1986 (8) TMI 127 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 80-O of the Income-tax Act, 1961 regarding deduction eligibility.
2. Determining the deductible amount under section 80-O for income received in convertible foreign exchange.
3. Allocation of expenses incurred in earning income for deduction calculation under section 80-O.

Analysis:
1. The case involved an appeal by an assessee against the order of the Commissioner (Appeals) concerning the assessment year 1981-82. The primary issue was the interpretation of section 80-O of the Income-tax Act, 1961, which allows deductions for certain types of income. The assessee, engaged in manufacturing and technical services, received income from agreements approved by the Board under section 80-O. The dispute arose over the deduction eligibility of income received in convertible foreign exchange.

2. The Income Tax Officer (ITO) and the Commissioner (Appeals) disagreed on the deductible amount under section 80-O for income received in convertible foreign exchange. The ITO calculated the deductible amount by deducting proportionate expenses from the total income received in foreign exchange. The Commissioner (Appeals) upheld this view, considering the foreign exchange income as a gross receipt, not net income, and requiring deduction based on expenses incurred in earning that income.

3. The crux of the issue was the allocation of expenses for determining the deductible amount under section 80-O. The ITO and Commissioner (Appeals) emphasized apportioning expenses between income received in Indian rupees and convertible foreign exchange. The disagreement centered on whether the entire income received in foreign exchange should be deductible or if expenses should be proportionately deducted from such income before claiming the deduction.

4. The Appellate Tribunal disagreed with the lower authorities' interpretation and directed the ITO to calculate the deduction under section 80-O by limiting it to the amount received in convertible foreign exchange. The Tribunal clarified that the deduction should not exceed the gross total income and emphasized that the law allows deduction of income received in foreign exchange without proportionate expense deduction.

5. Ultimately, the Tribunal allowed the appeal in part, setting aside the previous orders and directing the ITO to determine the deduction under section 80-O based on the amount received in convertible foreign exchange, ensuring compliance with the statutory provisions and limitations outlined in the Income-tax Act, 1961. The decision clarified the application of section 80-O and upheld the assessee's entitlement to the deduction based on the specific provisions of the Act.