1989 (2) TMI 138 - AT - Income Tax

Assessment Year Double Taxation Relief Foreign Project Gross Total Income Mercantile System Previous Year Profits And Gains

Summary

Issues Involved:

1. Excessive relief granted under section 80HHB of the Income-tax Act, 1961.
2. Incorrect relief allowed under section 91 of the Income-tax Act, 1961 for taxes paid in Saudi Arabia and Iraq.

Issue-wise Detailed Analysis:

1. Excessive Relief Granted under Section 80HHB:

The CIT found that the appellant-company was granted excessive relief under section 80HHB to the extent of Rs. 32,00,779. The CIT's primary contention was that for the purpose of section 80HHB, all foreign projects should be considered collectively, not individually. The CIT argued that the term "foreign project" includes the plural form and thus, all projects should be aggregated to calculate the net profit or loss. The CIT noted that the appellant-company did not file separate accounts for foreign projects to show individual profits or losses and relied on the auditor's report dated 10-10-1984, which also did not prepare Profit & Loss Accounts for these projects.

The appellant-company maintained that separate accounts were kept for each foreign project, audited by overseas auditors, and consolidated in Indian currency at the Head Office. The appellant-company argued that section 80HHB does not require separate Profit & Loss Accounts to be prepared by overseas auditors but only that the accounts be audited by an accountant as defined in section 288(2) of the Income Tax Act.

The Tribunal interpreted section 80HHB, noting that the statute uses both singular and plural forms, indicating a distinction. The Tribunal emphasized that each foreign project should be considered separately for the purpose of deduction under section 80HHB. The Tribunal concluded that the CIT was incorrect in directing the ITO to calculate the deduction with reference to the gross total income. Instead, the deduction should be based on the profits from each foreign project, subject to the conditions laid down in section 80A(2).

2. Incorrect Relief Allowed under Section 91:

The CIT also found that relief under section 91 was wrongly allowed for Rs. 1,22,400 paid in Saudi Arabia and Rs. 11,72,869 deducted at source in Iraq. The CIT argued that the appellant-company had not been taxed in Iraq and Saudi Arabia, and both countries did not quantify the income and tax thereon. The CIT felt that unless the Governments of Iraq and Saudi Arabia determined the income by making final assessments, relief under section 91 was not admissible.

The Tribunal noted that section 91 requires certain conditions to be fulfilled, including that the appellant-company is a resident in India, income accrued or arose outside India, and tax was paid in foreign countries either by deduction or otherwise. The Tribunal emphasized that section 91 does not require the completion of assessments in foreign countries for relief to be granted. The Tribunal found that taxes were indeed deducted at source in Iraq and paid in Saudi Arabia, and these amounts were rightly allowed as deductions by the ITO.

The Tribunal also referred to the Supreme Court's decision in K.V.AL.M. Ramanathan Chettiar v. CIT, which held that income-tax is levied on the total income, not separately on each head of income. The Tribunal concluded that the appellant-company fulfilled all conditions for relief under section 91, and the ITO correctly allowed the deductions.

Conclusion:

The Tribunal allowed the appeal, concluding that the appellant-company was entitled to the reliefs under sections 80HHB and 91. The Tribunal found that the CIT's directions to revise the assessment were not justified, as the appellant-company had satisfied all the conditions laid down in the relevant sections. The appeal was allowed, and the assessment order by the ITO was upheld.