Bombay High Court
Tata Unisys Ltd. (Formerly Tata ... vs Deputy Commissioner Of Income Tax. on 31 May, 1993
Equivalent citations: (1993)47TTJ(MUMBAI)8
ORDER
N. R. PRABHU, A. M. :
The first ground of appeal in this case is that the Commissioner (A) was in error in upholding the order of the Assessing Officer allowing a deduction under S. 35B against income exempt under S. 80-O of the IT Act. We have heard the parties to the dispute. The Assessing Officer in his assessment order had computed the deduction admissible under S. 80-O by deducting from the gross receipt depreciation, loss of corporate office and deduction under S. 35B amounting to Rs. 5,05,054. As against the gross receipt of Rs. 1,70,54,437 the deduction computed by him was of a sum of Rs. 1,49,00,279. We may not fault the Assessing Officer for following the procedure adopted by him to compute the admissible deduction under the provisions of S. 80-O. This is in view of the clear provisions of S. 80AB, which read as under :
"80AB. Where any deduction is required to be made or allowed under any section (except S. 80M) included in this Chapter under the heading C-Deductions in respect of certain income 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 the 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."
In short, what is required is that the income with reference to which S. 80-O deduction is to be allowed has to be computed in the manner laid down in the Act, i.e., by deducting from the gross receipts all expenditure and other deductions admissible for earning that income. This, we find, is precisely the procedure followed by the Assessing Officer. We fail to appreciate how the assessee would be disentitled to claim a deduction under S. 35B against its business income. Sec. 35B speaks of weighted deduction in respect of certain expenditure, which has been incurred on export promotional activity as elaborated in various sub-clauses of cl. (b) of sub-s. (1) of S. 35B. There is no bar in the statute against deduction of this expenditure even if the income derived and for the earning of which these items of the expenditure could be attributed, is exempt from income-tax either in full or in part. This view of ours, which we have gathered on a plain reading of the provisions of S. 35B is supported by the decision of the Madras High Court in CIT vs. R. Narayana Rao (1984) 146 ITR 310 (Mad). We, therefore, direct the Assessing Officer to allow the claim of the assessee for weighted deduction under S. 35B, which has been accepted by him in the computation of deduction admissible under S. 80-O at Rs. 5,05,054.
2. The second ground, which is against the claim of the assessee for relief under S. 91(1), was not pressed at the time of appeal hearing.
3. The assessee was allowed to raise an additional ground of appeal and this additional ground reads as under :
"The learned Assessing Officer failed to appreciate that for the purpose of computing deduction under S. 80-O, S. 80AB was not applicable and the deduction was available with reference to the convertible foreign exchange received in India."
Here again, we have heard the parties to the dispute and we feel that there is no merit in this ground of appeal. The assessee has, no doubt, pressed into service some decisions of the Tribunal, which indirectly lend support to the contention of the assessee that the deduction under S. 80-O has to be on the gross revenue and not after adjusting the same in the manner laid down under S. 80AB of the IT Act. The provisions of S. 80-O and other related provisions like S. 80M are couched in similar language. These provisions have been interpreted by the Courts and the Tribunal in the light of the provisions of S. 80AB of the IT Act. The refrain of the Court and the Tribunal decisions is to the effect that for granting a deduction whether under S. 80M, 80MM, etc., the income included in the gross total income has to be regarded as the income computed in the manner laid down in the Act or in other words the income determined after deducting from the same expenses incurred wholly and exclusively for the purposes of earning that income. The Supreme Court in the case of Distributors of Baroda vs. Union of India (1985) 155 ITR 120 (SC) had an occasion to consider these provisions. Such an occasion arose even before the provisions of section 80AB were inserted in the statute book. There the Supreme Court was concerned about the quantum of deduction to be allowed under S. 80M of the IT Act. The Court, after elaborate discussion, came to the conclusion that it would be difficult to imagine any reason why the legislature should have intended to give relief with reference to the full amount of dividend received from the paying company, when that is not the amount which was liable to suffer tax in the hands of the assessee. The claim before the Supreme Court in that case was that relief under S. 80M was to be worked out on the basis of the gross dividend income and this was the claim that was negatived by the Supreme Court. As observed earlier, the provisions of S. 80AB were not available in the statute book at the relevant time. Even so, the Supreme Court thought it fit to take a view not favourable to the assessee. The contention of the learned counsel for the assessee that if the provisions of S. 80AB were held to be applicable while computing the relief admissible under S. 80-O, the same would lead to anomalous results has merely to be stated to be rejected. In this connection, the assessee, no doubt, has invited our attention to the provisions of S. 155(12) of the IT Act, which is intended to take care of a situation where the relief under S. 80-O was not granted in any particular year on the ground that such income has not been received in convertible foreign exchange in India or have been received in convertible foreign exchange outside India or having been converted into convertible foreign exchange outside India has not been brought into India and subsequently such income or part thereof has been or is received or brought to India. The argument of the assessee in this connection, has been that where amounts are received in foreign exchange either in piece-meal or instalments spreading to over a period of several years, quantification of relief under S. 80-O would be unworkable. We feel that the provisions of S. 155(12) were not enacted with a view to giving relief under S. 80-O in a piece meal fashion or in instalments. According to us, the relief under S. 80-O could be allowed in the year in which the income has accrued. But if for reasons of non-receipt of such income in convertible foreign exchange relief has been denied, the same could be allowed under S. 155(12) in the year relevant after the receipt of the amounts in foreign exchange. We fail to understand how this S. 155(12) could be pressed into service in support of the contention that while computing the relief under S. 80-O the provisions of S. 80AB have to be totally ignored. The difficulty contemplated by the assessee, to our mind, does not exist. If the intention of the legislature was to allow relief with reference to the gross income nothing prevented the legislature from enacting suitable provisions to that effect. The statute, in fact, has made an exception in the provisions of S. 80AB by excluding therefrom S. 80M of the IT Act. The reason why S. 80M was excluded may be for the purpose of giving the deduction under that section in a particular manner with retrospective effect. But this is clearly indicative of the fact that the provisions of S. 80AB have to be applied in respect of all the sections contained in Chapter VIA of the IT Act. We, in the circumstances, see no reason to allow this claim of the assessee.
4. It has also been claimed in the additional ground that the losses of the corporate office are not liable to be apportioned against the income with reference to which deduction under S. 80-O is to be granted. This is a matter which has not been considered by the Revenue authorities. There is some substance in the claim of the assessee that the entire losses of the corporate office, which are mostly made up of expenses debited to its revenue account, may not be liable to be allocated in pro rata manner against income exempted under S. 80-O and S. 80AB of the IT Act. Only those expenses/losses could be adjusted against the income exempt under the Act which have nexus to the earning of the income. This is an exercise which has not been gone through by the Assessing Officer and for this limited purpose we shall restore the matter to the file of the Assessing Officer. The allocation of corporate expenses shall be made after going into their details and after determining whether the expenses had any nexus to the earning of exempted income. The contention of the assessee, however, based on several decisions of the Courts including one of the Apex Court that where the business of an assessee comprises various activities and income from some of the activities is not liable to tax it was not permissible to allocate expenses on management to income from activity not liable to tax has to be rejected. We feel that it would suffice if we refer only to the decision of the Apex Court in the case of CIT vs. Maharashtra Sugar Mills Ltd. (1971) 82 ITR 452 (SC). In that case the Supreme Court had held that the entire managing agency commission had to be allowed as a deduction in computing the profits of the assessee exigible to income-tax. In that case, the assessee had also income from agriculture, which formed miniscule percentage which was not taxable, and the ITO had held that the part of the managing agency commission paid by the assessee was attributable to income which was exempt from tax. The Supreme Court, no doubt, decided the issue in favour of the taxpayer only for the reason that the managing agency commission was held to be expenditure incurred wholly and exclusively for the purpose of the business. In this case, the assessee has diverse business activities. Some of the activities yield income which is exempt from tax. To determine the exempted income, it would be necessary for the Assessing Officer to allocate expenses incurred by the assessee on various activities depending on whether such expenses had some nexus to the earning of the income or not. The decision relied upon by the assessee in this connection would not in any way advance its case.
5. In the result, the appeal is allowed in part.