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2016 (12) TMI 1293
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....ject Reserve during the pendency of the appeal should not be considered for computing the deduction under Section 80HHB ? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the sum of Rs. 47,30,951/( being the amount deducted under 80HHB) and Rs. 5,59,919/( being the weighted deduction allowed under Section 35B) were to be excluded in arriving at the figure of doubly taxed income for the purpose of computing the DIT relief under Section 91? (iii) (a) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the tax paid in Saudi Arabia on which no DIT relief could be claimed was not allowable as deduction in computing the income under the provisions of the Income-Tax Act; and (b) whether the Tribunal erred in not following its decision in the assessee's own case for the assessment year 1979-80. 2. This Reference relates to Assessment Year 1983-84. Regarding question;- (i) :(a) The applicantassessee during the previous year relevant to the assessment year 198384 executed some projects in Saudi Arabia. Consequent to the above, on the profits and gain....
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....r Section 800 of the Act was rejected by the CBDT only in March 1986. Therefore during the pendency of its appeal before the Tribunal, the applicant-assessee transferred a sum of Rs. 50 lakhs from its General Reserve Account to the Foreign Project Reserve Account. The Tribunal by the impugned order dated 11th November, 1996 dismissed the appeal of the applicant-assessee holding that on reading of Section 80HHB of the Act, it is clear that deduction is allowable in terms of clause 3 thereof only on the assessee satisfying the conditions set out therein. One of the conditions specified in clause 3(ii) of Section 80 HHB of the Act requires crediting its profits to the Foreign Project Reserve Account which can be utilized for a period of five years next only for purposes of its business other than for distribution by way of dividends or profits. Therefore the creation of Reserve after the expiry of five years period provided in Section 80HHB of the Act does not amount to satisfaction of the conditions specified therein. (e) Consequent to the above, on an application of the applicant assessee the question no. 1 as formulated herein above, is referred to us by the Tribunal. (f) ....
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....year relevant to subject assessment year and utilization of the same during the period of 5 years next only for the purposes of business other than for distribution by way of dividend or profits. This condition is admittedly not satisfied. Lastly it is submitted that the scope of deduction available under Section 80HHB as evidenced by its language is completely different from the scope of deduction available under Section 80HHC of the Act. Both the sections being differently worded, no assistance can be taken from Section 80HHC of the Act to interpret / understand Section 80HHB of the Act. (h) For considering the rival contentions it would be necessary to reproduce the relevant extracts of Section 80HHB and 80HHC of the Act as in force during the relevant period as under:" Section 80HHB : (1) Where the gross total income of an assessee being an Indian company or a person (other than a company) who is resident in India includes any profits and gains derived from the business of - (a) the execution of a foreign project undertaken by the assessee in pursuance of a contract entered into by him, or (b) the execution of any work undertaken by him and forming part of a foreign....
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....ee. (2)(a) ........ (3) ......... (4) ......... (i) We have considered the rival submissions. It is a settled position in law that a party which claims an exemption / deduction under the fiscal statute is required to strictly comply with the requirements of the mandatory conditions mentioned therein, as held by the Apex Court in State of Jharkhand v. Ambay Cement 2005(1) SCC 368. It is clear that the conditions stipulated in sub-section (3) of Section 80HHB of the Act are conditions to be mandatorily satisfied for availing of its benefit. This is self evident as it states that the deduction under this Section (80HHB) will be allowed "only" if the conditions provided therein are satisfied. It is undisputed that the amount of Rs. 50 lakhs of which deduction is now claimed under Section 80HHB of the Act had not been transferred to the Foreign Projects Reserve Account during the previous year relevant to the subject assessment year from the profits of its projects outside India. Thus, not satisfying the requirement under section 80HHB(3) of the Act. The amount of Rs. 50 lakhs was transferred into the Foreign Projects Reserve Account from the General Reserve Account only in ....
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.... Section 80HHC of the Act would be of no assistance to construe Section 80HHB of the Act as the wordings of the conditions to be satisfied in both the sections are entirely different. In fact, there is no obligation under Section 80HHC of the Act to create a separate fund as in the case of Section 80HHB of the Act. Therefore the reliance upon the decision of this Court in Karimjee Pvt. Ltd. (supra) is not of any assistance to the applicant as it was rendered in the context of different provision of law, differently worded. (k) In the above view, question (i)(a) is answered in the affirmative i.e. in favour of the respondent Revenue and against the applicant assessee and question (i)(b) is answered in the negative i.e. in favour of the respondent Revenue and against the applicant assessee. 3. Regarding question (ii): (a) The applicant assessee had in the previous year relevant to the assessment year 1983-84 executed projects in Saudi Arabia. The income earned in Saudi Arabia had been subjected to tax in Saudi Arabia. Therefore, while determining the tax payable under the Indian law, the applicant assessee sought benefit of Section 91 of the Act, which gives relief from d....
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....ision of the Apex Court in K.V.AL.M. Ramanathan Chettiar Vs. Commissioner of Income Tax, 88 ITR 169. Secondly, he submits the reliance by the Tribunal upon the decision of the Andhra Pradesh High Court in C.S. Murthy (supra) is inapplicable to the present facts as it had not properly understood and applied the decision of the Apex Court in K.V.AL.M Ramanathan Chettiar (supra). Lastly reliance is placed upon the decision of Karnataka High Court in Income Tax Officer Vs. Stumpp Schuele & Somappa Pvt. Ltd. 106 ITR 399, approved by the Apex Court in 187 ITR 108 which was rendered in the context of the Companies (profits) Sur Tax Act, 1964. Reliance was also placed on the decision of the Karnataka High Court in Wipro Ltd. Vs. Dy. Commissioner of Income Tax, 382 ITR 179, to contend that a deduction under Section 10A of the Act was held to be entitled to the benefit of double taxation relief under Section 91 of the Act therein. (g) As against the above, Mr. Malhotra, learned Counsel appearing for the Revenue submits that doubly taxed income in terms of bare reading of Section 91 of the Act would mean income which is being taxed twice that is once abroad and again in India. Therefore, t....
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....s carrying the burden of tax. In fact, Black's Law Dictionary 8th Edition states the meaning of 'bear' as under:" 1. To support or carry <bear a heavy load> 2. To produce as yield < bear interest>" It is only when the Income has paid tax abroad and also bears the burden of discharging tax thereon under the Indian Act that it would become such doubly taxed income. The appeal before the Apex Court in KVALM Ramanathan Chettiar (supra) arose out of the decision of the Madras High Court holding that for the benefit of relief under the erstwhile Section 49D of the Income Tax Act, 1922 was that, income to which the double tax relief is available, must necessarily arise from the same head of income or source. This view of the Madras High Court was not accepted by the Apex Court. In fact, the Supreme Court held that it was not necessary that the income should arise under the same head or from the same source, for the benefit of the double tax relief being available. However, the Apex Court emphasized that the foreign income which has been subjected to tax must also be the same income which is subjected to tax under the Indian Act. The amounts claimed as deduction under ....
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.... has accrued in India and, therefore, outside the scope of doubly taxed income for the benefit of Section 91 of the Act. (ii) Nevertheless, the assessee paid the tax on Rs. 1,000/in Saudi Arabia @ 10% i.e. Rs. 100/. The credit which would be given to the assessee under Section 91 of the Act is to extent of Rs. 85/i. e. doubly taxed income amounting to Rs. 850/. However, as no credit is given for the tax of Rs. 15/paid in Saudi Arabia on income which is accrued in India, the deduction of Rs. 15/should be given as an expenditure from the income of Rs. 150/which has accrued / arising of in India. (c) The aforesaid issue was not raised before the Assessing Officer nor decided by the CIT(A). However, before the Tribunal, the applicant urged that the CIT(A) ought to have held that in respect of such percentage of income which was deemed to accrue in India and on which the benefit of Section 91 of the Act is not available then, the tax paid in Saudi Arabia should be treated as an expenditure incurred in earning income which is deemed to have accrued / arisen in India and reduced therefrom. In fact, the applicant pointed out before the Tribunal that such a deduction was allowed....
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....ons Ltd. (ITA No. 209 of 2001) wherein it has been held that foreign tax does not fall within Section 40(a)(ii) of the Act and the assessee's net income after deduction / reduction of foreign taxes is his real income for the purposes of this Act. (g) As against the above, Mr. Malhotra, learned Counsel for the Revenue submits that the issue stands concluded against the applicant by the decision of the Bombay High Court in Inder Singh Gill (supra) rendered in Reference. The decision of this Court in South Asia Shipping Co. (supra) and Tata Sons Ltd. (supra) were rendered while rejecting the applications for reference and an appeal at the stage of admission. Moreover, it is submitted that real income theory is inapplicable in view of specific provision found in Section 40 (a) (ii) of the Act which prohibits / bars deduction of any tax paid. It is submitted that in terms of the main provision in Section 40(a)(ii) of the Act, any sum paid on account of any tax on the profits and gains of business or profession will not be allowed as a deduction. The Explanation inserted w.e.f. 2006 only reiterates that any sum entitled to tax relief under Section 91 of the Act would be covered by....
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....passing the order for the subject assessment year. Thus, the Tribunal had not erred in not following its order for A.Y. 1979-80. In fact, the decisions of this Court in South East Asia Shipping Co.(supra) and Tata Sons Ltd. (supra), which are being relied upon in preference to Inder Singh Gill (supra) cannot be accepted as both the orders being relied upon by the applicant was rendered not at the final hearing but on applications under Section 256(2) of the Act and at the stage of admission under Section 260A of the Act. This unlike the judgment rendered in a Reference by this Court in Inder Singh Gill (supra). Moreover, the decision in South East Asia Shipping Co. (supra) is not available in its entirety. Therefore, it would not be safe to rely upon it as all facts and on what consideration of law, it was rendered is not known. Similarly, the decision of this Court in Tata Sons (supra) being Income Tax Appeal No.209 of 2001 produced before us, dismissed the appeal of the Revenue by order dated 2nd April, 2004 by merely following its order dated 23rd March, 1993 rejecting the Revenue's application for Reference under Section 256(2) of the Act. Thus, it also cannot be relied ....
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....i) of the Act does not allow deduction on tax paid on profit and/or gain of business. The Indian Income Tax Act, 1922 Act also contains a similar provision in Section 10(4) thereof. However, the Indian Income Tax Act, 1922 contains no definition of "tax" as provided in Section 2(43) of the Act. Consequently, the tax paid on income / profits and gains of business / profession anywhere in the world would not be allowed as deduction for determining the profits / gains of the business under Section 10(4) of the Indian Tax Act, 1922. Therefore, on the state of the statutory provisions as found in the Indian Income Tax Act, 1922 the decision of this Court in Inder Singh Gill (supra) would be unexceptionable. However, the ratio of the aforesaid decision in Inder Singh Gill (supra) cannot be applied to the present facts in view of the fact that the Act defines "tax" as income tax chargeable under the provisions of this Act. Thus, by definition, the tax which is payable under the Act alone on the profits and gains of business are not allowed to be deducted notwithstanding Sections 30 to 38 of the Act. (m) It therefore, follows that the tax which has been paid abroad would not be cover....
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....d. (o) Therefore, on the Explanation being inserted in Section 40(a)(ii) of the Act, the tax paid in Saudi Arabia on income which has accrued and / or arisen in India is not eligible to deduction under Section 91 of the Act. Therefore, not hit by Section 40(a)(ii) of the Act. Section 91 of the Act, itself excludes income which is deemed to accrue or arise in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, the quantum of tax paid in Saudi Arabia, attributable to income arising or accruing in India would be reduced for the purposes of computing the income on which tax is payable in India. (p) It is not disputed before us that some part of the income on which the tax has been paid abroad is on the income accrued or arisen in India. Therefore, to the extent, the tax is paid abroad on income which has accrued and/or arisen in India, the benefit of Section 91 of the Act is not available. In such a case, an Assessee such as the applicant assessee is entitled to a deduction under Section 40(a)(ii) of the Act. This is so as it is a tax which has been paid abroad for the purpose of arriving global income on which the tax paya....