TMI Blog1999 (2) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the company. It also claimed deduction under section 32AB of the Income-tax Act, 1961. 2.1 The Dy. Commissioner of Income-tax (Assessment), Special Range-2,New Delhi, completed the assessment under section 143(3) for assessment year 1989-90 on27th March, 1992. The assessee claimed deduction under section 32AB of the Act in respect of Plant Machinery purchased during the year under consideration. The Assessing Officer observed that since the profit / income from Projects eligible for benefit of deduction under sections 80-O and 80HHB is included in gross total income, the proportionate amount of deduction allowable under section 32AB has to be reduced against income eligible for deduction under sections 80-O and 80HHB in order to arrive at to profits / income from such foreign projects entitled for benefit of relief under sections 80-O and 80HHB. The Assessing Officer observed that the assessee purchased Plant Machinery worth Rs. 2,62,14,911. The deduction under section 32AB has, however, been claimed at Rs. 1,46,42,208 being 20 per cent of the profits of eligible business determined at Rs. 7,32,11,041 which includes the profit of projects entitled for deduction under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transfer. The sale of assets is treated as other income of the project." 3.2 The learned counsel then invited our attention to the details submitted at page 1 of the Paper Book which are also reproduced hereunder :- Project Profit Eligible machinery Machinery charged in project expenditure Deduction under section 32AB allocated by DCIT Indian Projects 2,01,01,909 1,48,29,253 29,39,943 80HHB Projects 5,34,56,260 2,69,14,911 76,27,954 80-O Projects 2,78,50,170 40,74,311 1,46,42,208 3.3 The learned counsel invited our attention towards provisions of section 80HHB which provide for grant of deduction @ 50% of profits and gains derived from the business of execution of a foreign project undertaken by the assessee in pursuance of a contract entered into by him with the Government of a foreign State or any statutory or other public authority or agency in a foreign state or a foreign enterprise. Likewise, he drew our attention to the provisions of section 80-O of the Act which provide that where the gross total income of an assessee includes any income received from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any pate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for grant of deduction under sections 80HHB and 80-O. He placed reliance on the judgments in Distributors (Baroda) (P.) Ltd. vsUnionofIndia[1985] 155 ITR 120 / 22 Taxman 49 (SC), Commissioner of Income-tax vs P. V. Narayanan [1998] 233 ITR 330 (Ker) and Commissioner of Income-tax vs Marketing Research Corpn. [1987] 61 CTR (Delhi) 204. He strongly supported the order of the CIT(A). 5. We have carefully considered the submissions made by the learned representatives of the parties. We have also gone through all the judgments cited by the learned representatives and have also perused the details submitted in the compilation. 5.1 The provisions of section 32AB, inter alia, provide that where an assessee, whose total income includes income chargeable to tax under the head 'Profits and Gains of business or profession' has, out of such income utilised any amount during the previous year for purchase of any new machinery or plant without depositing any amount in the deposit account mentioned in clause (a) of section 32AB(1), shall be entitled to deduction of a sum equal to the amount so utilised for purchase of new machinery or plant or a sum equal to 20% of the profits of elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the provisions of Income-tax Act, 1961 (before making any deduction under Chapter VI-A) shall alone be deemed to be amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. 5.3 It is, therefore, clear that for computing the quantum of deduction allowable under sections 80HHB and 80-O or any other section appearing in Chapter VI-A, those provisions will have to be read with section 80AB of the Act. 5.4 The relevant extracts from the provisions of sections 80HHB and 80-O are also reproduced hereunder :- Provisions of 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 inIndiaincludes 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 project undertaken by any other person in pursuance of a contract entered into by such other person, with the Government of a foreign State or any statutory or other public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guishable. On the other hand, the Tribunal has clearly held that deduction allowable under section 80-O will be subject to the limits placed under section 80AB of the Act. 5.6 The learned counsel also relied upon the judgment of Hon'ble Orissa High Court in the case of Tarun Udyog (supra). That case relates to grant of relief under section 80HH of the Act. The Court held that relief under section 80HH should be allowed on the profits of the Industrial Undertaking before deducting the investment allowance allowed under section 32A. The provisions of section 80AB have not been discussed in the said judgment nor the relevant assessment year to which the claim under section 80HH relate, has been mentioned in the said judgment. It, therefore, appears that the said judgment relates to a period prior to introduction of section 80AB which was inserted by the Finance (No. 2) Act, 1980 w.e.f.1-4-1981. 5.7 The learned counsel also relied upon the decision of ITAT in the case of Punjab Con-Cast Steel Ltd. (supra). In that case, it was held that the claim under section 32AB has been made in respect of cast iron foundry, SMS-V and Rolling Mill on which no deduction under section 80-I has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g-term capital gains of the current assessment year after the long-term capital loss of the earlier years brought forward is set off. 5.10 The Hon'ble Rajasthan High Court in the case of Commissioner of Income-tax vs Vishnu Oil Dal Mills [1996] 218 ITR 71, has held as under - "Held, that for the determination of the relief under section 80HH, the total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction will be the net income as computed in accordance with the provisions of the Act and not the gross income." 5.11 Similar view was taken by the Hon'ble Rajasthan High Court in the judgment in the case of Commissioner of Income-tax vs Rajasthan Co-operative Spg. Mills Ltd. [1993] 202 ITR 1008 / [1992] 64 Taxman 256. 5.12 The Hon'bleDelhiHigh Court in the case of Marketing Research Corpn. (supra), following the judgment of the Hon'ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. (supra) held that for the purpose of section 80-O, the deduction has to be computed not on the basis of gross income but on the basis of net income. 5.13 The Hon'ble Kerala High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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