2018 (10) TMI 1510 - HC - Income Tax

Entitlement to benefits u/s 80HHB - how the project executed by the assessee requires to be interpreted for being entitled or otherwise to the benefits under Section 80HHB - profits derived from the business - Held that - The expressions business of execution of a foreign project or work forming part of it or the profits derived from the business, take in all aspects of a business involving the activities referred to in Sub-Section (2)(b) of Section 80HHB of the Act together with all activities, commitments and obligations ancillary and incidental thereto and the profits flowing therefrom. It was also held that the definition cannot be restricted to the mere physical activity or putting up the superstructure, machinery or plant, but should be understood to take within its fold all utilization of technical knowledge or rendering of technical services necessary to bring about the construction, assembly and installation. Bearing in mind the above legal principle, if we examine the nature of work done by the assessee in the foreign country, we fully subscribe to the factual finding recorded by the CIT (A) after going through the terms and conditions of the agreement and the drawings, etc. The Tribunal lost sight of the most important factor pointed out by the assessee before the CIT (A) that the term shut down does not denote repairs and maintenance and that it is a technical term, which is peculiar to the industry in question. Therefore, if the Tribunal had to come to a different conclusion, it should have reappreciated the factual position and then rendered a finding, which it has failed to do so. Rather, the Tribunal sought to adopt a very narrow approach by referring to the dictionary meaning of the words assembly and installation . It has to be borne in mind that Section 80HHC of the Act is a provision, which grants incentive to the assessee for growth and development and as held by the Hon ble Supreme Court in several decisions, such provision should be liberally construed, as it will promote economic growth of the country. The Statute has clearly circumscribed as to what is a foreign project and we agree with the factual findings recorded by the CIT (A) that the scope of work done by the assessee will fall within the meaning of the expression foreign project as defined under Sub-Section (2)(b) of Section 80HHB of the Act. Accordingly substantial questions of law are answered in favour of the assessee.

Summary

Issues:
Interpretation of the term 'foreign project' under Section 80HHB of the Income Tax Act, 1961 for deduction eligibility.

Analysis:
The appeal involved the interpretation of Section 80HHB of the Income Tax Act, specifically focusing on whether the activities carried out by the assessee in a project in Abu Dhabi qualified as a 'foreign project' for the purpose of claiming deductions. The key issue revolved around whether the project fell within the definition provided under the Act.

The assessee had undertaken a project in Abu Dhabi through a subcontractor and claimed deductions under Section 80HHB. The Assessing Officer initially disallowed the deduction, stating that the work was part of general refinery shut down and did not qualify as a foreign project. The assessee appealed to the CIT (A), who allowed the appeal, emphasizing the technical aspects of the work carried out by the assessee.

The CIT (A) analyzed the nature of work, considering the agreement and drawings, and concluded that the project fell within the scope of a foreign project, specifically assembly or installation of machinery or plant outside India. However, the Tribunal reversed this decision, focusing on the literal interpretation of 'assembly' and 'installation,' concluding that shut down work did not align with these terms.

The High Court, in its analysis, highlighted the importance of a broader interpretation of Section 80HHB to promote economic growth. Referring to legal principles established by the Supreme Court, the Court emphasized that the definition of a foreign project should encompass all technical aspects and services related to the construction, assembly, and installation activities.

In light of these principles, the High Court disagreed with the Tribunal's narrow approach and reinstated the CIT (A)'s decision, emphasizing that the term 'shut down' was a technical industry-specific term and did not merely denote maintenance work. The Court concluded that the work done by the assessee qualified as a foreign project under Section 80HHB, setting aside the Tribunal's order and ruling in favor of the assessee.

Overall, the judgment focused on the interpretation of the statutory provisions and the factual analysis of the nature of work carried out by the assessee to determine eligibility for deductions under Section 80HHB of the Income Tax Act, ultimately favoring a broader and more inclusive approach in line with promoting economic growth.