Income Tax Appellate Tribunal - Mumbai
Tata Unisys Ltd. vs Deputy Commissioner Of Income Tax on 26 February, 1996
Equivalent citations: [1996]58ITD334(MUM)
ORDER
A. Kalyanasundharam, A.M.
1. The assessee, a limited company, has filed this appeal against the order of the CIT(A) and has raised four grounds.
2. Ground No. 4 concerning the CIT(A)'s refusal to admit the ground of cash compensatory support of Rs. 20,00,000 received from the Government of India was not pressed during the hearing and accordingly this ground is dismissed.
3. In so far as ground No. 1 is concerned, i.e., salary to the drivers and vehicle taxes should not be considered for purpose of disallowance under s. 37(3A), we have been consistently taking the view that salary paid to the drivers as well as motor car taxes are allowable under s. 37 and accordingly these could be considered for purpose of disallowance under s. 37(3A). We accordingly confirm the disallowance in so far as it relates to salary of drivers and motor car taxes.
4. The second issue relates to disallowance by applying the provisions of s. 37(3A) r/w s. 37(3B) (iii) treating the amounts expended by the employees of the company while carrying on the functions relating to the company's affairs out of India as payment to hotels. The amount that has been considered for disallowance is Rs. 16,93,675. The learned counsel for the assessee, Mr. Patil submitted that the assessee which is engaged in the activity of export of software to USA and in this connection, had deputed its employees to work in the premises of its customers and all expenses in this regard especially cost of their lodging are met by the customers in USA. To the extent of the daily allowance that was paid to them was in accordance with the approval of the RBI and that the employees, no doubt, utilise part of it for meeting their expenses on lodging in a hotel. He submitted that the disallowance that is referred to in the section is all payments made by the company and not payments made by the employees of the company and, therefore, no part of it could be disallowed. The Departmental Representative relied on the orders of the authorities below. On this issue we have to observe that s. 37(3B) refers to expenditure incurred on payments made to hotels. Sec. 37(3A) is with reference to disallowance of expenditure in the hands of a company in determining the income of the company under the head income from profit and gains of business or profession. As far as the company is concerned, the company has paid the daily allowance as permitted by the RBI to its employees during the period when the employees were staying out of India. The amount that has been paid by the company to its employees being in accordance with the RBI's approval, no part of it could be stated as payment to hotels by a company. Further, as observed earlier, in so far as the company is concerned it has to abide by the approval of the RBI and how the employees utilise it during their stay outside India is no consideration of the company. Therefore, the AO cannot assume that it is indirect payment to hotels and the disallowance is accordingly deleted.
5. The third issue relates to the quantum of deduction with reference to s. 80-O. The learned counsel's submission was to the effect that the deduction under s. 80-O is with reference to the income that is brought into India in convertible foreign exchange and, therefore, the expenditure incurred by the company in India though may be attributable to earning of the foreign exchange, could not be reduced from the income earned from out of India for purposes of calculating the quantum of deduction under s. 80-O. The learned counsel, Mr. Patil, submitted that for the asst. yr. 1982-83 the Tribunal in the case of the assessee in ITA No. 408/Bom/1988 had considered the identical issue and after considering the provisions of s. 80AB had held that the deduction under s. 80-O has to be with reference to the income computed under the Act, which income is included in the gross total income. He submitted that at the time when this decision was taken there was a similar view of the Bombay Tribunal in ITA No. 1849/Bom/1991 for asst. yr. 1986-87 in J. B. Boda & Co. (P) Ltd. vs. ITO, dt. 1st Jan., 1992. He contended that for asst. yrs. 1987-88 and 1988-89 the Bombay Bench 'A' in ITA Nos. 1850 and 1851/B/1991 vide order dated June, 1994, examining all the issues had come to the conclusion that deduction under s. 80-O has to be based on the convertible foreign exchange received in India without deducting therefrom the expenses that have been incurred in India. He referred to the detailed paper book that has been filed and to the decision of the Delhi High Court in Continental Construction Ltd. vs. CIT (1990) 185 ITR 178 (Del) and submitted that the issue is directly concerned with the quantum of deduction. He contended that the Supreme Court in Continental Construction Ltd. vs. CIT (1993) 195 ITR 81 (SC) also referred to the provisions of s. 80-O. The contention of the leaned counsel was that the purpose of s. 80-O is to give benefit to those persons who earn certain incomes from abroad and bring the foreign exchange into India which is very much required by the country. The reference to the words "convertible foreign currency" is with that idea and if the deduction was based on the net income then there was no necessity of using that term except for the purpose that it should be represented by amounts received in foreign currency. He submitted that the later decision in the case of J. B. Boda & Co. (P) Ltd. which took into account the Supreme Court decision in Continental Construction Ltd. (supra) is a proper authority on the subject and the same should be followed. He further submitted that if the Tribunal is not in a position to follow the later decision in J. B. Boda & Co. (P) Ltd. (supra) then considering the fact that there are two views on the subject it would be more appropriate to refer the matter to a larger Bench.
The Departmental Representative, however, submitted that the later decision in the case of J. B. Boda & Co. (P) Ltd. (supra) does not refer to the provisions of s. 80AB while for the asst. yr. 1982-83 in the case of the assessee itself, after reference to the provisions of s. 80AB, it was concluded that the deduction has to be with reference to the income that is computed according to the provisions of the Act. He further submitted that the earlier decision in the case of the assessee refers to the Supreme Court decision in the case of Distributors (Baroda) Private Ltd. vs. Union of India (1985) 155 ITR 120 (SC) where they had brought out the concept of deduction to the intention behind the provisions of ss. 80AA and 80AB and have categorically held that the deduction has to be with reference to the income according to the IT Act. He drew our attention to the decision of the Madras High Court in CIT vs. S. Devraj (1969) 74 ITR 1 (Mad) for the proposition that on the same set of facts Tribunal cannot pass contradictory orders especially when the earlier order of the Tribunal is sub judice before the High Court because of the reference having been granted by it. He submitted that decision of the Delhi High Court and of the Supreme Court in Continental Construction Co. Ltd.'s case (supra) was not concerned with the quantum of deduction but whether the item qualifies for deduction under s. 80-O or 80HHB and, therefore, the two decisions had no occasion to consider the provisions of s. 80AB. He drew our attention to the Kerala High Court decision in K. Nandkumar vs. ITO (1993) 204 ITR 856 (Ker) which was considering the deduction for purpose of s. 80L and they have held that s. 80AB is operative and accordingly it is the net interest on which deduction under s. 80L could he given. He drew our attention to the Karnataka High Court decision in CIT vs. HMT Ltd. (1993) 203 ITR 811 (Kar), especially to the observations that are contained at page 817 where it was held that the deduction under ss. 80J and 80HH has to be with reference to the income computed and not with reference to the commercial profits. He submitted that the Orissa High Court in CIT vs. Agency Marketing Co-operative Society Ltd. (1993) 201 ITR 881 (Ori) was concerned with the deduction to be given under s. 80P and it was held that the deduction has to be with reference to the profit and gains attributable to the activities and that s. 80AB aims at ensuring that the deduction does not exceed the net income under a particular source.
6. The rival submissions in regard to the above have been very carefully considered. The Tribunal in the case of the assessee for the asst. yr. 1982-83 considered the claim of quantum of deduction under s. 80-O, i.e., gross or in the manner laid down under s. 80AB of the Act by referring to the Supreme Court decision in Distributors (Baroda) (P) Ltd. (supra) where the provisions of s. 80AB were considered specifically. Despite the fact that the provisions of s. 80AB 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 s. 155(12) of the Act and observed that those 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 s. 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 ss. 80-O and 80AB 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 (AO) had not carried out that exercise the matter was remanded back to the file of the AO to carry out such exercise. The decision of the Tribunal in J. B. Boda & Co. (P) Ltd. of June 1994 refers to the decision of the Supreme Court in Continental Construction Ltd. (supra), but does not refer to the provisions of s. 80AB. It referred to the earlier decision in the case of Boda & Co., the decision of the Supreme Court in Distributors (Baroda) (P) Ltd. (supra) and to the decision of the Tribunal in Expo Machinery Ltd. vs. IAC (1989) 31 ITD 41 (Del) which was concerned with the deduction under ss. 80HHA and 80HHB and held that s. 80AB was inapplicable for calculating deduction under ss. 80HHA and 80HHB. Sec. 80-O states - where the gross total income of an assessee being an Indian company..... includes any 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. Sec. 80HHB 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-s. (3) of s. 80HHB 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 any an accountant, etc. etc. and the assessee furnishes a certificate form the auditor in the prescribed form, 50 per cent of the profits and gains so referred earlier is debited to the P&L a/c 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 cl. (ii) or the amount brought into India by the assessee in pursuance of cl. (iii) or each of the said amounts is less than 50 per cent of the profits and gains referred to in sub-s. (1), the deduction under that sub-section shall be limited to the amount so credited in pursuance of cl. (ii) or the amount so brought into India in pursuance of cl. (iii), whichever is less. The reading of s. 80-O suggests that the gross total income of the assessee should include income for which deduction is allowable under s. 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 amount received in convertible foreign exchange. Whatever be the quantum of deduction to be arrived at under s. 80-O, the quantum of deduction to be allowed has been further restricted by the provisions contained in s. 80AB of the Act which states specifically that notwithstanding anything contained in the section which talks of deduction under Chapter VI-A, 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 s. 80AB which has been considered by the Tribunal in the case of the assessee for the asst. yr. 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 s. 80AB of the Act.
7. In the result, the appeal is allowed in part.