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2016 (10) TMI 505 - HC - Income TaxDeduction under Section 80-O - whether deduction was not allowed on the gross receipts but only on that part of receipts which form part of the total income of the assessee? - Held that - On reading the statement of case, it is noted that it records that for the earlier Assessment Year, i.e. A. Y. 1982-83, adjustment of expenses should be limited only to the items that have nexus to the earning of the income and restored the issue to the Assessing Officer to determine the same. Notwithstanding the above findings/ directions, the Applicant-Assessee filed a Reference being Reference No.5 of 2000. This on the basis that Section 80AB of the Act would not be applicable for the purpose of computing deduction under Section 80-O of the Act. In the subject Assessment Year, the statement of case does not state that expenses were allocated in a prorata manner without any nexus. This for the reason that according to the Applicant, it is entitled to deduction on gross basis without being governed by Section 80AB of the Act. (Please see the emphasized portion of statement of case). In any case, the present Reference has been made in view of the Reference made for the Assessment Year 1982-83 and only with a view to maintain consistency. The attempt on the part of the Applicant-Assessee is to enlarge the scope of the question which has been referred to us for our opinion by the Tribunal. The issue which has been referred to us for our opinion, is not with regard to allocation of expenditure on a prorata basis but the issue is whether deduction has to be allowed on the basis of the gross receipts or on that part of the receipts which form part of total income of the Applicant-Assessee, i.e. on application of Section 80AB of the Act. - Decided in favour of assessee.
Issues Involved:
1. Whether the deduction under Section 80-O of the Income Tax Act, 1961 should be allowed on the gross receipts or only on that part of receipts which form part of the total income of the assessee. Issue-Wise Detailed Analysis: 1. Deduction under Section 80-O - Gross vs. Net Receipts: The primary issue in this case revolves around the interpretation of Section 80-O of the Income Tax Act, 1961, specifically whether the deduction should be allowed on the gross receipts or only on the net receipts, i.e., after deducting expenses. The Tribunal had previously held that the deduction under Section 80-O must be computed after applying Section 80AB, which states that the deduction should be with reference to the amount of income of that nature computed in accordance with the provisions of the Act and included in the gross total income. 2. Conflicting Interpretations and Judicial Precedents: The Tribunal's decision was influenced by the Supreme Court's ruling in the case of Distributors (Baroda) P. Ltd., which upheld the applicability of Section 80AB even though it was not part of the statute during the relevant assessment year. The Tribunal also referred to the decision in J. B. Boda & Co. Pvt. Ltd. and other cases, which discussed the applicability of Section 80AB in computing deductions under various sections, including Section 80-O. The Tribunal noted that the intention of the legislature was not to allow relief based on gross income but on the net income after deducting expenses directly related to earning that income. This view was consistent with the Tribunal's earlier decisions and the principle of stare decisis, which emphasizes maintaining consistency in judicial decisions. 3. Reference to Higher Courts and Previous Decisions: The Tribunal had previously referred an identical question for the assessment year 1982-83 to the High Court, which remained unanswered due to non-appearance of the applicant. However, the High Court clarified that the questions raised were left open for consideration in an appropriate case. This case was independently considered based on the statement of case and the Tribunal's findings. 4. Supreme Court and High Court Rulings: The Supreme Court, in Kvaverner John Brown Engg (India) P. Ltd. v/s. Assistant Commissioner of Income Tax, acknowledged the conflicting interpretations regarding Section 80-O and held that adjustments restricting claims under Section 80-O were not permissible due to the conflicting views. The High Court in CIT v/s. Asian Cable Corporation Ltd. (No.2) held that income earned in foreign exchange for services rendered should be allowed on a net basis, applying Section 80AB. The Supreme Court in A. M. Moosa v/s. CIT further reinforced that Section 80AB has an overriding effect over all sections in Chapter VIA, which includes Section 80-O. 5. Final Judgment and Advisory Jurisdiction: The High Court, exercising its advisory jurisdiction under Section 256(1) of the Act, emphasized that it could only answer the question referred to it and not raise new questions. The Court concluded that the deduction under Section 80-O should be allowed on the net receipts, applying Section 80AB, consistent with the decision in Asian Cable Corporation Ltd. Conclusion: The High Court answered the question in the affirmative, against the Applicant-Assessee and in favor of the Respondent-Revenue, confirming that the deduction under Section 80-O should be computed on the net receipts, applying Section 80AB. The reference was disposed of accordingly, with no order as to costs.
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