2008 (10) TMI 387 - HC - Income Tax

Deduction under section 80HHB of the Income-tax Act - assessee had executed certain contracts in the countries, viz., Oman and Qatar - foreign currency earned from the said project was partially used for repaying the loan taken in foreign currency in the foreign country for executing the said project Held that - Loan amount was paid in foreign currency is not disputed and even if the entire foreign currency was brought into India, the assessee would have been required to remit the foreign currency to discharge the loan taken in foreign currency for executing the project. Therefore, assessee is entitled to claim deduction under section 80HHB of the Income-tax Act Exclusion of profit - profit earned in Oman Held that - Assessee has a permanent establishment at Oman and the assessee has been taxed in respect of the income earned from the said establishment under the provisions of the income tax law at Oman - in the light of article 7 of the Double Taxation Avoidance Agreement (DTAA) entered into by and between India and Oman - decision of the Tribunal in excluding the profit earned from the permanent establishment at Oman cannot be faulted.

Issues:
Interpretation of sections 37(1), 80HHB, and 9(1)(i) of the Income-tax Act, 1961 regarding deduction of expenditure for exploration and production of oil and gases, deduction of money brought into India in convertible foreign exchange, and exclusion of profit earned in Oman.

Analysis:

1. Interpretation of Section 37(1), Section 80HHB, and Section 9(1)(i):
The Commissioner of Income-tax raised questions regarding the interpretation of various sections of the Income-tax Act, 1961, related to deductions for expenditure incurred for exploration and production of oil and gases, money brought into India in convertible foreign exchange, and exclusion of profit earned in Oman. The Tribunal had allowed the deductions in favor of the assessee. The Court, after considering similar cases and relevant provisions, dismissed the appeal, upholding the Tribunal's decision on these deductions.

2. Deduction of Money Brought into India in Convertible Foreign Exchange:
The second question revolved around the deduction under section 80HHB of the Income-tax Act for money brought into India in convertible foreign exchange. The assessee had utilized foreign currency earned from projects in Oman and Qatar to repay loans taken in foreign currency for those projects. The Court referred to a previous apex court decision and concluded that the assessee was entitled to claim the deduction for the entire foreign currency earned from the projects. The Court reasoned that even if the entire foreign currency was brought into India, it would have been required to remit the foreign currency to repay the foreign currency loan. Therefore, the Court upheld the Tribunal's decision on this matter, stating that the question raised by the Revenue did not hold.

3. Exclusion of Profit Earned in Oman:
Regarding the profit earned by the assessee from a permanent establishment in Oman, the Court considered the Double Taxation Avoidance Agreement (DTAA) between India and Oman along with relevant case law. The Court noted that the assessee had already been taxed in Oman for the income earned from the establishment. Relying on the DTAA and a previous apex court judgment, the Court found no fault in the Tribunal's decision to exclude the profit earned in Oman. Consequently, the Court dismissed the appeal, affirming the Tribunal's decision in this regard.

In conclusion, the High Court upheld the Tribunal's decision on all three issues raised by the Commissioner of Income-tax, thereby dismissing the appeal and finding no merit in the arguments presented.

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