after computing gross total income in accordance with the provisions of the Act.
Section 80-AB requires that deductions under Chapter VI-A be computed with reference to the income as computed under the Act; therefore deductions under section 80-O must be calculated after applying the usual computation rules (i.e., net basis).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Distributors (Baroda) Pvt. Ltd. (cited as 155 ITR 120 / 156 ITR 120)	Holds that deduction (in that case under section 80-M) must be calculated with reference to the amount of income included in gross total income as computed under the Act; it overruled the earlier Cloth Traders' approach insofar as it conflicted with this principle.	The court applied this decision as a controlling authority on the point that deductions under provisions similar to section 80-O must be computed in accordance with the Act (i.e., on a net basis after applying computation rules). The judgment treats Distributors (Baroda) as decisive in favour of the revenue on the s80-O question.
Cloth Traders (P.) Ltd. v. Additional CIT (1979) 118 ITR 243 (SC)	Earlier Supreme Court decision that approved Calcutta and Bombay High Courts' view that certain exemptions/deductions (e.g., in context of dividends under related provisions) applied to the full amount (gross) of such income.	The Tribunal relied on Cloth Traders to allow section 80-O on gross receipts. The High Court examined Cloth Traders but noted that Distributors (Baroda) has overruled Cloth Traders to the extent of an inconsistency; consequently Cloth Traders could not support the assessee in light of section 80-AB and Distributors.
CIT v. Darbhanga Marketing Co. Ltd. (80 ITR 72 (Cal))	Held that exemption from super-tax was available on gross dividend income (i.e., the gross amount without deducting interest incurred in its earning).	The court noted this decision as one of the earlier High Court decisions approved by Cloth Traders, but concluded that after insertion of section 80-AB and the decision in Distributors (Baroda), that line of authority cannot sustain the assessee's claim to deduction on gross receipts for section 80-O.
CIT v. New Great Insurance Co. Ltd. (90 ITR 348 (Bom))	Held that exemption relating to dividend (under the then-provision) was available on the gross dividend.	The court observed that New Great Insurance was approved in Cloth Traders, but that, in the context of section 80-O and after section 80-AB, the earlier reasoning does not permit the assessee to insist on gross-basis deduction.
Commissioner of Income-tax v. Marketing Research Corporation (1987) 61 CTR (Del) 204	Del HC considered whether deduction under section 80-O should be on net or gross income and followed Distributors (Baroda), answering in favour of the Revenue (i.e., net basis).	The High Court cited this case as authority that, following Distributors (Baroda), the net basis should be applied; the present court relied on such decisions in support of answering the references in favour of the revenue.
Commissioner Of Income-Tax v. M.K Raju Consultants (P.) Ltd. (Madras High Court)	Madras High Court applied Distributors (Baroda) in holding that deductions under section 80-O are not on gross total income before set-off of losses and unabsorbed depreciation; followed Distributors (Baroda).	The court cited this decision as another high court decision that, after Distributors, supports the net computation approach for section 80-O; no High Court decision in favour of the assessee after insertion of section 80-AB was brought to the court's notice.
CIT v. Chawla Truck House (139 ITR 182) (Punjab High Court)	Interpreted Explanation to section 37(3A) to the effect that if expenses are allowable under sections 30 to 36 they are outside the scope of section 37(3A).	The court relied on this decision to support the conclusion that motor car insurance and repair expenses allowable under section 31 (and sections 30–36) are not caught by section 37(3A)/(3B), so the Tribunal's view on that point was not erroneous.
Cambay Electric Supply Co.'s case (referenced in Distributors)	Mentioned as an earlier decision that conflicted with Cloth Traders; used in Distributors to justify reconsideration and overruling of Cloth Traders as to certain points.	The present court noted that Distributors reconciled or resolved conflicts between Cloth Traders and Cambay decisions and that Cloth Traders' correctness was reconsidered and overturned in part by Distributors.

Court's Reasoning and Analysis

The court conducted a step-by-step examination of (a) the factual matrix and tribunal findings, (b) legislative history and wording of section 80-O and related provisions, and (c) authoritative case law dealing with whether deductions under provisions akin to section 80-O are to be computed on gross receipts or on the income as computed under the Act.

Key elements of the court's reasoning (as set out in the opinion):

Legislative history and wording: section 80-O had earlier iterations (85-C, then 80-O) and amendments (Finance Acts of 1971 and 1974) that affected the quantum of deduction, but the material wording and its relationship to other provisions required interpretation in light of the whole Chapter VI-A framework.
Effect of section 80-AB: the court emphasized that section 80-AB, inserted with effect from 1.4.1981, begins with a non-obstante clause and provides that deductions specified under Chapter VI-A (sections 80-C to 80-U) are to be allowed "in computing the total income" and that, for the purposes of computing such deductions, "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." The court read this provision as making clear that deductions under Chapter VI-A must be computed with reference to income computed in accordance with the Act.
Impact of Distributors (Baroda): the Supreme Court in Distributors reconsidered and in part overruled Cloth Traders on the question of whether certain deductions/exemptions should be applied to gross receipts or to the amount included in gross total income as computed under the Act. Distributors held that the deduction under section 80-M must be calculated with reference to income as included in gross total income under the Act. The present court treated Distributors as authoritative and decisive for the present issue because it requires deductions of the nature in question to be computed in accordance with the Act.
Precedents prior to Distributors (Cloth Traders, Darbhanga, New Great): these were earlier decisions holding in favor of gross-basis treatment for related provisions. The court noted these decisions and that Cloth Traders had approved them, but explained that Distributors had overruled Cloth Traders insofar as Cloth Traders was inconsistent with the approach taken in Cambay Electric Supply Co.'s case and with section 80-M. Consequently, Cloth Traders could not be relied upon to sustain the assessee's claim in light of section 80-AB and the Distributors decision.
Application to section 80-O: applying the principle from section 80-AB and the reasoning in Distributors, the court concluded that where a deduction under Chapter VI-A (such as section 80-O) is claimed, the amount of the relevant income must be the amount computed in accordance with the provisions of the Act (i.e., after accounting for computation rules and allowable deductions). Therefore, deduction under section 80-O must be based on the net income as computed under the Act, and not simply on the gross convertible foreign exchange brought into India.
On the section 37(3A)/(3B) issue: the court read the Explanation to section 37(3A), which excludes from its operation expenses that are otherwise allowable under sections 30 to 36. Given that motor car repairs and insurance are allowable under section 31 (and sections 30–36), the court found the Tribunal's conclusion that section 37(3A)/(3B) did not apply to these expenses to be correct. The court corroborated this view by reference to Punjab High Court decision in CIT v. Chawla Truck House.

Holding and Implications

The court gave answers to the referred questions and concluded as follows (expressed in the language used in the opinion):

R.A. No. 259 (Cal) of 1990 — Question No. 1: Answered in the affirmative, i.e., in favour of the assessee and against the revenue. (This relates to the Tribunal's holding that motor car insurance and repair expenses were allowable under sections 30–36 and hence outside the scope of section 37(3A)/(3B).)
R.A. No. 259 — Question No. 2: Answered in the negative, i.e., in favour of the revenue and against the assessee. (Relief under section 80-O is not to be allowed on gross foreign exchange receipts without taking into account expenses.)
R.A. No. 259 — Question No. 3: Answered in the negative, i.e., in favour of the revenue and against the assessee. (Insertion of section 80-AB and the Supreme Court decision in Distributors (Baroda) lead to the conclusion that the deduction under section 80-O cannot be claimed on gross receipts without computing income as per the Act.)
R.A. No. 259 — Question No. 4: Answered in the negative, i.e., in favour of the revenue and against the assessee. (The Tribunal was not justified in cancelling the Commissioner's order under section 263.)
R.A. No. 8 (Cal) of 1992 — Questions: Both questions were answered in the negative, i.e., in favour of the revenue and against the assessee. (Deduction under section 80-O should not be allowed on gross convertible foreign exchange brought into India without taking into account expenses incurred in India.)

Final disposition: "Both the reference applications shall stand disposed of accordingly." The judgment of Yad Ram Meena, J. was concurred in by R.K. Mazumdar, J.

Direct effect on the parties: the court sided with the revenue on the central point that deductions under section 80-O must be computed with reference to income as computed under the Act (i.e., after applying the statutory computation rules), and not simply on the gross convertible foreign exchange receipts. The Tribunal's allowance of section 80-O on gross receipts was thus held to be incorrect; however, on the specific point of motor car insurance and repair expenses, the court found in favor of the assessee under section 37(3A)/(3B) due to those expenses being otherwise allowable under sections 30–36.

The opinion does not state that it sets a new binding precedent beyond answering the questions referred; it primarily applies and interprets existing precedent (notably Distributors (Baroda)) and the statutory effect of section 80-AB to resolve the referred questions.

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Commissioner Of Income Tax Bengal-I, Calcutta v. M/S. M.N Dastur & Co. (P) Ltd.

JUDGMENT

Yad Ram Meena, J.:—On applications under section 256(1) of the Act 1961 following questions are referred for our opinion.

2. In R.A No. 259(Cal) of 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 IT Act, 1961 read with Explanation (c) thereof, the Tribunal was justified in law in holding that since it is not the case of the CIT 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 IT 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 IT Act, 1961, will be allowed on the gross or net income?

3. Whether in view of the insertion of section 80-AB w.e.f 1.4.1981 and in view of the decision of the Supreme Court in 155 ITR 120 Distributors (Baroda) Ltd., the Tribunal was justified in holding that two view are possible on the point whether relief under section 80-O of the I.T 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 IT Act, 1961?”

3. On 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 section 80-O and 80-AB 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 156 ITR 120 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?”

4. 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.

5. 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 year 1984–85 and 1985–86. In the assessment year 1984–85 original assessment was completed on 24.10.85 The Assessing Officer allowed deduction under section 80-O of the I.T Act on gross amount of convertible foreign exchange brought into India without taking into account the expenses incurred in India to earn the income.

6. 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.

7. The Commissioner of Income-tax has examined and on scrutiny of the assessment order dated 24.10.85 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 interests 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 ITO to disallow 20% under section 37(3A) and (3B) and withdraw excess amount allowed under section 80-O of the Act.

8. Being aggrieved assessee company agitated the matter before Tribunal. Tribunal has considered the order passed by the CIT 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 are otherwise allowable under section 30 to 36 of the Act. For claimed under 80-O the Tribunal has considered the decision on Apex Court in case of Cloth Traders (P) Ltd. v. Additional Cit, Gujarat-I, (1979) 118 ITR 243 (SC) and in case of Distributors (Baroda) Pvt. Ltd. v. Union of India, (1985) 155 ITR 120. The decision of Cloth Traders Pvt. Ltd. (supra) still hold field for purpose of deduction under section 80-O though in case of Distributors (Baroda) Pvt. Ltd. the decision in Cloth Traders has been over-rulled. In case of Distributors (Baroda) Pvt. Ltd. the judgment was with reference to section 80-M of the Act Tribunal also held that the provisions of section 80-AB 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.

9. In a reference application for the Assessment year 1985–86 the question, 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.

10. 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.

11. 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 800 w.e.f 1.4.1972 the basis of deduction under section 80-O was changed to whole convertible foreign exchange so received and brought in India.

12. Shri Syali further argued that since wording of section 80-O is paramateria with section 99(i)(iv), for a parity of reasoning, the decision of Distributors (Boroda) Pvt. Ltd. is not an authority on issue. Since the Apex Court has upheld the decisions in Darbhanga Marketing Co. Ltd. and New Great Insurance Company Ltd. in a decision of Cloth Traders Pvt. 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 Pvt. Ltd. (supra) has not been over-rulled by the decision in Distributors (Baroda) Pvt. Ltd. (supra) has not been over-rulled by the decision in Distributors (Baroda) Pvt Ltd. To that extent the decision of Apex Court in Cloth Traders Pvt 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.

13. Shri Syali further submits that the provisions of section 80-AB are also not applicable while allowing the deduction under section 80-O. Though section 80-AB 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 80-AB 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.

14. 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.

15. 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) Pvt. 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 80-AB of the Act.

16. 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 VIA of the Act should be on the gross receipts or on the net under taxable income. The issue has been a considered by various High Courts and the Apex Court regarding deduction under different provisions of Chapter VIA. Therefore, before we proceed further we would like to quote some observations of the various High Courts and Apex Court in this regard.

17. In case of CIT v. Darbhanga Marketing Co. Ltd., 80 ITR 72 (Cal) 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.

18. In CIT v. New Great Insurance Co Ltd., 90 ITR 348 (Bom) 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 supertax is available on the gross dividend income. Thereafter section 85-A was introduced which provides the exemption from the income tax and except for minor differences the wording of section 99(1)(iv) and 85-A are similar. Later on the provisions of section 85-A is substituated by section 80-M. Similarly, along with section 85-A, 85-C was introduced and 85-C 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 Pvt. Ltd. v. CIT (supra). The wording a section 85-A, except some 2 changes, is same as that of section 80-O has stand during the previous year relevant to the assessment years in question.

19. In Cloth Traders Pvt. 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 80-M. 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.

20. In case of Distributors (Baroda) Pvt. Ltd. (supra), the Apex Court has over-rulled its earlier decision in Cloth Traders Pvt. Ltd. (supra) and at page 141 their Lordships observed as under:—

“…………… The decision in Cloth Traders' case is inconsistent with that in Cambay Electric Supply Co.'s case. Both cannot stand together. If one is correct, the order 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.”

21. However, their Lordships also observed at page 137 that whatever might have been the interpretation placed on clause (iv) of sub-section (1) of section 99 and section 85-A, the correctness of which is not in issue before the Apex Court, so far as sub-section (1) of section 80-M 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.

22. In Commissioner of Income-tax v. Marketing Research Corporation, (1987) 61 CTR (Del) 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) Pvt. Ltd. (supra) Delhi High Court has answered the question in favour of Revenue and against assessee.

23. In Commissioner Of Income-Tax v. M.K Raju Consultants (P.) Ltd. 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) Pvt. 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 80-AB in the Act.

24. For deduction of tax on royalties, etc., received from certain foreign companies were initially allowed under section 85-C 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 amendment by Finance Act, 1971 w.e.f 1.4.72 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.

25. Learned counsel for the assessee Shri Shyali emphasized on the fact that in case of Distributors (Baroda) Pvt. Ltd. the Supreme Court has not overruled the decision in Cloth Traders Pvt. Ltd. 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.

26. Their Lordships in the case of Distributors (Baroda) Pvt. Ltd. has considered the provisions of section 80-M as exist in the relevant assessment year. Therefore, to that extent the decision of Apex Court in Cloth Traders Pvt. Ltd. has not been over-ruled.

27. It is true that in case of Distributors (Baroda) Pvt. Ltd. their Lordships has observed at page 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 80-M which is different in material respects from clause (iv) of sub-section (1) of section 99.

28. In Darbhanga Marketing Co. Ltd. (supra) this Court has quoted the words from the language of section 99 “amount of any dividend received by it, which are included in his total income. “Incomes forming part of the total income” “dividend received” expression “incomes” but the words in computing the income of the assessee appeared in section 80-M and 80-O and not in section 99(i)(iv) of the Act. Therefore, deduction under section 80-M 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.

29. The words deduction should be allowed ‘in computing the income of the assessee’ does not found place in section 99(i)(iv) of the Act.

30. provisions of section 80-AB of the Act provides 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 80-C to 80-U. Thus the deduction will be subject to the provisions of this section while computing the income of the assessee. provisions of section 80-AB 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.

31. From the discussed above it is made clear that after insertion of section 80-AB, 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 Company Ltd. has been approved by Supreme Court in its decision in the case of Cloth Traders Pvt. Ltd. (supra). Therefore, the deduction should be allowed on gross income received in India without taking into account the expensen Incurred in India.

32. The careful reading the provisions of section 80-AB 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 80-AB. provision of section 80-AB starts with non-obstante clause, not notwithstanding anything contained in that section for the purpose of computing the deduction under that section, the amount of income of that nature has 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.

33. 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 137(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 preview 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 37(3B) are not applicable. Considering the explanation and also the decision of Punjab High Court in CIT v. Chawla Truck House, (139 ITR 182), cannot be said that view taken by ITO was erroneous.

34. 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—whether 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 I.T Act, 1961, we answer in nagative i.e in favour of the revenue and against assessee.

35. 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 is answered in negative that is in favour of the revenue and against assessee.

Both the reference applications shall stands disposed of accordingly.

R.K Mazumdar, J.:—I agree.

Matter disposed of

R.B

Commissioner Of Income Tax Bengal-I, Calcutta v. M/S. M.N Dastur & Co. (P) Ltd.

Judgment Summary — Yad Ram Meena, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments (as advanced by Shri Syali / Shri Shyali)

Revenue's Arguments (as advanced by Shri Agarwal)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income Tax Bengal-I, Calcutta v. M/S. M.N Dastur & Co. (P) Ltd.

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