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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

M/s. Tata Unisys Limited 216­A, Dr. A. B. Road, Worli, Mumbai 400 025. v/s. Commissioner of Income Tax Bombay City­IIIMumbai.

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INCOME TAX REFERENCE NO. 61 OF 2000

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Itr-61-2000

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Applicant.

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Respondent.

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Mr. Sunil Lala with Ms. Nikita Panhalkar and Ms. Rajshree Lala, for the  Applicant. None for the Respondent.

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CORAM:  M.S.SANKLECHA, &       S.C.GUPTE, JJ.     RESERVED ON   : 30th  SEPTEMBER, 2016. PRONOUNCED ON : 13th OCTOBER, 2016.

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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

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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

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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   80­O   was   not   allowed   on   the   gross receipts,but only on that part of receipts which form part of the total income of the assessee?”.

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This Reference relates to Assessment Year 1985­86.

S.R.JOSHI

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Brief facts:­ The controversy giving rise to the above question as set out in the

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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:

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“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   1982­83   considered   the   claim   of quantum of deduction under section 80­O i.e. gross or in the manner laid down under Section 80­AB of the Act by referring to the   Supreme   Court   decision   in   Distributors   (Baroda)   P.   Ltd. (supra) where the provisions of section 80­AB were considered specifically. Despite the fact that the provisions of Section 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   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 80­O 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 pro­rata manner against the income exempted under section 80­O 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   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 80­AB. 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

S.R.JOSHI

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under section 80­HHA and 80­HHB and held the section80­AB was   in   applicable   for   calculating   deduction   under   section   80­ HHA and 80 HHB. Section 80­O 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   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. Sub­section (3) of section 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 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 sub­section (1), the deduction under that sub­section 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 80­O suggests that the gross   total   income   of   the   assessee   should   include   income   for which   deduction   is   allowable   under   section   80­O.   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

S.R.JOSHI

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amount received in convertible foreign exchange. Whatever be the quantum of deduction to be arrived at under section 80­O the   quantum   of   deduction   to   be   allowed   has   been   further restricted by the provisions contained in section 80­AB 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 80­AB which has been considered by the Tribunal in the case of the assessee   for   the   assessment   year   1982­83.   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 80­AB of the Act.”

3. For   the   assessment   year   1982­83   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)

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The   Reference   made   by     the   Tribunal   in   relation   to

Assessment Year 1982­83 being Income Tax Reference No.5 of 2000 on an identical   question   by   the   Tribunal,   was   returned   un­answered   on   30 th April, 2015. This was for the reason that none appeared on behalf of the Applicant­Assessee. Mr. Lala, learned Counsel for the Applicant­Assessee states that in view of small tax effect, the Applicant­Assessee is not taking S.R.JOSHI

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out any application for restoration of Income Tax Appeal No.5 of 2000.

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However, the above order dated 30 th  April, 2015 itself clarified that the questions raised therein are left open for consideration in an appropriate Reference is being independently considered. 6

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case,   if   not   already   decided.   Therefore,   the   question   raised   in   this

From   the   statement   of   case   as   set   out   hereinabove,   the

controversy revolves around the extent of availability of deduction under Section 80­O of the Act, viz. whether the deduction under Section 80­O of

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the Act is to be allowed on gross or on net basis. The contention of the Applicant­Assessee as evidenced from the statement of case was that the deduction should be allowed on gross basis i.e.   de­hors the provisions of

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Section 80­AB 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   80­AB   of   the   Act   while   computing   the   deduction

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allowable under Section 80­O 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

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when this Reference was made on 26th  August, 1996 for the Assessment Year 1985­86, the issue whether deduction under Section 80­O of the Act is to be allowed on gross or net basis (on an application of Section 80­AB

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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 80­O 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 S.R.JOSHI

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payment of additional taxes due to restricting the benefit of Section 80­O

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of the Act while doing adjustment under Section 143 (1)(a) of the Act.

The   Assessing   Officer,   while   making   adjustment,   sought   to   restrict   the

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benefit of Section 80­O of the Act only to net receipts, i.e. after reducing

the expenses incurred to earn that (Section 80­O) income. The Apex Court held that at the relevant time, i.e. during the Assessment Years 1996­97 and 1997­98, in view of conflicting interpretation in respect of section 80­ O of the Act, prima facie, adjustment to restrict a claim under Section 80­

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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   80­O   of   the   Act   only   in  CIT   v/s.   Asian   Cable

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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 80­AB of the Act. It may be pointed out that the Apex Court in  A. M. Moosa

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v/s.   CIT   294   ITR  1   has   held   that   Section   80­AB   of   the   Act   has   an overriding   effect   over   all   Sections   of   Chapter   VI­A   of   the   Act.   Un­ disputedly, Section 80­O of the Act is part of Chapter VI­A of the Act and,

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therefore, would be governed by Section 80­AB of the Act.  10

Therefore, we were of the view that issue stands concluded in

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favour of the Respondent­Revenue by virtue of the decision of this Court in Asian Cable Corporation ltd., (supra). 11

However,   Mr.   Lala,   learned   Counsel   appearing   for   the

Applicant­Assessee contends that the issue here is not gross or net income which is allowable for deduction under Section 80­O of the Act, but the issue is whether the income could be reduced by expenditure determined on pro­rata method on notional basis to restrict the claim for deduction. S.R.JOSHI

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In support, learned Counsel invites our attention to the statement of case

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which   records   the   fact   that   the   Tribunal   upheld   the   deduction   under Section 80­O of the Act, after deducting corporate expenses in terms of

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Section 80­AB 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

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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. 1982­83,

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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/

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directions, the Applicant­Assessee filed a Reference being Reference No.5 of 2000. This on the basis that Section 80­AB of the Act would not be applicable for the purpose of computing deduction under Section 80­O of the Act. In the subject Assessment Year, the statement of case does not

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state   that   expenses   were   allocated   in   a   pro­rata   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 80­AB of the

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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   1982­83   and   only   with   a   view   to   maintain consistency.   The   attempt   on   the   part   of   the   Applicant­Assessee   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 pro­rata basis S.R.JOSHI

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but the issue is whether deduction has to be allowed on the basis of the

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gross   receipts   or   on   that   part   of   the   receipts   which   form   part   of   total

income of the Applicant­Assessee, i.e. on application of Section 80­AB of

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the Act.

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, re­frame the question so as to clear some question arises in this case. 14

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ambiguity or bring out the real dispute. No such occasion to re­frame the

In the above view, the question as raised at the instance of

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the Applicant­Assessee  by the Tribunal is answered in the affirmative i.e. against the Applicant­Assessee and in favour of the Respondent­Revenue. This   in   view   of   the   decision   of   this   Court   in   Asian   Cable   Corporation

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(supra). 15

Reference disposed of  in the above terms. No order as to

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costs.

(M.S.SANKLECHA,J.) 

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     (S.C.GUPTE,J.) 

S.R.JOSHI

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Page 1 of 8. TATA MEMORIAL CENTRE. (A GRANT-IN-AID INSTITUTE UNDER DEPARTMENT OF ATOMIC ENERGY, GOVT. OF INDIA). Advt.No.42/2018 03.04.2018. POSITIONS AVAILABLE. The Tata Memorial Centre (TMC) is a Comprehensive Cancer Centre with a mission to achiev

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IN THE HIGH COURT OF DELHI AT NEW DELHI. Date of Decision: April 12,2017. + W.P.(C) 2924/2014. SARIN MEMORIAL LEGAL AID FOUNDATION ..... Petitioner. Versus. STATE OF PUNJAB & ORS. ..... Respondents. + W.P.(C) 2999/2014 & CM No.9439/2014. AALOK JAGGA

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