TMI Blog1995 (12) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case, the Income-tax Appellate Tribunal has rightly disallowed the claim of the assessee for development rebate under section 33(6) on the cost of the water works in respect of the assessment for the assessment year 1973-74 ? 4. Whether, on the facts and in the circumstances of the case, deduction was allowable as revenue expenditure in the assessment for the assessment year 1973-74 for the expenditure of Rs. 9,473 incurred by the assessee for travelling by Shri Joshi ? 5. Whether, on the facts and in the circumstances of the case, deduction was allowable as revenue expenditure in the assessment for 1973-74 for the expenditure of Rs. 28,262 incurred by the assessee for travelling by S/Shri S. R. Vakil and R. M. Khatau ? 6. Whether, the expenditure of Rs. 3,16,552 incurred by the assessee in India on account of travelling qualifies for relief under section 35B(1)(b)(iii) in its assessment for 1973-74 ? " At the instance of the Commissioner: " 7. Whether the assessee is entitled to depreciation allowance in its assessments for the assessment years 1972-73 and 1973-74 on the cost or written down value of the assets purchased by it in the earlier ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the terms of the contract. The assessee claimed deduction under section 80-O in respect of these two receipts. It did so by filing a revised return for the assessment year 1972-73 and by making the claim in the original return for the assessment year 1973-74. The claim of the assessee for deduction under section 80-O of the Act in respect of the above receipts was rejected by the Income-tax Officer on the ground that no profit or income arose to the assessee from the above receipts. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner rejected the claim of the assessee on the ground that the receipts in question did not come in any convertible foreign exchange in India as required by section 80-O (as amended with retrospective effect from April 1, 1972). The Appellate Assistant Commissioner rejected the claim of the assessee also on the ground that the construction of the cement factory including civil and engineering works did not result in use of any technical knowledge and skill which was a pre-condition for deduction under section 80-O. The Appellate Assistant Commissioner was also of the opinion that the receipts in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and engineering contract and not in the nature of royalty, commission, etc., for supply of technical know-how, etc., and there was no profit or income from these receipts. The Tribunal, however, observed that the assessee had received the amount in India in convertible foreign exchange by virtue of the legal fiction contained in section 80-O itself. In view of its opinion in regard to the nature of the services rendered by the assessee and the nature of the receipts, the Tribunal held that the assessee-company had failed to fulfil the conditions prescribed under section 80-O of the Act in respect of the amounts in question and hence was not entitled to deduction under section 80-O of the Act in respect of the said amounts. Aggrieved by the above decision of the Tribunal, the assessee sought for reference of the question of law arising out of the above finding to this court, which the Tribunal has done by referring question No. 1. Mr. P. F. Kaka, learned counsel for the assessee, submits that the Tribunal committed a manifest error of law in holding that the payments in the instant case having been received by the assessee in the execution of a turnkey project, the receipts wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, under an agreement approved by the Board in this behalf (and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of the whole of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not brought into India by the assessee as required by the above section. We have considered both these two grounds. So far as the second ground is concerned, in our view, rejection on that ground is erroneous in view of the Explanation to sub-section (1) of section 80-O which provides that the provisions of the Explanation to section 80N shall apply for the purpose of this section as they apply for the purposes of that section. The Explanation to section 80N which was inserted by the Finance Act, 1974, with retrospective effect from April 1, 1969, reads : " 80N. Deduction in respect of dividends received from certain foreign companies.---.... Explanation.---For the purpose of this section,---- (i) 'convertible foreign exchange' means foreign exchange which is for the time being created by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange; (ii) any income used by the assessee outside India in the manner permitted by the Reserve Bank of India shall be deemed to have been brought into India in accordance with the law for the time being in force for regulatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 80-O. Similarly, the mere fact that the assessee was carrying on business as engineers and contractors and the receipts flowed to it in the course of its business as such would not necessarily preclude relief under section 80-O, if they could be brought within the categories of receipts mentioned in the section. The contract executed by the assessee was not an ordinary contract, it was a contract for execution of a turnkey project. Obviously in such cases, though it is a single project, it comprises various elements including elements referred to in section 80-O. As observed by the Supreme Court in Continental Construction Ltd. v. CIT [1992] 195 ITR 81, there is no antithesis between the categories of income specified in section 80-O and the profits and gains of a business. Contracts of the type envisaged by section 80-O are usually very complex ones and cover a multitude of obligations and responsibilities. It is not always possible or worthwhile for the parties to dissect the consideration and apportion it to the various ingredients or elements comprised in the contract. For the purpose of income-tax, the principle of apportionment has always been applied in differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not possible for us to decide it in this reference in the absence of a factual finding whether the consideration received by the assessee or any part of it is attributable to any of the services or informations, etc., specified under section 80-O. We, therefore, remand the matter to the Tribunal to decide the claim of the assessee for deduction under section 80-O of the Act afresh in the light of our above observations and the ratio of the decisions of the Supreme Court in Continental Construction Ltd.'s case [1992] 195 ITR 81 and Prakash Cotton Mills P. Ltd.'s case [1993] 201 ITR 684, after giving opportunity to the assessee to adduce or bring on record any evidence or material it may like to adduce or produce in support of its contention that the receipts in question or any part of it, is attributable to any of the activities specified under section 80-O of the Act. The controversy in the second question pertains to the rejection of claim of the assessee for deduction of a sum of Rs. 4,84,742 incurred by it in Pakistan by way of legal expenses. The material facts pertaining to the above claim are as follows: The assessee-company had factories in the territory of West Pak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention. Dr. Balasubramaniam, learned counsel for the Revenue, on the other hand, supports the finding of the Tribunal and submits that the expenditure in question is not an expenditure incurred by the assessee for the purpose of its business. According to him, this is an expenditure incurred in connection with the business which had been sold long back in the year 1965 and in connection with the litigation which had arisen in connection with the determination of the sale price of such business. Learned counsel for the assessee, in reply, submits that the main business of the assessee being manufacture and sale of cement, sale of its business in Pakistan, which comprised cement factories, cannot be held to be a discontinuation of business and any expenditure incurred for the recovery of the sale proceeds of the said business in Pakistan would be expenditure for the purpose of the business of the assessee. We have carefully considered the rival submissions. The claim for deduction in this case is based on section 37 of the Act, which provides that any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale of cement, expenditure incurred by it in litigation for recovery of the sale price of its factories in West Pakistan which were sold to the Government of West Pakistan would be expenditure for the purposes of its business is too far-fetched and untenable in law. It is well-settled that if an assessee carries on several distinct and independent businesses, and one of such businesses is closed before the previous year, he cannot claim allowance under section 37 of the Income-tax Act, 1961, of an outgoing attributable to the business which is closed against the income of his other businesses in that year. Reference may be made in this connection to the decision of the Supreme Court in L. M. Chhabda and Sons v. CIT [1967] 65 ITR 638. The assessee in that case was carrying on the business of exhibiting cinematograph films in Ahmedabad and in Bombay. The lease in respect of one cinema theatre, the Prakash Talkies, expired in 1952 and thereafter the landlord filed a suit in ejectment against the assessee and obtained a decree for possession and an order for payment of mesne profits. Out of the mesne profits paid by the assessee, they claimed deduction of the sum of Rs. 92,240 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to the existing water works. The above expenditure of Rs. 18,30,944 comprised the following components. Rs. Cost of civil works 9,52,944 Cost of pumps with electrical items 4,13,000 Cost of pipes 4,65,000 Total 18,30,944 The Income-tax Officer allowed development rebate only on the cost of pumps, electrical items and the cost of pipes and disallowed the claim in respect of the amount spent on civil works. The Appellate Assistant Commissioner allowed the claim of the assessee for development rebate on the full amount of Rs. 18,30,944. While doing so, the Appellate Assistant Commissioner accepted the contention of the assessee that the entire construction of water works including civil engineering operations had to be treated as one plant. However, on appeal by the Revenue against the order of the Appellate Assistant Commissioner, the Tribunal affirmed the order of the Income-tax Officer and set aside the order of the Appellate Assistant Commissioner. Hence, reference of question No. 3. Learned counsel for the assessee submits that the Tribunal has committed a manifest error of law in bifurcating the amount spent by it on the water works into amounts spent on pip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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