Delhi High Court

Water & Power Consultancy ... vs Jt. Cit on 16 February, 2004

Equivalent citations: (2004) 91 TTJ Del 29

ORDER

S.K. Yadav, J.M.:

This appeal by the assessed is directed against the order of the Commissioner (Appeals) on a solitary ground that the Commissioner (Appeals) was not justified in confirming the order of the assessing officer, who has restricted the claim of deduction under section 80-0 of the Income Tax Act, to Rs. 20,84,737 as against the claim of the assessed to the extent of Rs. 77,34,317, though the assessed has raised various grounds of appeal in this regard.

2. The other ground relating to disallowance of prior period expenses to the extent of Rs. 2,19,892 was not pressed by the assessed during the course of the hearing of the appeal. Hence, this ground is rejected.

3. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. Brief facts of the case borne out from the record are that the assessed has claimed deduction under section 80-0 at Rs. 77,34,317 but the assessing officer has allowed deductions on the net profit arrived at after deducting proportionate expenses from the total convertible foreign exchange brought into India on the basis of Tribunal, Mumbai Bench decision in the case of Tata Unisys Ltd. v. Dy. CIT (1996) 56 TTJ (Bom) 193 : (1993) 58 ITD 334 (Bom), wherein it was held that the corporate expenses have to be apportioned and to deduct it from the total convertible foreign exchange brought into India to arrive at the net income for the purpose of deduction under section 80-0. The assessing officer, accordingly, worked out proportionate expenses at Rs. 1,84,28,592 and after reducing the same from income from outside India shown at Rs. 2,25,98,067 the net income qualified for deduction was Rs. 41,69,476 out of which Rs. 34,72,000 had not been received in India within the specified time, therefore, he held the balance of Rs. 6,79,476 left for deduction under section 80-0. Accordingly, the assessing officer allowed only Rs. 3,48,737 i.e. 50 per cent of Rs.' 6,79,476 and disallowed Rs. 73,86,580 being excess demand claimed under section 80-0 of the Act. Subsequently, vide order under section 154 the assessing officer allowed further deduction under section 80-0 amounting to Rs. 13,36,000, i.e., 50, per cent of Rs. 34,72,000 as the learned CIT extended the time for realisation of remittance and the same was received by the assessed within the extended time.

4. The assessed preferred an appeal before the Commissioner (Appeals) with the submission that as per provisions of section 80-0 of the Act, deduction @ 50 per cent is to be allowed of the income relating to foreign consultancy service received or brought into India. He placed reliance on the decision of the Tribunal in the case of M.N. Dastur & Co. v. Dy. CIT (1997) 62 ITD 113 (Bang), wherein it was held that the, net earning brought into India in the form of convertible foreign exchange would have to be considered for the purpose of allowing deduction under section 80-0 without deducting proportionate expenses in India. The learned counsel for the assessed further contended before the Commissioner (Appeals) that since the direct project expenses has already been reduced from the gross receipt of convertible foreign exchange, the deduction should be allowed on the net earnings. Finding no force in the contention of the assessed, the Commissioner (Appeals) confirmed the additions and while doing so, he relied upon the judgment of the Special Bench of the Tribunal in the case of Petroleum India International v. DY. CIT (1999) 65 TTJ (Mumbai) (SB) 671, besides other judgments.

5. Now the assessed has preferred an appeal before the Tribunal and reiterated its contentions earlier raised. The learned counsel for the assessed has emphatically argued that the assessed has undertaken independent projects outside India and the direct expenses incurred for earning the convertible foreign exchange was already adjusted against the gross receipt as the assessed was maintaining the independent account of each and every project. At the most, the proportionate expenses, which were incurred in India can further be deducted from the net receipt of convertible foreign exchange. But the assessing officer has worked out the proportionate total expenditure incurred in India and deducted the same from the net foreign receipts in order to compute deduction under section 80-O of the Income Tax Act. The learned counsel for the assessed further furnished the computation of its claim for deduction under section 80-0 of the Act, according to which he is entitled for deductions of Rs. 52,27,973.

6. The learned Departmental Representative, on the other hand, has submitted that the assessed did not maintain the independent accounts of each and every project to prove that the direct expenses with regard to a particular project has already been adjusted against the receipts of convertible foreign exchange. During the course of assessment proceedings the assessed was specifically asked to produce the accounts of different projects, but he failed to do so and the assessing officer has rightly worked out the proportionate expenses incurred towards the foreign convertible exchange and after adjusting the same against the total receipts, he worked out the eligible deduction under section 80-O of the Act. The learned departmental Representative further invited our attention to various judgments in support of this contention that the deduction under section 80-O can only be allowed on a net income earned on the receipt of foreign convertible exchange, which are as under :

(1) CIT v. Chemical & Metallurgical Design Co. Ltd. (2001) 165 CTR (Del) (FB) 201 : (2001) 247 ITR 749 (Del) (FB);

(2) Continental Construction Ltd. v. CIT (1992) 195 ITR 81 (SC);

(3) Consolidated Coffee Ltd. v. State of Karnataka 248 ITR 432 (SC);

(4) CIT v. Sabarkantha Zilla Kbarid Vechan Sangh Ltd. (1977) 107 ITR 447 (Guj); and

(5) Petroleum India International v. Dy. CIT (supra).,

7. Having considered the rival submissions and from a careful perusal of the record, we find that during the course of the assessment proceedings, the assessed was asked to furnish the details of different projects undertaken by the assesseds abroad, but it was not furnished and the assessing officer has worked out the proportionate expenditure in order to compute the net foreign convertible exchange received by the assessed in order to work out the eligible deduction under section 80-O of the Act. During the course of the hearing the learned counsel for the assessed has invited our attention to the statement with the submissions that direct expenses incurred on independent projects were already adjusted against the receipt of foreign convertible exchange and if it is to be held that the proportionate administrative expenditure are also to be deducted from the -net receipt of convertible foreign exchange the deductions under section 80-0 of the Act comes to Rs. 52,27,973. For the sake of brevity, we reproduce the working given by the learned counsel for the assessed

"Details of deduction under section 80-O if overhead is charged

(Figure in Rs.)

Gross income of overseas projects

2,25,98,067

Less : Project expenses

63,05,602

Net income qualifying for the deduction

162,92,465

Less :

Overhead expenses as per proportionate formula adopted by assessing officer in other years

3,95,30,455 x 2,25,98,067

Overheads x Overseas income

15,30,56,548

Total Consultancy Income

58,36,520

1,04,55,945

Claim under section 80-O to the extent-of 50 per cent

52,27,973

8. We have also carefully perused the aforesaid judgments referred to by the parties and we are of the view that now controversy with regard to the claim of deductions whether it is to be worked out on gross receipts of foreign convertible exchange or it is net receipt, after adjusting the expenditure against these foreign convertible exchange has been set at rest by the Special Bench of the Tribunal in the case of Petroleum India International v. Dy. CIT (supra) and judgment of the jurisdictional High Court in the case of CIT v. Chemical & Metallurgical Design Co. Ltd. (supra) by holding that the deduction under section 80-O is to be allowed on net receipt of foreign convertible exchange. To determine the net receipt, the expenditure incurred in India for earning the same had to be adjusted against the foreign receipts. In these circumstances, we find no infirmity in the order of the Commissioner (Appeals), who has categorically held that the deduction under section 80-O is to be worked out on the net receipt of foreign convertible exchange. Now the question comes whether the total expenditure incurred in India are to be bifurcated on proportionate basis or when the assessed itself had adjusted the direct expenses to earn the foreign receipts, only the proportionate administrative expenses are to be further deducted from the net receipt of foreign convertible exchange. Before the lower authorities the assessed has not furnished the independent account of different projects to prove that the assessed itself has debited the direct project expenses and net foreign convertible exchange was brought to India and the assessing officer has worked out the proportionate expenditure incurred in India and deducted the same from the receipts of foreign convertible exchange. Even before us though the assessed has emphatically argued that he has maintained the complete accounts of independent projects and after deducting the direct expenses net foreign convertible exchange was brought to India, but no evidence was filed before us. We, however, in the interest of justice, feel it proper to give one more opportunity to the assessed to prove that he has maintained the independent accounts of each and every project undertaken abroad and the direct expenses were deducted from the gross profit and net foreign convertible exchange was brought to India. If the assessed succeeds in proving the same, the assessing officer shall work out the proportionate administrative expenses incurred to earn that foreign receipt and after deducting the same from the net foreign convertible exchange, the deduction under section 80-O shall be worked out on the remainder. We,. therefore, set aside the order of the Commissioner (Appeals) and restore the matter to the file of the assessing officer to re-compute the deduction under section 80-O in terms indicated above. While doing so, the assessing officer shall give a proper opportunity of being heard to the assessed.

9. In the result, the appeal of the assessed is allowed, for statistical purposes.