1984 (2) TMI 129 - AT - Income Tax

Summary

Issues:
- Allocation of expenses between consultancy fees and other income
- Eligibility for relief under section 80-O on gross fees without deduction of expenses
- Treatment of interest income in computing total income for relief under section 80-O

Analysis:
1. The appeal was filed by the department against the Commissioner (Appeals) order regarding the allocation of expenses incurred by the assessee between consultancy fees and other income for the assessment year 1980-81. The department contended that the entire expenses should be allocated to the consultancy fees, while the Commissioner (Appeals) upheld the assessee's bifurcation of expenses between foreign and Indian services.

2. The assessee, a private limited company, earned income from providing technical advice to clients in India and abroad. The dispute arose when the ITO allocated all expenses to the foreign consultancy fees, reducing the net profit eligible for relief under section 80-O. The Commissioner (Appeals) agreed with the assessee's contention that expenses should be apportioned between foreign and Indian services, resulting in a higher relief under section 80-O.

3. The department challenged the Commissioner (Appeals) decision, arguing that the entire income should be considered for relief under section 80-O, as the assessee had no other income from Indian clients. The department's representative emphasized that the bifurcation of expenses by the assessee was incorrect.

4. The assessee, on the other hand, supported the Commissioner (Appeals) decision, stating that expenses not related to earning foreign fees should not be deducted. The assessee also argued that relief should be granted on the gross fees without any deduction, citing the decision in Cloth Traders (P.) Ltd. case. The assessee contended that the sum of interest income should not be excluded from the gross total income.

5. The Tribunal agreed with the assessee, allowing relief under section 80-O on the gross receipt of consultancy fees without any deduction for expenses. The Tribunal held that the relief should be limited to the gross total income as computed by the ITO. Therefore, the total income for the year was adjusted to nil, and the assessment was modified accordingly.

6. The Tribunal concluded that the assessee was entitled to relief on the gross receipt of consultancy fees without any deduction for expenses. The decision in Cloth Traders (P.) Ltd. case was relied upon to support this conclusion. The Tribunal also determined that the interest income should be included in the gross total income, resulting in relief under section 80-O limited to the computed gross total income.