2019 (3) TMI 570 - AT - Income Tax

Tribunal favors Revenue in tax deduction case, clarifies Section 80RR interpretation

The tribunal ruled in favor of the Revenue, emphasizing deductions based on net income rather than gross receipts for claiming benefits under Section ... Revision u/s 263 - AO passed the revised order restricting the claim u/s 80RR - treating the whole gross receipts of foreign income earned from foreign sources so as to grant deduction u/s. 80RR - HELD THAT:- There is no justification for treating the whole gross receipts of foreign income instead of gross total income earned from foreign sources so as to grant deduction u/s. 80RR. The gross foreign receipts were accounted by the assessee and from that, net foreign income is to be ascertained and thereafter, deduction u/s. 80RR is to be granted at specified rate. The expenses considered by the AO is to be deducted from the gross foreign receipts. The contention of the assessee that gross foreign receipts is to be considered so as to grant deduction u/s. 80RR of the Act is devoid of merit. The foreign income represented net income received and deposited into Bank account and it is not gross foreign receipts. Reliance is placed on the judgment of the Supreme Court in the case of CIT vs. P.K. Jhaveri [1989 (11) TMI 1 - SUPREME COURT] wherein it was held that deduction u/s. 80K of the Act was allowable to the assessee only on the amount after deduction of the interest paid on moneys borrowed specifically for investment in the shares and not on the gross amount received. We place reliance on the judgment in the case of Industrial Consulting Bureau Pvt. Ltd. vs. CIT [1991 (3) TMI 129 - BOMBAY HIGH COURT] wherein it was held that relief u/s. 80M has to be allowed on net income and not on gross income. The same view was taken by the Rajasthan High Court in the case of Mahavir Kumar Jain vs. CIT [2004 (9) TMI 72 - RAJASTHAN HIGH COURT] with regard to deduction u/s. 80TT. We find that there is no force in the argument of the Ld. AR and the case law relied on by him and it cannot be applied to the assessee’s case. Hence, this ground of appeal of the Revenue is allowed. Issues:1. Disallowance of deduction u/s 80RR for foreign income.2. Interpretation of provisions under Section 80AB and Chapter VIA.3. Maintainability of Revenue's appeal due to low tax effect.Issue 1: Disallowance of deduction u/s 80RR for foreign income:The case involved the disallowance of deduction u/s 80RR for professional income from foreign sources. The assessee argued that the deduction should be allowed on the entire amount brought to India in convertible foreign exchange. The CIT(A) referred to a similar case and allowed the deduction on the full amount brought to India, disregarding the expenses incurred abroad. The Revenue appealed, contending that the deduction should be based on net foreign income after deducting expenses. The tribunal ruled in favor of the Revenue, citing precedents where deductions were allowed on net income, not gross receipts.Issue 2: Interpretation of provisions under Section 80AB and Chapter VIA:The interpretation of Section 80AB and Chapter VIA was crucial. The CIT(A) held that Section 80AB only pertains to the nature of income, not the quantum, for claiming deductions under Chapter VIA. The assessee argued that deductions should be made from gross total income before computing total income. The tribunal disagreed, emphasizing deductions from net income rather than gross receipts. Various court judgments were cited to support this interpretation, reinforcing that deductions should be based on net income, not gross.Issue 3: Maintainability of Revenue's appeal due to low tax effect:The Revenue's appeal was challenged on the grounds of low tax effect. The tribunal noted the direction of the Jurisdictional High Court and decided the appeal on its merits. The assessee argued for deduction based on income brought into India in convertible foreign exchange as per Sec. 80RR. The tribunal upheld the Revenue's appeal, emphasizing deductions on net income and dismissing the Cross Objection as infructuous.In conclusion, the tribunal ruled in favor of the Revenue, highlighting the importance of deductions based on net income rather than gross receipts for claiming benefits under Section 80RR. The judgment provided a detailed analysis of relevant legal provisions and court precedents to support its decision, ensuring clarity on the interpretation of tax laws in the context of foreign income deductions.