9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2003 (3) TMI 87 - HC - Income TaxRoyalty - Special Deduction - Whether the value of work-in-progress should be treated as part of capital employed for the purposes of section 80J of the Income-tax Act, 1961, and secondly, whether deduction under section 80-O should be calculated on the gross fees received by the assessee. this question is answered in negative, i.e., in favour of the Department and against the assessee.
Issues Involved:
1. Whether the value of work-in-progress should be treated as part of capital employed for the purposes of section 80J of the Income-tax Act, 1961. 2. Whether deduction under section 80-O should be calculated on the gross fees received by the assessee. Detailed Analysis: Issue 1: Treatment of Work-in-Progress for Section 80J - This issue was resolved in favor of the assessee based on the Supreme Court's judgment in CIT v. Alcock Ashdown and Co. Ltd. [1997] 224 ITR 353. The court ruled that the value of work-in-progress should be treated as part of the capital employed for the purposes of section 80J of the Income-tax Act, 1961. Issue 2: Calculation of Deduction under Section 80-O - Facts: The assessee claimed a deduction under section 80-O on gross earnings for the assessment years 1979-80 and 1980-81. The Income-tax Officer allowed only 50% of the claimed amount as the deduction, estimating the other half as expenditure incurred to earn the fees. The Commissioner (Appeals) and the Tribunal allowed the deduction on the gross amount, leading to the Department's reference to the High Court. - Arguments: - Department's Stand: The Department argued that the concession made by their senior counsel in the previous hearing was erroneous. They cited judgments from the Calcutta High Court (CIT v. M.N. Dastur and Co. (P.) Ltd. [2000] 243 ITR 10) and the Delhi High Court (CIT v. Chemical and Metallurgical Design Co. Ltd. [2001] 247 ITR 749 [FB]), which held that net income, after computation, should be considered for deduction under section 80-O. - Assessee's Stand: The assessee argued that during the assessment years in question, the law allowed deductions on gross earnings as per the judgment of the Bombay High Court in CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348, which was not disturbed by the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120. - Reasons: - The court found merit in the Department's review petition. It referred to the Finance (No. 2) Act, 1980, which clarified that deductions under Chapter VI-A, including section 80-O, are related to the income included in the gross total income, defined under section 80B(5) as the total income computed in accordance with the provisions of the Act before any deductions. - The Supreme Court in Distributors (Baroda) (P.) Ltd. [1985] 155 ITR 120 clarified that gross total income includes a particular quantum of income belonging to the specified category, not just the category itself. - The court noted that section 80AB, enacted to clarify the law on deductions under Chapter VI-A, supported the view that deductions should be based on net income. - The judgment of the Bombay High Court in New Great Insurance Co. Ltd. [1973] 90 ITR 348 did not apply as it did not consider section 80AB and was not dealing with section 80-O. - Conclusion: The court allowed the review petition, answering question No. 2 in the negative, in favor of the Department and against the assessee. The deduction under section 80-O should be calculated on net income, not gross fees. Final Order: - The review petition is allowed in terms of prayer clause (a), and question No. 2 is answered in the negative, i.e., in favor of the Department and against the assessee. The court clarified that the Department's estimation of expenses and the resultant deduction was not under its purview in this advisory jurisdiction.
|
