Bombay High Court
M/S Tata Unisys Limited vs The C.I.T.,City-Iii, B'Bay on 13 October, 2016
Bench: M.S. Sanklecha
Itr-61-2000
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX REFERENCE NO. 61 OF 2000
M/s. Tata Unisys Limited ]
216-A, Dr. A. B. Road, Worli, ]
Mumbai 400 025. ] .. Applicant.
v/s.
Commissioner of Income Tax ]
Bombay City-IIIMumbai. ] .. Respondent.
Mr. Sunil Lala with Ms. Nikita Panhalkar and Ms. Rajshree Lala, for the
Applicant.
None for the Respondent. ig CORAM: M.S.SANKLECHA, &
S.C.GUPTE, JJ.
RESERVED ON : 30th SEPTEMBER, 2016.
PRONOUNCED ON : 13th OCTOBER, 2016.
JUDGMENT (Per M.S. Sanklecha, J.):-
None appears on behalf of the Revenue. The Applicant has
filed an affidavit of service, indicating completion of service upon the
Revenue on 6th April, 2000.
2 This Reference under Section 256(1) of the Income Tax Act,
1961 (the Act) by the Income Tax Appellate Tribunal (the Tribunal) seeks
our opinion on the following question of law:-
" Whether on the facts and in the circumstances of the case,
the Tribunal was right in coming to the conclusion that
deduction under Section 80-O was not allowed on the gross
receipts,but only on that part of receipts which form part of the
total income of the assessee?".
3 This Reference relates to Assessment Year 1985-86.
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Brief facts:-
4 The controversy giving rise to the above question as set out in the
statement of case reads as under:-
"2 The Tribunal, in para 6 of its order, had summarized the
entire controversy, which is reproduced below for the sake of
convenience:
"6 The rival submissions in regard to the above have been
very carefully considered. The Tribunal in the case of the assessee
for the assessment year 1982-83 considered the claim of
quantum of deduction under section 80-O i.e. gross or in the
manner laid down under Section 80-AB of the Act by referring to
the Supreme Court decision in Distributors (Baroda) P. Ltd.
(supra) where the provisions of section 80-AB were considered
specifically. Despite the fact that the provisions of Section 80-AB
were not in the statute book during the previous year relevant to
the assessment year that was before the Supreme Court, the
Supreme Court had upheld the applicability on a principle. The
Tribunal would have referred to the provisions of section
155(12) of the Act and observed that these provisions were
intended to give relief to the assessee on the basis of amounts
received in foreign currency. They held that the intention of the
legislature was not to allow relief to the assessee with reference
to the gross income. In so far as the apportionment of expenses
of the corporate office with reference to which deduction under
Section 80-O has to be granted, the Tribunal observed that most
of these expenses were debited to revenue account and could not
be liable to be allocated in pro-rata manner against the income
exempted under section 80-O and 80-AB of the Act and that the
adjustment of expenses or losses should be limited to the items
that have nexus to the earning of the income. Since the assessing
officer had not carried out that exercise the matter was
remanded back to the file of the assessing officer to carry out
such exercise. The decision of the Tribunal in J. B. Boda & Co.
Pvt. Ltd. of June 1994 refers to the decision of the Supreme
Court in Coninenal Construction Ltd., (supra), but does not
refer to the provisions of section 80-AB. It referred to the earlier
decision in the case of Boda & Co., the decision of the Supreme
Court in Distributors (Baroda) Pvt.Ltd. (supra) and to the
decision of the Tribunal in Expo Machinery Ltd. vs. I.A.C.
(1989) 31 I.T.D. 41, which was concerned with the deduction
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under section 80-HHA and 80-HHB and held the section80-AB
was in applicable for calculating deduction under section 80-
HHA and 80 HHB. Section 80-O states - where the gross total
income of an assessee being an India company... includes an
income by way of royalty, commission, fees or any similar
payment received by the assessee..... and such income is received
in convertible foreign exchange in India, there shall be allowed
in accordance with and subject to the provisions of this section a
deduction of an amount equal to 50 per cent of the income so
received in India in computing the total income of the assessee.
Section 80-HHB states - where the gross total income of an
assessee being an Indian Company includes any profits and
gains derived from the business of execution of foreign projects
.... there shall in accordance with and subject to the provisions
of this section be allowed in computing the total income of the
assessee a deduction from such profits and gains of an amount
equal to 50 per cent thereof. Sub-section (3) of section 80-HHB
talks of the conditions for allowability of the deduction, i.e. the
assessee maintains separate accounts in respect of profits and
gains derived from the business of execution, etc. etc. and such
accounts have been audited by an accountant, etc. etc. and the
assessee furnishes a certificate from the auditor in the prescribed
Form 50 per cent of the profits and gains so referred earlier is
debited to the profit and loss account of the previous year etc.
etc. and the proviso to this section states that where the amount
credited by the assessee to the Foreign Project Reserve Account in
pursuance of clause (ii) or the amount brought in to India by
the assessee in pursuance of clause (iii) or each of the said
amounts is less than 50 per cent of the profits and gains referred
to in sub-section (1), the deduction under that sub-section shall
be limited to the amount so credited in pursuance of clause (ii)
or the amount so brought into India in pursuance of clause (iii),
whichever is less. The reading of section 80-O suggests that the
gross total income of the assessee should include income for
which deduction is allowable under section 80-O. The said
income must be received in convertible foreign exchange in India
and the amount of deduction is to the extent of 50 per cent of
the income received in India. This indicates that the term
'Income' is with reference to the income that is included in the
gross total income and not necessarily the quantum of
convertible foreign exchange though the quantum of income
included in the gross total income must be represented by
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amount received in convertible foreign exchange. Whatever be
the quantum of deduction to be arrived at under section 80-O
the quantum of deduction to be allowed has been further
restricted by the provisions contained in section 80-AB of the Act
which states specifically that notwithstanding anything
contained in the section which talks of deduction under Chapter
VIA, the amount of the deduction has to be with reference to the
amount of income of that nature computed in accordance with
the provisions of this Act alone would be deemed to be the
amount of income of that nature which is derived or received by
the assessee and included in the gross total income. Therefore,
there is no way of superseding the provisions of section 80-AB
which has been considered by the Tribunal in the case of the
assessee for the assessment year 1982-83. In addition, as
observed by the Madras High Court in S. Devraj (supra) the
principle of stare decisis would come into operation and
therefore, in view of the opinion of the High Court having been
sought, it would be only proper to maintain consistency in the
conclusion. We accordingly hold that the assessee would be
entitled to deduction after deducting corporate expenses, which
would have to be taken into account in computing the income
according to the provisions of this Act, which would be necessary
to comply with the provisions of section 80-AB of the Act."
3. For the assessment year 1982-83 in R.A.
No.1866/Bom/1993 the assessee had sought identical question
for reference along with one other question and the same was
referred for the valued opinion of the Hon'ble High Court vide
Statement of the Case dated 31.10.1994. In the light of the
above, the questions above is referred to the Hon'ble High
Court of Judicature at Mumbai for its valued opinion."
(emphasis supplied)
5 The Reference made by the Tribunal in relation to
Assessment Year 1982-83 being Income Tax Reference No.5 of 2000 on an
identical question by the Tribunal, was returned un-answered on 30 th
April, 2015. This was for the reason that none appeared on behalf of the
Applicant-Assessee. Mr. Lala, learned Counsel for the Applicant-Assessee
states that in view of small tax effect, the Applicant-Assessee is not taking
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out any application for restoration of Income Tax Appeal No.5 of 2000.
However, the above order dated 30 th April, 2015 itself clarified that the
questions raised therein are left open for consideration in an appropriate
case, if not already decided. Therefore, the question raised in this
Reference is being independently considered.
6 From the statement of case as set out hereinabove, the
controversy revolves around the extent of availability of deduction under
Section 80-O of the Act, viz. whether the deduction under Section 80-O of
the Act is to be allowed on gross or on net basis. The contention of the
Applicant-Assessee as evidenced from the statement of case was that the
deduction should be allowed on gross basis i.e. de-hors the provisions of
Section 80-AB of the Act. However, Tribunal in its order rendered for the
earlier Assessment Year had held that there is no way of superseding the
provisions of Section 80-AB of the Act while computing the deduction
allowable under Section 80-O of the Act. In fact, the question as framed
has been referred to us by the Tribunal for the subject Assessment Year
only for the reason that in the earlier Assessment Year it had referred the
question to us for our opinion. This is particularly so, because at the time
when this Reference was made on 26th August, 1996 for the Assessment
Year 1985-86, the issue whether deduction under Section 80-O of the Act
is to be allowed on gross or net basis (on an application of Section 80-AB
of the Act) was an issue on which there were conflicting interpretations of
the Tribunal.
7 The fact that there were conflicting views on the availability
of Section 80-O of the Act on gross or net basis at the relevant time, is
recorded by the Apex Court in Kvaverner John Brown Engg (India)P.
Ltd. v/s. Assistant Commissioner of Income Tax 305 ITR 103 (decided
on 29th April, 2008). The Apex Court was considering the issue of
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payment of additional taxes due to restricting the benefit of Section 80-O
of the Act while doing adjustment under Section 143 (1)(a) of the Act.
The Assessing Officer, while making adjustment, sought to restrict the
benefit of Section 80-O of the Act only to net receipts, i.e. after reducing
the expenses incurred to earn that (Section 80-O) income. The Apex Court
held that at the relevant time, i.e. during the Assessment Years 1996-97
and 1997-98, in view of conflicting interpretation in respect of section 80-
O of the Act, prima facie, adjustment to restrict a claim under Section 80-
O of the Act, resulting in demand of additional tax, was not permissible.
8 In fact, this controversy was first resolved by this Court in the
context of Section 80-O of the Act only in CIT v/s. Asian Cable
Corporation Ltd., (No.2) 262 ITR 537. The Court in the above case held
that income earned in foreign exchange for services rendered, has to be
allowed on net basis, inter alia, on application of Section 80-AB of the Act.
9 It may be pointed out that the Apex Court in A. M. Moosa
v/s. CIT 294 ITR 1 has held that Section 80-AB of the Act has an
overriding effect over all Sections of Chapter VI-A of the Act. Un-
disputedly, Section 80-O of the Act is part of Chapter VI-A of the Act and,
therefore, would be governed by Section 80-AB of the Act.
10 Therefore, we were of the view that issue stands concluded in
favour of the Respondent-Revenue by virtue of the decision of this Court
in Asian Cable Corporation ltd., (supra).
11 However, Mr. Lala, learned Counsel appearing for the
Applicant-Assessee contends that the issue here is not gross or net income
which is allowable for deduction under Section 80-O of the Act, but the
issue is whether the income could be reduced by expenditure determined
on pro-rata method on notional basis to restrict the claim for deduction.
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In support, learned Counsel invites our attention to the statement of case
which records the fact that the Tribunal upheld the deduction under
Section 80-O of the Act, after deducting corporate expenses in terms of
Section 80-AB of the Act. Mr. Lala, submits that the question as framed is
not properly worded and, therefore, the Court must take note of the
dispute as recorded in the orders of the Authorities under the Act.
12 In a Reference under Section 256(1) of the Act, our
jurisdiction is Advisory. We are required to answer the question as
referred to us in the context of the facts set out in the statement of case
for our opinion. Therefore, on reading the statement of case, it is noted
that it records that for the earlier Assessment Year, i.e. A. Y. 1982-83,
adjustment of expenses should be limited only to the items that have
nexus to the earning of the income and restored the issue to the Assessing
Officer to determine the same. Notwithstanding the above findings/
directions, the Applicant-Assessee filed a Reference being Reference No.5
of 2000. This on the basis that Section 80-AB of the Act would not be
applicable for the purpose of computing deduction under Section 80-O of
the Act. In the subject Assessment Year, the statement of case does not
state that expenses were allocated in a pro-rata manner without any
nexus. This for the reason that according to the Applicant, it is entitled to
deduction on gross basis without being governed by Section 80-AB of the
Act. (Please see the emphasized portion of statement of case). In any case,
the present Reference has been made in view of the Reference made for
the Assessment Year 1982-83 and only with a view to maintain
consistency. The attempt on the part of the Applicant-Assessee is to
enlarge the scope of the question which has been referred to us for our
opinion by the Tribunal. The issue which has been referred to us for our
opinion, is not with regard to allocation of expenditure on a pro-rata basis
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but the issue is whether deduction has to be allowed on the basis of the
gross receipts or on that part of the receipts which form part of total
income of the Applicant-Assessee, i.e. on application of Section 80-AB of
the Act.
13 As held by the Apex Court in CIT v/s. Ansuya Devi 68 ITR
750, in a Reference, the High Court may only answer the question which
is referred to it. New question cannot be raised by the Court. At the very
highest, we can in a reference, re-frame the question so as to clear some
ambiguity or bring out the real dispute. No such occasion to re-frame the
question arises in this case.
In the above view, the question as raised at the instance of
the Applicant-Assessee by the Tribunal is answered in the affirmative i.e.
against the Applicant-Assessee and in favour of the Respondent-Revenue.
This in view of the decision of this Court in Asian Cable Corporation
(supra).
15 Reference disposed of in the above terms. No order as to
costs.
(S.C.GUPTE,J.) (M.S.SANKLECHA,J.)
S.R.JOSHI
