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TMI Blog1986 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... and irrigation hydle projects inLibya, fibre board factory at Abu Sukhair inIraqand several water supply and sewerage projects at different places inIraq. The big project executed by the assessee-company has been Karkh Water Supply Project,Baghdad, having a total value of 534 million dollars. 3. The assessee-company claimed before the assessing officer that profits earned in respect of foreign contracts were exempted under section 80-O. The details of profits work-wise as noted by the IAC who made the assessment were as under: "Profits Amount (in Rs.) West Bank as per Unit P & L a/c. 1,79,19,557.95 Amara -do- 11,29,874.29 Nassiriyah -do- 40,83,758.31 Karkh -do- 77,84,29,446.40 Diwaniyah -do- 6,36,85,435.84 Sulaimaniyah -do- 77,51,151.61 Wadi Ghan -do- 1,86,19,973.74 --------------- Total 89,16,19,198.11" --------------- It was submitted by the assessee that the contracts had been approved by the Board at different times. Whereas in respect of 5 contracts the Board's approval had been accorded in the earlier years, the contracts in respect of the Karkh Project and Diwaniyah Project were approved on28-10-1983. 4. At this stage we may state that though before the IAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions being fulfilled and it was further subject to the amendments in the income-tax law. The IAC held that considering the language of section 80HHB, all the contracts under consideration dealt with the execution of some foreign projects undertaken by the assessee. The IAC was of the view that the Karkh Project and the Diwaniyah Project, as far as the assessee was concerned, was only a civil building contract and the assessee had to act according to the specification and details furnished by theBaghdadauthorities. Similarly, according to him, was the position regarding the Diwaniyah Sewerage Project. The IAC was of the view that the detailed drawings were provided to the assessee and if the assessee was to modify such drawings it was to be approved by the engineers ofBaghdadauthorities. The IAC also found that the other projects at Amara, Nassiriyah, Sulaimaniyah andWest Bankwere identical and they were for the construction, execution, completion and maintenance of the works and supply of all machinery, equipments and instruments for carrying out the work. He was of the view that total consideration was for the execution of the whole work and the details of drawings and specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of personnel sent abroad, were technical persons and the others were non-technical persons. According to the IAC, the facts given in the applications were motivated and not borne out by the contracts. Thus, the IAC came to the conclusion that the activities of the assessee fell under section 80HHB and, therefore, these could not be considered under any other provisions including section 80-O. He also found that the conditions under section 80HHB had not been satisfied by the assessee and he was not entitled for deduction under that section. 8. Before the Commissioner (Appeals) it was contended on behalf of the assessee that after the grant of approval by the Board under section 80-O, the assessing officer was bound to give effect to that approval. It was also submitted that for the assessment year 1983-84 both the provisions were applicable and, therefore, the assessee was entitled to get larger benefit. It is not necessary to consider the plea of the assessee regarding the restriction of the approval to a particular year as the Board itself has accepted the other position and the department does not seriously challenge it now. On behalf of the assessee, reliance has been placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la, senior departmental representative, in the context of the norms regarding import of technical know-how in the underdeveloped or developing countries. It is difficult to visualise a 'foreign project' which does not involve rendering technical services as an essential part of the contract or project. If it did not involve rendering technical services, those countries would not go in for global tenders and import of services from other countries. Section 80-O deals with a wider field of export of technical know-how, both as to the nature of the activities and the nature of income derived from those activities. Section 80HHB deals with one such aspect, viz., the income derived from foreign projects. This section covers the cases of corporate as well as non-corporate assessees whereas after its amendment with effect from1-1-1975section 80-O was applicable to corporate sector only. For the corporate sector, in the cases of 'foreign projects' as defined in section 80HHB, relief under section 80-O was admissible prior to 1-4-1983 to the extent of the income derived from the activities specified in that section, e.g., rendering of technical services, etc. As a result of the amendment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential was the rendering of technical services by the assessee. It was submitted that the assessee was not carrying on any construction contract as such and in all these works, the assessee had to supply technical designs and had to render technical services while executing the contract. On this basis a special argument was advanced in respect of the Karkh contract and it was contended that without prejudice to the generality of the assessee's claim, the Karkh contract was a contract of rendering technical services and that part of the contract should be bifurcated and should be covered under section 80-O. The Commissioner (Appeals) referred to the approval and the contention made on behalf of the revenue that in the construction of any road, dam, bridge or any other such structure, rendering of technical assistance was an invariable part. He then proceeded to consider the details of the Karkh Project and reproduced in detail the nature of that work and the work which the assessee had to carry on. He pointed out that the tender was to be accepted for the whole work and no part of the contract could be bifurcated. Under the agreement, the contractor had to give a design report, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHB, the Commissioner (Appeals) set aside the order of the IAC (Assessment) so that the matter could be considered in that light afresh. 15. Extensive submissions have been made before us by the learned counsel for the assessee, Shri R. Ganesan, and the learned advocate, Shri B.B. Ahuja, on behalf of the department. After taking us through the various applications and approvals under section 80-O, the learned counsel for the assessee particularly drew our attention to the amendment made by the Board in its original order in the Karkh and Diwaniyah Works. He submitted that though this modified order has been passed after the order of the Commissioner (Appeals) it throws light on the understanding of the Board about such contracts. Though he made a cursory reference to all the contracts, he drew our specific attention to the Karkh Contract and submitted that it was a highly sophisticated technical work involving highly qualified and technical engineers and all the experience and technical know-how of the assessee was rendered to the Iraqi authorities in execution of this contract. In this connection, he referred to the qualification of the people sent for the execution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard may not approve such an agreement for the purpose of section 80-O. The Board had also clarified that in a case of fraud or misrepresentation the order shall be revoked. The grant of deduction from the gross total income under section 80-O was subject to fulfilling the other conditions laid down in the section in this behalf. The actual amount of deduction was to be determined by the ITO. It was also clarified that approval granted for non-corporate assessee will cease to be operative from1-4-1975. By a later clarification issued in 1979, the Board stated that in case of composite agreements, the approval may be granted by the Board subject to suitable disallowance for non-qualifying services after taking into consideration the totality of the agreement. 17. The learned counsel for the assessee pointed out that in all the approvals granted by the Board only in one the Board had referred to the disallowance and other agreements had been approved without any condition. He referred to the speech of the Finance Minister while explaining the objects of section 80-O and submitted that the provision should be considered in the light of the intention with which it was introduced. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard on a question of fact or of judgment would not ordinarily be reviewed by the Courts. 19. A reference was also made to the decision in the case of Ghai Lamba Catering Consultants (P.) Ltd. v. CBDT [1980] 124 ITR 301 (Delhi), where the approval had not been granted by the Board as it was of the view that the agreement was nothing but a joint venture. As against this, reference was made to the decision in the case of Oberoi Hotels (India) (P.) Ltd. v. CBDT [1982] 135 ITR 257 (Delhi), where it was held that the management of the managing agency is not the same thing as managing a modern hotel for a foreign company. In such a case, it was rendering of technical assistance and it was held that the assessee-company was entitled to approval under section 80-O. A reference was also made to the decision of the Bombay High Court in the case of Eastman Consultants (P.) Ltd. v. CBDT [1981] 132 ITR 637, where it was held that mere supply of particulars or biodata of various Indians willing to work abroad and their selection or recruitment, is a situation falling far too short of the requisites necessary for attracting the benefits of section 80-O. 20. In the background in the above case la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipment, water treatment plant, machinery, apparatus, station pipe work, materials, articles and ancillaries of all kinds required for installations of the highest possible operative standards and for compliance with the standards prescribed in the specification and with the particulars and guarantees entered by the contractor in the Schedules (Vol. IV). (4) The detailed design and construction of all civil works, including structures, buildings, building services, pipelines, drainage systems, roads and general site works. (5) Setting plant and installations to work, commissioning and carrying out site tests to prove compliance with the prescribed standards and with the duties and guarantees entered by the contractor in the Schedules, as a precedent to the issue of the certificate of completion. (6) Operating the works for a period of three months after the issue of the certificate of completion. (7) Supervising operation of the works for the remaining nine months of the period of maintenance. (8) Training the employer's personnel for the operation and maintenance of the works during the period of erection, setting to work and commissioning (prior to the issue of the certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, hydrographical survey (as necessary), site investigation and geotechnical appraisal, functional plans and general designs, schematics, detailed designs, perspectives, and working drawings for both plant and civil works, together with any and all other studies, investigations, computations, analyses and evaluations necessary to comply with the requirements of the specification. Functional plans and designs shall be based on the proposals submitted with the contractor's tender, subject to such modifications as the employer and the engineer may require under the terms of the contract. All designs, drawings and documents relating to design of the works shall be submitted by the contractor to the engineer for review and approval. Submissions shall be accompanied by corroborative information and computations as necessary. The contractor shall carry out the works only in accordance with approved designs, drawings and documents." It was pointed out that the technical assistance was rendered while actually constructing the various parts of the project and engagement of the assessee was mainly because he was in a position to render technical assistance. 21. The learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion of other sections where the provisions of section 80HHB are found applicable. 22. The learned counsel submitted that under the guidelines issued by the Board, it was open to the Board to indicate in its approval order the exclusion of profits on material or any other aspect not covered under section 80-O. He pointed out that except the project inLibyathe Board has not placed any condition while approving the other contracts, though all the facts had been placed before the Board. The learned counsel vehemently submitted that as far as the contracts relating to the Karkh Water Supply Works and Diwaniyah Project were concerned, the Board had itself first made a reference to section 80HHB, for the assessment year 1983-84 but on representation by the assessee, the Board had made the approval applicable to the assessment years following the assessment year 1982-83 as well. He, therefore, submitted that the Board's modified orders relating to the Karkh and Diwaniyah Works clearly pointed out to the facts that the Board considered that deduction under section 80-O was still available to the assessee notwithstanding the introduction of section 80HHB. The learned counsel submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee drew parallel for interpretation to the provisions of section 40A(7) of the Act and the observations of the Hon'ble Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. At page 600 their Lordships have observed that where overriding effect is given the intention should be carried out by giving to the intention a reasonable meaning. It was submitted by the learned counsel that the intention behind introduction of section 80HHB was not to deny the benefits which were available under other provisions particularly when the Board after thorough scrutiny had approved the contracts and in the case of the two contracts of Karkh and Diwaniyah, they had done so after even taking the provisions of section 80HHB into consideration. The learned counsel, therefore, submitted that the benefit under section 80-O should be made available to the assessee in respect of these contracts. It was also submitted by the learned counsel that he has referred to the provisions of the Karkh Contract in detail as that was the major contract and his submission was that the others were also having the same nature. 25. Shri B.B. Ahuja, the learned counsel for the revenue, subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd maintenance. Thus, it included all the stages of the project and in fact, it was a turn-key project under which the assessee had agreed to execute this foreign project under the overall supervision of the Iraqi authorities. No doubt, apart from the survey and other studies carried on by the employers, the assessee as the contractor had to make his own survey and submit his own designs and drawings wherever those given by the employers were not found to be suitable. The responsibility of the assessee-company was from designing to execution as well as later maintenance of the whole works. In this connection, the learned counsel drew our attention to the provisions of section 80HHB. He submitted that the income which has arisen to the assessee is from the execution of foreign projects undertaken by him in pursuance of these contracts. He pointed out that 'foreign project' was defined in the section to mean the construction of any building, road, dam, bridge or other structures outsideIndia. The learned counsel submitted that the construction of modern projects, dam and other big structures require high degree of engineering skill and experience in doing such works. He, however, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, he referred to the nature of work, as was evident from the paper book filed by the assessee. In this connection, it was pointed out that the assessee in his letter to the Board written on4-8-1981in respect of Amanat-Al-Asima Baghdad Water Supply Scheme had stated that the contract was for civil construction and know-how and the use of materials and equipments was part of these services. It had further been stated that skilled engineers had been sent for executing the above contract. He further referred to the letter dated24-12-1981(page 101 of the paper book) wherein it was stated that the tenders were for design, manufacture, delivery, supply, construction and installation, complete in a single contract of works required for stage 1 of the Karkh Water Supply Scheme. It was submitted that the contention of the assessee that the work was highly technical cannot help the assessee as the execution of foreign projects of such magnitude will certainly involve technical competence and technical skill as well as experience. He further submitted that the contention that consideration received for technical services was included in the total consideration for the project, was of no av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. He contended that there was no force in the submissions made by the assessee that under section 80HHB only such contracts were covered which had been entered into after1-4-1983. He pointed out that the section itself was applicable for the assessment year 1983-84 and it refers to the income arising to the assessee in that assessment year from a particular kind of activity. It was immaterial when the contract was executed or signed. He contended that though the approval given is important only for the first year what has to be seen in each year is whether the law as it stood in that year has made any special provision for treating such income. He further pointed out that the assessee's submission that the new provision of section 80HHB cannot take away the benefit available to the assessee under section 80-O is misplaced as the Legislature has supreme power of taxing or exempting a particular kind of income arising to the taxpayers. The learned counsel further pointed out that by the orders of approval given by the Board, it could not be referred that there was any promise by the Government to exempt the income arising in the hands of the assessee. He submitted that the approvals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of any part of the consideration as related to such technical services rendered by the assessee. In all these contracts, the consideration is one whole for the execution of the works and such execution of work would be squarely covered under section 80HHB. 30. The learned counsel for the revenue then referred to the approvals granted by the Board. He submitted that in his submission the Board may have committed an initial mistake in approving the contracts under section 80-O. It was clear from these contracts that they did not refer to the rendering of any technical service but only to the execution of the various projects abroad. In respect of the approval granted by the Board for the Karkh Project and Diwaniyah Project, the Board had first confined the approval to the assessment year 1982-83 and had referred to section 80HHB for the assessment year 1983-84 onwards. Later on, the Board realised that the approval has to be of the contract and it cannot be confined to a particular year and, therefore, a modified order was issued though belatedly in 1985 after the Commissioner (Appeals) had already passed his orders. He submitted that this modification of the original order has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous and it makes this sub-section to be a proviso to all the sections falling in sub-Chapter C of Chapter VIA of the Act. This Chapter dealt with deductions in respect of certain incomes and it is provided that no part of the consideration or of the income comprised in the consideration payable to the assessee for the execution of a foreign project in clause (a) or clause (b) of sub-section (1) of section 80HHB could be taken to qualify for deduction for any assessment year under any such other provision. He submitted that this sub-section made it clear that once it is found that a consideration or income was received for execution of foreign project, the deduction as provided in section 80HHB alone will be applicable and deduction under any other section of sub-Chapter C could not be available to the assessee. The learned counsel contended that there was no contradiction in interpreting the sub-section in this manner by making a reference to section 80P(3). He submitted that section 80P refers to the income of a co-operative society and sub-section (3) merely provides that after all the deductions under the various sections referred to in sub-section (3) of section 80P have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel drew our attention to the observations of the Court at page 418 and page 423. He contended that in the same manner in the present contract which was indivisible, it was not possible to hold that any part of the consideration was for the technical services rendered as the whole consideration was for the execution of the construction work. A reference was also made to the decision of the Madras High Court in the case of Richardson & Cruddas Ltd. v. State of Madras [1965] 16 STC 827 where again their Lordships considered the case of the building contractor vis-a-vis the Madras General Sales Tax Act. Their Lordships held that if the amount payable as provided in the contract is one consolidated sum and could not be split up in part as the price for the materials supplied and in specific part as remuneration for their work and work done, the contract is a works contract. Their Lordships, however, observed that it all depended on the terms of the contract and the intention of the parties. 33. The learned counsel then referred to the decision of the Bombay High Court in the case of Otis Elevators Co. (India) Ltd. v. State of Maharashtra [1969] 24 STC 525. In this case als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was not the final word as far as the assessment was concerned as the assessment was to be made by the assessing officer in accordance with law. The Board has approved the contract as according to the understanding of the Board, there was some technical assistance being provided by the assessee-company under the contract. However, while actually working out the income, it was for the assessing officer to see whether there was any other provision which has taken away the benefit from the assessee or has reduced the quantum of such benefit. He pointed out that section 80-O does not show that the decision of the Board about the exemption of income is final, and the jurisdiction of the ITO to take into consideration the provisions of section 80HHB has not been taken away by the approval granted by the Board. He also submitted that the mention of the assessment years is immaterial and once the contract is approved the ITO has to satisfy himself about the computation of income. He submitted that there could be cases where after the contract has run for sometime, there is gap in a year in rendering of technical assistance or technical services, in that case the question of exemption w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, no question of harmonious construction arose. 37. In reply the learned counsel for the assessee reiterated the points stated by him but with more emphasis on certain aspects. He submitted that profit as such was not excluded from the provisions of section 80-O and in the case of Oberoi's Hotel (India) (P.) Ltd. also they were in receipt of profit and not merely of fees or commission. Referring to the approval granted by the Board, he submitted that the Board had considered all the aspects and had then approved the contracts and this approval was in accordance with the known policy of the Board. He submitted that the nature of the contract was such that technical assistance and technical services were to be rendered while executing the construction work. He contended that whatever may be the position of the appellate authorities, the assessing officer could not go behind the order of the Board and could not hold that the exemption could not be available to the assessee notwithstanding the existence of the approval order. He pointed out that even the quantum of income eligible for exemption had not been reduced by the Board as done in some other cases. It was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From that it would appear that if some constructional operation was undertaken and it required some technical assistance, which is rendered, it would be covered under this section. However, in practice it appears from the approvals placed before us that the Board has been approving the contracts as such in the earlier years, without any distinction between the extent of technical services and other activities under the contract. Though the learned counsel for the revenue has submitted that the Board might have committed any initial mistake in approving such contracts which were essentially contracts of works and not of technical assistance, we do not agree with him as it was for the Board essentially to lay down the policy and to interpret the scope of deduction under section 80-O. If the Board had adopted a liberal interpretation and had approved such contracts as a whole, it was a matter of policy and we cannot subscribe to the contention that this was done as a mistake. Before us there is no dispute now that the approval was of the contract and the mention of the assessment year to which such approval was applicable was redundant. After the approval orders regarding the two cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracts with special reference to contract of Karkh Work as the learned counsel for the assessee has made reference to this contract alone before us. Before we do so we may first briefly consider the legal position. 41. As already stated above while dealing with the arguments of the parties, section 80HHB was introduced with effect from1-4-1983, and the main purpose was to encourage the Indian building contractors. The definition of 'foreign projects' is wide enough to include any contract for construction and it does not exclude any such work on the basis of its being sophisticated or highly complicated. The construction of roads, dams, bridges and other such structures in the modern day world requires highest degree of technical competence and experience of doing such work in the face of ever-changing modern technology available on the basis of globle tenders. The section provides that wherever such work is executed by the assessee and income is earned, 25 per cent of such income is deductible under this section on the fulfilling of certain conditions by the assessee. Sub-section (5) provides that the consideration or the income comprised in the consideration payable to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the assessee would fall under section 80HHB or section 80-O. 43. We have already extracted some parts of the contract and the terms of agreement and from these extracts it appears that the contract was for execution of Karkh Water Supply Scheme contract stage 1. As already stated above 'works' has been given a definite meaning for interpreting the contract as it means all the works to be executed in accordance with the provision of the contract including the design, manufacture, delivery, supply, installation, construction, setting to work, commissioning, site testing, operations and the maintenance, as the case may be. Form of agreement also makes it clear that the consideration of the payment to be made by the employer to the contractor was for executing, completing and maintaining works in conformity, in all respects, with the provisions of the contract. The general specification of the work to be done gives the details about headworks, making of the transmission pipelines, reservoir works, trunk-pipelines, etc. The tender document itself had given some geological, hydrological and other information for assisting the contractor at the time of tendering but this infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for executing this work, it was absolutely essential for the contractor to have necessary technical competence and they had to use highly experienced technical personnels for this purpose. From the very nature of the work, it is clear that the execution of the project involved a high degree of technical competence as well as expertise and experience. However, reading the contract as a whole, the intention of the parties was only to get the whole project being made available on a turn-key basis according to the general specifications laid down by theBaghdadauthorities. It is not possible in this contract either to separate one part from the other or to bifurcate a part of consideration for any particular service. We have already considered the various case laws including certain decisions of the Hon'ble Supreme Court in the case of Ganon Dunkerley & Co. Ltd. and Ram Singh & Sons Engg. Works which throw light on interpretation of such contracts. Various High Courts have also considered similar questions throwing light on the nature of contracts. Applying these principles, it appears that this is an indivisible and integrated contract for the whole work and has to be treated as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike 80P(3) would become unworkable with this interpretation of section 80HHB. Section 80P deals with the case of co-operative society. It is provided in sub-section (3) of that section that where an assessee is entitled to deduction under various sections including section 80HHB, first those deductions would be allowed and then only deduction under section 80P shall be allowed. This sub-section of section 80P does not contemplate any deduction in respect of consideration which is covered under section 80HHB but only refers to the income which is arrived at after deducting the other specified deductions. In other words where there is an exemption of income of a co-operative society up to a particular limit that benefit would not be lost to such co-operative societies. That is merely a machinery section and does not throw light on the interpretation of section 80HHB(5). 47. This brings us to the question of the approvals granted by the Board not only in respect of the earlier contracts but also in respect of these two contracts of Karkh and Diwaniyah Works where at the time of grant of approval, the Board was aware of the provisions of section 80HHB. We have to determine the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to section 80HHB for the assessment years 1983-84 onwards. The second order was likely to give an impression that the rectification has been made in view of the representation made by the assessee about the scope and application of section 80HHB. This impression was not only created in the minds of the assessee but also led to some misunderstanding in the mind of the Commissioner. When he sought a clarification, the Board stated that in spite of approval under section 80-O if the income does not satisfy the requirements of that section, the assessee would not be entitled to such deduction. In this letter, it was also stated that the mention of the assessment years in the approval orders was redundant. We have referred to this clarification given by the Board only because the learned counsel for the revenue has adopted the arguments given in this letter as his own. There is no doubt that the first qualified approval followed by the modification of that approval coupled with this thinking on the part of the Board as given to the Commissioner does indicate that the position was not clear in the mind of the authorities who approved or modified the approval of the contracts. Be tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction (P.) Ltd. [1983] 6 ITD 575 (Delhi). The IAC while making the assessment denied the claim of the assessee for investment allowance on the basis of ground given by him in the earlier years and the reason given by him is that the assessee is not an 'industrial company'. When the matter came before the Commissioner (Appeals), he found that the matter had not at all been considered by the IAC by a speaking order. Before the Commissioner (Appeals) reference was made to the order of the Special Bench of the Tribunal in the case of Hydle Construction (P.) Ltd. The Commissioner (Appeals) found that the question had been considered by the Special Bench in respect of the assessment years 1977-78 and 1978-79 and in the light of the discussion in that order the Commissioner (Appeals) directed the assessing officer to follow the observations of the Special Bench of the Tribunal. 51. As the learned Commissioner (Appeals) had merely set aside this matter for reconsideration by the assessing officer, the ground taken by the assessee does not appear to be correct as there was no disallowance by the Commissioner (Appeals). The learned counsel for the assessee only submitted that instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. We find that the Commissioner (Appeals) has already given direction for this purpose and no further relief is due to the assessee on this point. In respect of ground No. 5(ii) the assessee has objected to the disallowance under section 40(c)/40A(5) of Rs. 7,62,49,230 payable to the India based directors but the learned counsel for the assessee has not made any submissions before us and has stated so before us. We find the order of the Commissioner (Appeals) on this issue to be in order and this ground is also rejected. 54. This takes us now to the departmental appeal. 55. The first ground in the departmental appeal is against the directions of the Commissioner (Appeals) for consideration of the assessee's claim under section 35B of the Act. There was no such claim before the assessing officer and it was submitted before the Commissioner (Appeals) that he had not made claim under section 35B as he was expecting the whole income to be exempted under section 80-O. In that case, there could have been no question of any deduction under section 35B. The Commissioner (Appeals) found force in this submission and directed that the claim of the assessee should be examined for determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the observations of the Commissioner (Appeals), we decline to interfere with his directions. 59. The next ground relating to the claim for investment allowance has already been considered by us while dealing with the assessee's appeal. 60. The third ground in the departmental appeal objects the deletion of Rs. 6,33,93,340 which had been made under section 40(c) being the remuneration paid to the directors in excess of the limits prescribed under section 40(c). The IAC had not discussed this matter in any detail and had disallowed the whole of the claim in respect of directors' remuneration as was in excess of the limit of Rs. 72,000 for each director. Before the Commissioner (Appeals), the assessee did not dispute the disallowance made in respect of the directors posted inIndia. They were being paid an annual remuneration of Rs. 60,000 plus percentage of commission. The amount which was in excess of the limits was admitted to be disallowable before the Commissioner (Appeals). However, in respect of 6 directors who were looking after the company's work outsideIndia, remuneration was being paid in U.S. dollars and in the case of two directors, namely, Shri M.S. Wassi and Shri C.K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to directors. He pointed out that in section 40(c) there was no exclusion for the remuneration for any period of work outsideIndia. He referred to the order of the Tribunal in the case of Geoffrey Manners & Co. Ltd. v. ITO [1983] 3 SOT 40 (Bom.) (SB) in this regard. The learned counsel, however, did not dispute that these persons were employee-directors and services were being rendered by them outsideIndia. 63. The learned counsel for the assessee, however, submitted that all these directors were employees as would be evident from the contract of their employment and they were being paid in US dollars. It was also submitted that the Special Bench of the Tribunal had considered this issue in the case of ITO v. Sapt Textile Products (India) Ltd. [1981] 1 SOT 269 (Bom.). It had been held here that in considering the question as to whether the remuneration in the case of director-employee falls to be considered under section 40(c) or 40A(5), it was not possible to hold that it must fall only under one of them and not both as if they are mutually exclusive. The Bench had also referred to various provisions which brought those two provisions nearer to each other. The Special B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (Appeals), however, allowed the claim of the assessee on the basis of the order of the Special Bench of the Tribunal in the case of Hydle Construction (P.) Ltd. The learned counsel for the revenue submitted that in the case of Hydle Construction (P.) Ltd. it had been decided that where the main business was carrying out civil construction work like tunnels, power house, etc., it could be treated as an industrial company, if on facts it is found that the company is engaged in manufacturing or processing of goods. It was submitted that this decision of the Special Bench cannot be followed in the light of the decision of the Delhi High Court in the case of Minocha Bros. (P.) Ltd. That was also a company engaged in the business of construction. The question arose whether that company could be treated as an industrial company as defined in the Finance Act for the purpose of determining the rate of tax. The Court held that a company engaged in the construction business could not be held to be an 'industrial company'. A reference was made to the definition of industrial company which means a company which is mainly engaged in the business of generation or distribution of electricity or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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