Full Judgment
These cross appeals are filed against the order of the Commissioner (Appeals)-XLII at Mumbai dated 21-11-2000. These appeals arise out of the assessment completed under section 143(3) of the Income Tax Act, 1961.
At the time of hearing, a concise ground of appeal has been filed by the assessee with reference to its appeal. The appeal filed by the assessee is, therefore, disposed of on the basis of the said concise grounds of appeal.
'The learned Commissioner (Appeals) has erred in law and in facts in confirming the restriction of claim of deduction under section 80-0 of the Income Tax Act, 1961 to Rs. 1, 19,07,992 against the appellant's claim of Rs, 1,43,96,775. The learned Commissioner (Appeals) further erred in restricting the deduction under section 80-0 of the Act to the business income instead of gross total income.
In the previous year relevant to the assessment year under appeal, the assessee had rendered services and realized foreign exchange eligible for the benefit under section 80-0 of the Income Tax Act, 1961. In its computation of income, the assessee has claimed a deduction of Rs. 1,43,96,775 under the above provision. But the assessing officer found that the assessee has claimed the benefit of deduction on the basis of the gross receipts and the assessee has not reduced therefrom the proportionate expenses. The assessing officer thereafter worked out the expenditure deductible from the gross amounts and computed the eligible amount under section 80-0 at Rs. 1,19,07,992. The above eligible amount is worked out at 50 per cent of the qualifying amount as provided under section 80-0.
Even though the eligible deduction was worked out at Rs. 1, 19,07,992, the effective deduceion allowed by the assessing authority was restricted to Rs. 1,05,52,014. As per the computation of income made by the assessing authority, the income computed under the head "profits and gains of business or profession" was Rs. 1,05,52,014. The assessing officer was of the view that the deduction under section 80-0 could be given to an assessee only against income from business. In the present case, income from business is Rs. 1,05,52,014, whereas the eligible amount under section 80-0 was Rs. 1,19,07,992. Therefore, according to the assessing authority, the full amount eligible for deduction under section 80-0 could not be absorbed by the business income computed in the hands of the assessee and, therefore, he restricted the deduction under section 80-0 to the available business income of Rs, 1,05,52,014.
The first ground is raised by the assessee in the above context. Shri Vijay Mehta, the learned Chartered Accountant for the assessee-company, submitted that he is not seriously pressing the ground raised by the assessee regarding the computation of the amount eligible for deduction under section 80-0. We also find force in the computation made out by the assessing officer in his order. Therefore, we uphold the working of the assessing authority on the eligible amount available for deduction under section 80-0 at,Rs. 1, 19,07,992 as against the claim of Rs. 1,43,96,775 made by the assessee-company. Accordingly, the first limb of the first ground is decided against the assessee.
The next point to be considered is the second limb of first ground raised by the assessee. The second limb is that the assessing authority should have given deduction for the entire amount of Rs. 1, 19,07,992 worked out by the assessing authority himself. The assessing officer should not have restricted the deductible amount to the business income of the assessee-company, which was Rs. 1,05,52,014. In short, the question is whether an amount of Rs. 1, 19,07,992 or Rs. 1,05,52,014 is to be allowed as deduction under section 80-0.
Shri Vijay Mehta, the learned Chartered Accountant, contended that section 80-0 provides for deduction in respect of royalties etc. from certain foreign enterprises. He submitted that the said deduction is provided under Chapter VI-A. The said Chapter provides for deductions to be made in computing total income of an assessee. The learned Chartered Accountant relied on the provisions contained in section 80A(1). He submitted that the said section provides that the deductions specified in section 80C to section 80U are available from gross total income of an assessee. The only restriction made out is that the aggregate amount of the deductions under Chapter VI-A shall not in any case exceed the gross total income of the assessee. The learned Chartered Accountant submitted that it is specifically mentioned in section 80-0 that the deduction is available from the gross total income of the assessee. The only condition is that the gross total income of the assessee should include such receipts, which are eligible for deduction under section 80-0.
Shri Mahesh Kumar, the learned D.R., on the other hand, submitted that the deduction under Chapter VI-A is, subject to the provisions contained in section 80AB. Deductions in respect of certain incomes are provided under the heading "C", under Chapter VI-A. The provisions contained in section 80AB stipulate that the deductions in respect of those incomes should not exceed the income to which it belonged. He submitted that in the present case, the income computed as eligible to be deducted under section 80-0 has been derived out of the business carried on by the assessee-company. He, therefore, submitted that even though the deduction is available under section 80-0, which is under Chapter VI-A, the said income is the business income of the assessee-company. Therefore, the deduction under section 80-0 cannot exceed the business income of the assessee- company. The learned D.R.submitted that in the present case the business income of the assessee-company is Rs. 1,05,52,014, whereas the eligible amount under section 80-0 is Rs. 1,19,07,992. He submitted that even though the eligible amount is higher than the business income, the deduction has to be restricted to the business income of the assessee. This is because of the intervention of the provisions contained in section 80AB. He submitted, therefore, that the assessing officer is justified in restricting the deduction under section 80-0 to the amount of Rs. 1,05,52,014.
We considered the matter in detail. The deductions provided under Chapter VI-A are available from the gross total income of an assessee.
This legal proposition is very clear in the plain language used in section 80A(1). The only condition with reference to the deductions available from the gross total income is that the aggregate amount of the deductions should not exceed the gross total income as such. The deduction under section 80-0 is available to the assessee by virtue of Chapter VI-A. The deduction under section 80-0 is to be read in the light of the provisions of law contained in section 80A. There is nothing in those sections to provide that the amount available for deduction under section 80-0 should be limited to the business income of an assessee. If the gross total income of the assessee includes income from such receipts as specified in section 80-0, deduction is available. As far as section 80-0 is concerned, reference is made to the gross total income of the assessee and not to any particular head of income. Section 80-0 does not provide for the classification of the income under any particular head. There is no mention that the income considered under section 80-0 is that of the business income of the assessee- company.
Sections 80AA and 80AB have been introduced by the Finance (No. 2) Act, 1980. In the light of the introduction of the above two new provisions, the Central Board of Direct Taxes has issued a Circular No. 281, dated 22-9-1980 explaining the intents and purpose thereof ( 131 ITR (St.) 4). As explained in the said Circular, section 80AA has been brought under Chapter VI-A to get over the difficulty caused by the ruling of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT (1979) 118 ITR 243 (SC), where the Supreme Court held that the deduction admissible for the inter-corporate dividends has to be calculated with reference to the gross amount of dividends received by a domestic company from an Indian company and not with reference to the dividend income as computed in accordance with the provisions of the Income-Tax Act. Although the issue before the Supreme Court in Cloth Traders (P.) Ltd's case (supra) was in respect of concessional tax treatment of inter-corporate dividends only, the Supreme Court has specifically referred to the provisions of some of the other sections contained in Chapter VI-A of the Income Tax Act, The Supreme Court has in respect of such other sections observed that on a plain reading of these sections, it appears that the deduction admissible is in respect of the gross amount of income received by the assessee and not in respect of -the net income computed after making the deductions provided in the Income Tax Act. It is for that purpose of the Finance Act has inserted section 80AB to provide that, for the purpose of calculating the deductions, the net income as computed in accordance with the provisions of the Income Tax Act alone be regarded as the income which is received by the assessee and included in the gross total income. Therefore, the provisions of section 80AB do not come in the way of the claim of the assessee that the deduction under section 80-0 should be available to the assessee from the gross total income and there is no need to restrict the deduction to the business income of the assessee. Section 80AB is inserted for the purpose of limiting the deduction under Chapter VI-A to the true income element of the receipt and not for the gross amount of the receipt.
Therefore, we find that the assessing officer is not justified in restricting the deduction under section 80-0 to the business income of the assessee. As the gross total income of the assessee-company is more than the amount deductible under section 80-0, the entire amount of deduction computed by the assessing officer need to be allowed as a deduction. Therefore, we direct the assessing authority to give deduction to the assessee under section 80-0 for the amount of Rs. 1,19,07,992 as computed by the assessing authority himself.