1981 (9) TMI 56

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....engineering and technical consultants offering a wide variety of consultancy services. The petitioners enter into various contracts and claim the benefit under the provisions of s. 80MM of the Act. The benefit of the section is claimed only in respect of the know-how covered by the clauses in the contract. The petitioners have an operation department which prepares, in respect of each consultancy contract, a man-hour budget sheet which allocates man-hours for each activity to be performed under the contract. It is then possible to ascertain the man-hours which will be expended on the specific activities covered by the clauses approved by the Board as being eligible for the benefit of s. 80MM of the Act. Section 80MM of the Act provides that....

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....he year 1974-75, and ultimately the assessment was completed by an order dated January 29, 1976. The ITO allowed the petitioners' deduction under s. 80MM of the Act at 40% of Rs. 8,14,214 but, however, restricted the total amount of this deduction to Rs. 1,39,846. The petitioners preferred an appeal to the AAC, N-Range, Bombay, and at the same time filed an application for rectification before the ITO. The ITO rectified the order on March 2, 1976, in exercise of the powers under s. 154 of the Act and re-worked the deduction under s. 80MM of the Act at the figure of Rs. 2,07,049, that is, to the extent of the petitioners' gross total income. On June 11,1976, the ITO passed another rectification order, and the deduction under s. 80MM of th....

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....the ITO under s. 147 of the Act was without any basis, and the course adopted by respondent No.1 is nothing short of change of opinion. In my judgment, both the submissions of the learned counsel deserve acceptance. Shri Dastur relied upon the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT[1979] 118 ITR 243. The Supreme Court, on page 260 of the report, considered the contention with reference to s. 80MM of the Act and observed: " It appears on a plain reading of these sections that the deduction admissible is in respect of the whole of the income received by the assessee and not in respect of the income computed after making the deductions provided under the Act." Reference was made to Madras Auto S....