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2016 (12) TMI 1293 - HC - Income TaxClaim for deduction under Section 80HHB - contribution to the Foreign Project Reserve Account - Held that - The non-satisfaction of the conditions necessary to be fulfilled to avail of the benefit of Section 80HHB of the Act would disentitle a party from claiming its benefit. Accepting the submissions on behalf of the applicant would mean ignoring the conditions specified in subsection (3) of Section 80HHB of the Act, which the Court cannot do. The further reliance on the part of the applicant on Section 80HHC of the Act to bolster its case, is not of any assistance. This is so, as the conditions required to be satisfied to avail of the benefit of Section 80HHB of the Act is different from that to be satisfied for the purposes of Section 80HHC of the Act. Therefore, the manner in which the Courts construe Section 80HHC of the Act would be of no assistance to construe Section 80HHB of the Act as the wordings of the conditions to be satisfied in both the sections are entirely different. In fact, there is no obligation under Section 80HHC of 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 claimed was not allowable as deduction in computing the income under the provisions of the Income-Tax Act - Held that - 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 provisions of Section 40(a)(ii) of the Act. - Decided against the Revenue and in favour of the applicant assessee.
Issues Involved:
1. Deduction under Section 80HHB of the Income Tax Act, 1961. 2. Double Taxation Relief under Section 91 of the Income Tax Act, 1961. 3. Deduction of tax paid in Saudi Arabia in computing income under the Income Tax Act, 1961. Detailed Analysis: Issue 1: Deduction under Section 80HHB The applicant-assessee executed projects in Saudi Arabia and claimed a deduction under Section 80HHB of the Income Tax Act, 1961. The Assessing Officer allowed a deduction of ?48 lakhs, but the applicant-assessee contended that the creation of a Foreign Projects Reserve Account was not necessary for availing the deduction. The CIT(A) and the Tribunal upheld that the deduction under Section 80HHB is available only if the amount is credited to the Foreign Projects Reserve Account. The Tribunal dismissed the appeal, stating that the conditions specified in Section 80HHB(3)(ii) were not satisfied as the amount of ?50 lakhs was transferred to the Foreign Projects Reserve Account only in 1991-92, beyond the five-year period. The court held that the conditions stipulated in Section 80HHB are mandatory and non-compliance disqualifies the applicant from claiming the deduction. Issue 2: Double Taxation Relief under Section 91 The applicant-assessee sought relief under Section 91 for the sums of ?47.30 lakhs and ?5.59 lakhs, which were deducted under Sections 80HHB and 35B, respectively. The Assessing Officer and CIT(A) denied the relief, stating that the income must be taxed in both countries to qualify for relief under Section 91. The Tribunal upheld this view, relying on the Andhra Pradesh High Court's decision in Commissioner of Income Tax Vs. C.S. Murthy. The court agreed with the Tribunal, stating that the deductions claimed under Sections 80HHB and 35B do not bear any tax in India and therefore do not qualify for relief under Section 91. The court emphasized that the relief is only available for income that is taxed in both countries. Issue 3: Deduction of Tax Paid in Saudi Arabia The applicant-assessee claimed a deduction for the tax paid in Saudi Arabia, arguing that it should be allowed as an expenditure if Section 91 relief is not available. The Tribunal denied this claim, citing the decision in Inder Singh Gill v/s. CIT, which held that foreign tax paid cannot be deducted in computing income under the Indian Income Tax Act, 1922. The court noted that the definition of "tax" in Section 2(43) of the Income Tax Act, 1961, only includes income tax chargeable under the Act. Therefore, foreign taxes are not covered by Section 40(a)(ii). However, the Explanation to Section 40(a)(ii) clarifies that taxes eligible for relief under Sections 90 or 91 are included. Since the tax paid in Saudi Arabia on income accrued in India is not eligible for Section 91 relief, it is not hit by Section 40(a)(ii) and can be considered as an expenditure. Judgments Delivered: 1. Question (i)(a) was answered in the affirmative, in favor of the respondent Revenue and against the applicant assessee. 2. Question (i)(b) was answered in the negative, in favor of the respondent Revenue and against the applicant assessee. 3. Question (ii) was answered in the affirmative, in favor of the respondent Revenue and against the applicant assessee. 4. Question (iii)(a) was answered in the negative, in favor of the applicant assessee and against the respondent Revenue. 5. Question (iii)(b) was answered in the negative, in favor of the applicant assessee and against the respondent Revenue. The Reference was disposed of in these terms, with no order as to costs.
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