Income Tax Appellate Tribunal - Madras
Future Software (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 15 March, 1993
Equivalent citations: [1993]45ITD459(MAD)
ORDER
S. Kannan, Accountant Member
1. This appeal by the assessee is directed against the order dated 30-10-1991 of the Commissioner of Income-tax (Appeals)-IX, Madras relating to the assessment year 1988-89.
2. The assessee-company is engaged in the business of developing computer software for data communication, net working and the like and rendering related technical services. During the relevant previous year, American Airlines was one of its major clients for which the assessee-company developed software for booking of air tickets and the like.
3. Issue No. 1 : Deduction under Section 80HHC Since the assessee had exported computer software it was entitled to deduction under Section 80HHC of the Income-tax Act, 1961. It was also entitled to deduction under Section 80-O of the Act in respect of the fees which had been received from foreign enterprises. There was no dispute as to the deduction admissible to the assessee under Section 80-O. Dispute, however, arose on matters relating to deduction under Section 80HHC. It is common ground that the profits and gains of the assessee's business was Rs. 25,81,604. It is also common ground that 4 per cent of the net foreign exchange realisation worked out to Rs. 89,774. The assessee's case was that for purposes of computing the deduction under Section 80HHC the entire sum of Rs. 25,81,604, being the profits and gains of the assessee's business must be taken into reckoning. On this basis the assessee made a claim for deduction in a sum of Rs. 6,80,768.
The Assessing Officer, on the contrary, took the line that since the assessee was entitled to a deduction under Section 80-O of the Act also, the aggregate fees of Rs. 25,13,564 received by the assessee from foreign enterprises must be deducted from the profits and gains of the assessee's business, viz., Rs. 25,81,604 and only the balance of Rs. 68,040 must be taken into reckoning for the purpose of deduction under Section 80HHC of the Act. On this basis he computed the admissible deduction at Rs. 32,095.
4. Practicably, the assessee took up the matter to the CIT (Appeals), contending that while computing the deduction admissible to the assessee under Section 80HHC of the Act, the deduction admissible to the assessee under Section 80-O of the Act was not relevant and that the deduction admissible under the former section must be computed without taking into account the deduction admissible under the latter section. The CIT (Appeals) declined to interfere in the matter, observing:
It is admitted fact that the assessee is entitled to benefit of relief under Section 80-O in respect of consultancy receipts. Such receipts do not constitute export of goods on merchandise. The relief under Section 80HHC is liable to be given only for export of goods or merchandise. Consultancy is not merchandise or goods and in any event it has not been argued to be so. The'Assessing Officer's action in excluding the profit from consultancy services is found to be in order and in accordance with the scheme of the Act. The decisions cited on behalf of the assessee are not applicable to the facts of the case. In the result the appeal on this point is dismissed.
5. It is in these circumstances that the assessee is now before us. Shri Balasubramaniam, the learned counsel for the assessee contended that the lower authorities were not justified in restricting the deduction admissible to the assessee under Section 80HHC of the Act. to Rs. 32,095. Taking us through the provisions of Section 80HHC of the Act, he drew our attention to the fact that Section 80HHC(3) defines the term "profits derived from the export of goods or merchandise out of India", He highlighted the fact that the entire focus of this Sub-section is on the profits of the business as computed under the head "Profits and gains of business or profession". If the assessee's business consisted exclusively of the export out of India of the goods or merchandise in question, then the deduction admissible under Section 80HHC would have to be calculated, inter alia, with reference to the profits of the business as computed under the head "Profits and gains of business or profession". Where however the assessee's business consists only partly of such exports, then the deduction admissible would be calculated with reference to the proportionate part of the business income of the assessee computed under the head "Profits and gains of business or profession".
Section 29 of the Act in terms states that "income from profits and gains of business or profession" shall be computed in accordance with the provisions contained in Sections 30 to 43A of the Act. There is thus no warrant for the proposition to reduce the profits and gains of assessee's business (Rs. 25,81,604) by the fees received by it from foreign enterprises (Rs. 25,13,564). The said fees is obviously the subject-matter of deduction under Section 80-O of the Act which has nothing to do with the computation of income under the head "Income from profits and gains of business or profession".
In view of the foregoing, Shri Balasubramaniam contended that the assessee is entitled to succeed.
6. On his part, Shri Argal, the learned Departmental Representative, supported the impugned orders of the lower authorities.
7. We have looked into the facts of the case. We have heard the rival submissions. As we see it, the points urged by Shri Balasubramaniam on behalf of the assessee are well taken.
8. The scheme of the Act in matters relating to the computation of the total income of the assessee is, in substance, as follows :
(i) All the incomes of the assessee must first be identified.
(ii) Secondly, incomes which by virtue of the provisions of Chapter III do not form part of the income of the assessee must be excluded.
(iii) Thridly, the taxable income of the assessee must be classified under the six heads listed under Section 14, taking care to compute the income under each head in accordance with the provisions applicable to each of the six heads.
(iv) Fourthly, the provisions of Chapter V of the Act dealing with income of other persons which are to be included in the assessee's total income will have to be given effect to.
(v) Thereafter the provisions of Chapter VI relating to aggregation of income and set off or carry forward of loss must be applied.
At this stage we get what Section 80B(5) calls "gross total income.
(vi) Then the provisions of Chapter VI-A will have to be applied.
(vii) The resultant figure is the total income of the assessee which is chargeable to tax.
9. The following principles may be deduced from the foregoing scheme of the Act :
(a) Total income as computed in accordance with the provisions of the Act is the aggregate of the incomes computed under the six heads listed in Section 14 and in accordance with the respective provisions of the Act, as increased or, as the case may be, decreased, in accordance with the other provisions of the Act.
(b) The computation of the gross total income (within the meaning of Section 80B(5) of the Act) of the assessee marks the penultimate stage of computing the assessee's taxable income.
(c) The exercise of ascertaining the assessee's income under the six heads listed in Section 14 comes first. By the same token, it is separate and distinct from the exercise of ascertaining both the gross total income (within (he meaning of Section 80B(5) of the Act) and the total income of the assessee.
It will atonce be clear from the foregoing that the lower authorities misdirected themselves in law when they held that for purposes of computing the deduction admissible to the assessee under Section 80HHC of the Act, the fees received by the assessee from foreign enterprises which is the subject-matter of deduction under Section 80-O of the Act must be deducted from the assessee's income under the head 'Profits and gains of business'. We, therefore, set aside the orders of the authorities below on this issue and direct the Assessing Officer to recompute the deduction admissible to the assessee under Section 80HHC of the Act by taking into account the sum of Rs. 25,81,604 being the assessee's income under the head "Profits and gains of business or profession".
10. Issue No. 2 : Deduction under Section 80-1 The assessee was also eligible for deduction under Section 80-1 of the Act. As in the case of the deduction admissible to the assessee under Section 80HHC of the Act, so in the case of the deduction admissible to the assessee under Section 80-1 of the Act, the Assessing Officer reduced the profits and gains of the assessee's business (Rs. 25,81,604) by the fees received by it from foreign enterprises (Rs. 25,13,564) and allowed deduction under Section 80-1 of the Act only in respect of the balance. The CIT (Appeals) declined to interfere in the matter holding that "the assessee cannot derive double benefit in respect of the same receipt".
11. For the reasons discussed in detail under issue No. 1, we allow the assessee's claim. In this regard we may point out that the case before us is really not one of "double benefit in respect of the same receipt", as held by the CIT (Appeals). As a matter of State policy Chapter VI-A Incorporates various concessions in the form of deductions etc. If a particular item of income is eligible to deduction under more than one section of Chapter VI-A, it cannot be held that the assessee is getting double or multiple benefit. What is required to be seen is whether the assessee satisfies the pre-conditions prescribed under various sections of Chapter VI-A. If the assessee satisfies those conditions, then the benefit cannot be denied.
Secondly, Chapter VI-A, or for that matter the Income-tax Act, does not contain any provision stipulating that the assessee cannot get deductions in respect of the same receipt under more than one section of Chapter VI-A. The only limitation that has been incorporated in Chapter VI-A is Section 80A(2) which says that the aggregate amount of deductions under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee [as defined in Section 80B(5)].
12. We, therefore, allow the assessee's claim and direct the Assessing Officer to re-compute the deductions admissible to the assessee under Section 80-1 of the Act.
13 to 23. [These paras are not reproduced here, as they involve minor issues.]