TMI Blog2016 (12) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (2000 (2) TMI 60 - BOMBAY High Court) is not of any assistance to the applicant as it was rendered in the context of different provision of law, differently worded. Decided in favour of the respondent Revenue and against the applicant assessee Doubly taxed income for the purpose of computing the DIT relief under Section 91 - amount deducted under 80HHB and weighted deduction allowed under Section 35B - Held that:- 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 amounts claimed as deduction under Section 80HHB and Section 35B of the Act admittedly do not bear any tax in India, therefore, no relief can be granted under Section 91 of the Act to the deduction claimed of ₹ 47.30 lakhs under Section 80HHB and ₹ 5.59 lakhs claimed under Section 35B of the Act. - Decided against the applicant assessee and in favour of the respondent Revenue. Tax paid in Saudi Arabia on which no DIT relief could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 gains earned by executing its projects in Saudi Arabia(outside India), applicantassessee claimed deduction under Section 80HHB of the Act. The deduction under Section 80 HHB of the Act was available only on the profits and gains derived from the business of executing foreign projects and satisfying the various conditions specified therein. (b) In the previous year relevant to the subject assessment year, the applicant-assessee had in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Mr. Murlidhar, learned Counsel appearing for the applicant assessee in support submits that the applicant could not create a Foreign Projects Reserve Account to the extent of ₹ 50lakhs in the previous year relevant to the subject assessment year as on that very amount it had sought benefit of deduction under Section 80O of the Act by making an application to the Central Board of Direct Taxes(CBDT). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 a foreign enterprise, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ₹ 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 ₹ 50 lakhs was transferred into the Foreign Projects Reserve Account from the General Reserve Account only in the year 1991-92, thus, at that time the conditions to be complied with for availing of the benefit of Section 80HHB of the Act viz. the amount credited to the Foreign Projects Reserve Account from its profits of exports and utilizing the same during the period of 5 years next of the previous year relevant to the subject Assessment Year only for the purposes of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 double taxation on the same income. (b) During the assessment proceedings, the applicant assessee claimed the benefit of double taxation relief on the sums of ₹ 47.30lakhs being the amount deducted under Section 80HHB of the Act and ₹ 5.59 lakhs being the amount on which weighted deduction was claimed under Section 35B of the Act. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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, the deductions allowed under Section 80HHB and 35B of the Act would not qualify for relief under Section 91 of the Act. The reliance upon the decision of the Karnataka High Court in Stumpp, Schuele Somappa (P) Ltd. (supra) as approved by the Apex Court was in the context of Sur Tax Act and can have no application to the present facts as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian 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 Section 80HHB and Section 35B of the Act admittedly do not bear any tax in India, therefore, no relief can be granted under Section 91 of the Act to the deduction claimed of ₹ 47.30 lakhs under Section 80HHB and ₹ 5.59 lakhs claimed under Section 35B of the Act. (i) We find substance in the submissions on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act is to extent of ₹ 85/i. e. doubly taxed income amounting to ₹ 850/. However, as no credit is given for the tax of ₹ 15/paid in Saudi Arabia on income which is accrued in India, the deduction of ₹ 15/should be given as an expenditure from the income of ₹ 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 for an earlier assessment year namely A.Y. 197980. (d) The Tribunal by its order dated 11th November, 1996 negatived the contention of the applicant. This was on two grounds, one this was not an issue raised before the CIT(A) and therefore could not be urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the main part of Section 40(a)(ii) of the Act. The Explanation, he submits does not take away the taxes not covered by it out of the ambit of the main part of Section 40(a)(ii) of the Act. (h) Before dealing with the rival contentions, it would be useful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 upon to decide the controversy. Moreover, the order of this Court in Tata Sons Ltd. (supra) as produced before us for Assessment Year 1985-86 had not noticed the decision of this Court in Inder Singh Gill (supra) on a Reference. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 covered with in the meaning of Section 40(a) (ii) of the Act in view of the definition of the word 'tax' in Section 2(43) of the Act. To be covered by Section 40(a)(ii) of the Act, it has to be payable under the Act. We are cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, 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 payable in India. Therefore, to the extent the payment of tax in Saudi Arabia on income which has arisen / accrued in India has to be considered in the nature of expenditure incurred or arisen to earn income and not hit by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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