High Court Of Bombay
CIT vs. Asian Cable Corporation Ltd.
S.H. Kapadia & J.P. Devadhar, JJ.
Sections 80AB, 80B(5), 80-O
Asst. Year 1979-80, 1980-81
Review Petn. No. 16 of 2003 in IT Ref. No. 530 of 1987
5th March, 2003
Counsel Appeared
R.V. Desai with P.S. Jetley & Mrs. S.V. Bharucha i/b K.B. Rao, for the Appellant : J.D. Mistry with R. Shah i/b
R. Shah & Co., for the Respondents.
JUDGMENT
J.P. Devadhar, J. :
This review petition is preferred by the Department against the order of the Division Bench dt. 12th Dec., 2002, in IT Ref. No. 530 of 1987 [reported as CIT vs. Asian Cable Corpn. Ltd. (2003) 180 CTR (Bom) 139—Ed.].
Facts:
2. IT Ref. No. 530 of 1987 related to asst. yrs. 1979-80 and 1980-81. That reference was made at the behest of Department. In that reference, two points arose for determination viz., whether value of work-in-progress should be treated as part of capital employee for purposes of s. 80J of the IT Act and secondly, whether deduction under s. 80-O should be calculated on the gross fees received by the assessee. These were the two questions referred to the Division Bench. Question No. 1 was answered in favour of the assessee in view of the judgment of the Supreme Court in the case of CIT vs. Alcock Ashdown & Co. Ltd. (1997) 139 CTR (SC) 1 : (1997) 224 ITR 353 (SC). Question No. 2, which related to s. 80-O was also answered in favour of the assessee on the following concession made by the learned senior counsel appearing for the Department in following terms : “6. At the final hearing of this reference, Mr. Desai, learned counsel appearing on behalf of the Revenue, fairly stated that the bare reading of s. 80-O of the IT Act makes it clear that gross income is to be taken into account and not the net income for the purpose of calculation of deduction under s. 80-O of the IT Act. In this view of the matter, the question No. 2 is answered in affirmative and in favour of the assessee.”
3. By this review petition, the Department now states that the above concession made by the learned senior counsel was erroneous. In the circumstances, the Department has have prayed for modification of the judgment dt.
12th Dec., 2002, in IT Ref. No. 530 of 1987 qua question No.2, which, as stated above, related to deduction under s. 80-O of the Act.
4. Rule. Respondents waive service. With the consent of the learned advocates appearing on behalf of the respective parties, the review petition was taken up for final hearing. Facts in IT Ref. No. 530 of 1987 qua question No. 2
5. (a) As stated above, Ref. No. 530 of 1987 relates to asst. yrs. 1979-80 and 1980-81. During the two assessment years in question, the assessee claimed deduction under s. 80-O on gross earnings. The assessee carried on
business of manufacturing cables. The assessee claimed relief under s. 80-O on Rs. 61,678 at 100 per cent. of gross receipts by way of market service fees received from a foreign company by the name Dodge International. According to the ITO, the assessee failed to give details of the amount of expenditure incurred for earning such fees. Therefore, the ITO estimated 50 per cent. of the amount as expenditure incurred for earning these receipts and consequently, allowed deduction to the tune of Rs. 30,839 under this specific head. Being aggrieved, the assessee went in appeal to the CIT(A). The assessee submitted in appeal that it was entitled to deduction under s. 80-O on the gross amount. The assessee claimed that the gross amount stood exempted under s. 80-O. In view of the judgment of the Madras High Court in the case of Addl. CIT vs. Isthmian India Maritime (P) Ltd. 1977 CTR (Mad) 508 : (1978) 113 ITR 570 (Mad), the CIT(A) allowed the deduction on the gross amount of fees. It was held that for the purposes of s. 80-O, one has to take into account actual amount received by the assessee and not the amount computed by way of net income after deducting the expenditure. Consequently, the appellate authority allowed full deduction of Rs. 61,678 instead of Rs 30,839. This order has been confirmed by the Tribunal. Consequently, the matter has come before us at the instance of the Department.
Arguments
6. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, stated that the above concession was made by him through error. He submitted that the controversy involved in this case is settled by the judgment of the Calcutta High Court in the case of CIT vs. M.N. Dastur & Co. (P) Ltd. (2000) 159 CTR (Cal) 417 : (2000) 243 ITR 10 (Cal). He submitted that in that case, income was received by way of convertible foreign exchange and it was held by the Calcutta High Court that such income was to be computed in accordance with the provisions of the IT Act and then only the net income, after computation, constituted the amount of income derived or received by the assessee for purposes of deduction under s. 80-O. He also relied upon the judgment of the Delhi High Court in the case of CIT vs. Chemical & Metallurgical Design Co. Ltd. (2001) 165 CTR (Del)(FB) 201 : (2001) 247 ITR 749 (Del)(FB), the ratio of which is identical to the judgment of the Calcutta High Court in the case of Dastur & Co. (supra). Mr. Mistry, learned counsel appearing on behalf of the assessee, on the other hand, argued that in this case, we are concerned with asst. yrs. 1979-80 and 1980-81. He contended that the section, as it stood at the material time, inter alia, stated that where gross total income includes income by way of royalty, commission, fees and such income stood received in convertible foreign exchange in India or having been received in convertible foreign exchange outside India, is brought into India by the assessee then, there shall be allowed, in accordance with and subject to the provisions of s. 80-O, a deduction of the whole of the income so received in India or brought into India in computing the total income of the assessee. Mr. Mistry contended that during the assessment year in question also, gross total income was defined under s. 80B(5) to mean total income computed in accordance with the provisions of the Act. Mr. Mistry, therefore, argued on behalf of the assessee that the law, as it stood during the assessment year in question, clearly contemplated gross earnings as the basis for deduction under s. 80-O of the Act. Mr. Mistry further contended that his above interpretation was accepted by the Bombay High Court in the case of CIT vs. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Bom). He contended that the Bombay High Court was concerned with a case of dividend. In that matter, three insurance companies had received total dividend amounting to Rs 3,49,952. The Department took the view that the total amount was not exempted under s. 99(1)(iv) or under s. 85A. According to the Department, the proportionate amount of total expenditure of the management has got to be deducted from the gross receipt of dividend earned in order to arrive at the net figure of dividends, which alone got exempted under the aforestated two sections. The Tribunal negatived the stand of the Department and it took the view that the income by way of dividend should be construed as the gross income from dividend, without any deduction for expenses. According to Mr. Mistry, the judgment of the Bombay High Court in New Great Insurance Co. Ltd. (supra) would apply to the present case before us. He further submitted that the above judgment of the Bombay High Court in New Great Insurance Co. Ltd. (supra) came for consideration before the Supreme Court in the case of Distributors (Baroda) (P) Ltd. vs. Union of India & Ors. (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) wherein the judgment of the Bombay High Court in the case of New Great Insurance Co. Ltd. was not disturbed and the view of the Bombay High Court to the effect that the entire amount of dividend was exempt continued to remain in force and was applicable even during the assessment year in question. Mr. Mistry contended that we are concerned with asst. yr. 1979-80 and asst. yr. 1980-81 when s. 80A was very much in force and, therefore, in the present case, this Court was right in accepting the concession made by the learned counsel for the Department that s. 80-O deduction was to be computed on the basis of gross receipt during the assessment year in question. Mr. Mistry submitted that it is true that subsequently, the legislature has introduced s. 80AA by Finance Act No. 2 of 1980 with retrospective effect from 1st April, 1968. He contended that in this case we are also concerned with asst. yr. 1980-81, by which time,
s. 80AA was already in force. He submitted that notwithstanding the provisions of ss. 80A, 80AA and 80B(5), the view of the Bombay High Court in New Great Insurance Co. Ltd. (supra) was approved by the Supreme Court in the case of Distributors (Baroda) (supra) and, therefore, there was no need to change the order under review. Mr. Mistry further contended that under the circumstances, the review petition ought to be dismissed.
Reasons
We find merit in this review petition of the Department. By Finance (No. 2) Act, 1980, which came into force w.e.f. 1st April, 1981, deductions under Chapter VI-A were made relatable to the income included in the gross total income. Sec. 80-O begins with the expression “Where the gross total income of an assessee includes any profits and gains derived from industrial undertaking”. The expression “gross total income” is defined under s. 80B(5) to mean total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A. [emphasis, italicised in print, supplied by us] Therefore, what is included in the gross total income is not only the category of income, but also the quantum of income. In the case of Distributors (Baroda) (P) Ltd. (supra), the Supreme Court has laid down that the expression “gross total income” in s. 80B(5) referred to total income computed in accordance with the Act before making any deductions under Chapter VI-A and what is included in the gross total income was only a particular quantum of income belonging to the specified category.
On a bare reading of s. 80-O along with s. 80B(5), it is clear that even prior to the Finance (No. 2) Act, 1980, the Parliament had clearly intended to say that what is included in the gross total income, was not only a specified category of income, but a particular quantum of income belonging to that specified category. In the case of H.H. Sir Rama Varma vs. CIT (1994) 116 CTR (SC) 55 : (1994) 205 ITR 433 (SC), the Supreme Court has held that s. 80AB was enacted to declare the law as it always stood in relation to deductions under Chapter VI-A. Therefore, in any view of the matter, it is clear that gross receipts cannot constitute the basis of deduction under s. 80-O of the Act. We do not find any merit in the argument of Mr. Mistry that the judgment of the Bombay High Court in the case of New Great Insurance Co. Ltd. (supra) stood approved by the judgment of the Supreme Court in Distributors’ (Baroda)’s case (supra). On the contrary, the Supreme Court has clarified that they do not wish to comment on the validity of the judgment of the Bombay High Court in the case of New Great Insurance Co. Ltd. as the Supreme Court was not dealing with s. 99(1) and that they were dealing with s. 80M of the Act, which was different in all respects from s. 99(1). Lastly, we may point out that s. 80AB of the Act did not come for interpretation when the Bombay High Court decided the case of CIT vs. New Great Ins. Co. Ltd. Therefore, that judgment of the Bombay High Court will not apply to this case.
For the above reasons, we allow the review petition in terms of prayer cl. (a). Consequently, question No.2, quoted hereinbelow, is answered accordingly: Question No. 2 Answer Conclusion
10. Mr. Mistry, learned counsel appearing on behalf of the assessee expressed an apprehension that our above answer to question No. 2 may involve the assessee completely losing the matter before the Department. In this connection, he submitted that in this case, the fees were earned abroad and to earn those fees, certain expenditure was also incurred abroad, but what the Department has done is that they have also taken into account the head office expenses and consequently, they have reduced the special deduction under s. 80-O, which has been set aside rightly by the Tribunal on the basis that gross receipt was exempt under s. 80-O. Mr. Mistry contended that now since the Court has taken the view that the net receipt, after deducting the expenditure, should be taken into account to compute special deduction, the Department may revive the order of the ITO, which was set aside by the Tribunal, particularly because the ITO had taken into account the proportionate head office expenditure. In our view, the apprehension expressed on behalf of the assessee is ill-founded. In this case, as stated above, the Tribunal erred in stating a principle of law on interpretation of s. 80-O that the entire gross fees was exempt under s. 80-O. Therefore, the Department came by way of reference to this Court by way of question No. 2 quoted above. The grievance of the Department was on the proposition of law laid down by the Tribunal because, according to the Department, special deduction under s. 80-O was to be computed on net income and not on gross receipt of fees. Therefore, in our advisory jurisdiction, we are only required to answer the question of law, as referred to us by the Tribunal, which involved interpretation of s. 80-O. In this case, the ITO has stated in it’s order that the assessee was required to give details of expenditure incurred for earning such fees and that the assessee had failed to submit those particulars and, therefore, the ITO estimated 50 per cent of the amount of total fees as expenditure incurred to earn the total fees amounting to Rs. 61,678 and accordingly, the ITO granted deduction, not for the full amount of Rs. 61,678 but only for Rs. 30,839. Whether this estimation by the ITO was right or wrong is not the question before us. In the circumstances, we cannot go into that aspect of the matter. Moreover, that aspect of the matter involves facts, which are not before us. The Department came to this Court only on the question of interpretation of s. 80-O, which we have answered in favour of the Department. Therefore, we are not required to go into the question of what constituted the net income for purposes of s. 80-O. Essentially, such questions depend upon the factual matrix, which we do not possess in this case.
Lastly, we may mention that an erroneous concession was made by the senior counsel appearing on behalf of the Department because in this case, as in several other old references, we are faced with a difficult situation viz., that the CIT(A) as well as the Tribunals decide matters on the basis of their judgments for the earlier years, which are neither extracted in the present paper book nor annexed to the paper book in the present reference. Order
Accordingly, review petition is allowed in terms of prayer cl. (a) and consequently, question No. 2 quoted above is answered in the negative i.e., in favour of the Department and against the assessee.
[Citation : 262 ITR 537]
