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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 ..... re 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) on this issue. 6. The learned IAC then proceeded to make a reference to the provisions of section 80HHB of the Act and he particularly referred to sub-section (5) of that section. The IAC held that in respect of contracts which had been approved earlier as well as the two contracts which were being considered for the first time in this year, the matter had to be considered in view of the new provision brought on the statute book in the form of section 80HHB. The IAC referred to the language of the Board's approval and held that the approval was subject to the other conditions 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board for approval under section 80-O and pointed out that the consideration in the contract should be for providing technical know-how or rendering technical services. He referred to the applications given by the assessee to the Board and found that the assessee's statement that it was rendering a technical service or providing technical know-how was wrong. The so-called technical personnel were not qualified to render any technical service and the contracts were for constructing various projects or for providing materials and labour. According to him only very small number 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al section. The Commissioner (Appeals) agreed with the submission of the department and he was of the view that wherever a foreign project is executed, it is not possible that there will be no rendering of technical services. It was only because execution of the foreign project involves technical competence that the countries were coming forward to take help from other countries where such personnel were available. At this stage, we may reproduce the finding of the learned Commissioner (Appeals) on this matter: "2.14 I am in complete agreement with the arguments advanced by Mr. Kapila, 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HHB, the consideration of section 80-O was barred by the statute. He further observed that where both sections are found to be applicable, benefit to the assessee has to be limited as applicable under section 80HHB. 12. There was some controversy before the Commissioner (Appeals) regarding the payment being under convertible foreign currency but that controversy has not been pressed before us. 13. Before the Commissioner (Appeals) it was submitted that the work done by the assessee could not be brought under 'foreign projects' as given in section 80HHB and in all these contracts the 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals), therefore, held that the emphasis laid down by the counsel for the assessee on the Karkh Project was of no avail. 14. Considering all the above facts the Commissioner (Appeals) came to the conclusion that all the contracts in respect of which the assessee had received income in this year were covered under section 80HHB and, therefore, notwithstanding the approval granted by the Board under section 80-O, the income from these foreign projects was to be considered under section 80HHB and not under section 80-O. Regarding the assessee's alternative submission about 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further provided in sub-clause (ix) of that paragraph that in a case of a composite agreement specifying a consolidated amount as consideration for purchases which include matters outside the scope of section 80-O, the amounts of consideration relating to provision of technical know-how or technical services have to be determined by the ITO separately at the time of assessment after due appreciation of relevant facts. Where it was not possible to determine the amount of consideration as relateable to the provision of know-how or the technical services qualifying for section 80-O, the Board 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also made to the decision of the Delhi High Court in the case of Indian Institute of Public Opinion Co. (P.) Ltd., where it was held that the contract as such was to be approved and there was not to be a repeated approval of the same agreement for every assessment year. A reference was also made to the case of E.P.W. Da Costa v. Union of India [1980] 121 ITR 751 (Delhi) and the decision in the case of Simon Carves India Ltd. v. CBDT [1979] 120 ITR 172 (Delhi). The later case related to the provisions of section 80MM. In the later case it was held that a reasonable view expressed by the Board 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 hote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phical and hydrographical) and site investigation as is necessary in the opinion of the engineer for the purposes of design by the contractor. (2) The functional planning, layout and general design of the works, including for future stage of the scheme where specified. (3) The detailed design and development, manufacture, testing at places of manufacture, painting, packing, delivery, supply, erection, setting to work, commissioning, testing and painting after erection, of all plant required for the works, including but not limited to pumping equipment, standby generating equipment, electrical equipment, 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in outline only and are based on information available prior to preparation of the tender documents. All levels indicated or proposed are provisional, and may need to be revised subject to the results of survey and site investigation carried out by the contractor. Nevertheless, the contractor shall follow such proposals to the maximum possible extent in preparing his own proposals consistent with his own experience and with the particulars and guarantees given by him in the Schedules. 4.6 (a) General The design of the works shall be an integral part of the contract. Such design shall include topographical survey, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHB, section 80HHC, section 80-I, section 80J and section 80JJ." It was contended that even where the deduction is allowable under section 80HHB the assessee is entitled to deduction under section 80P after allowing the other deductions as given in that sub-section of section 80P. He, thus, submitted that there was no complete exclusion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the doctrine of promissory estoppel is an equitable doctrine and, therefore, it must yield when equity so requires. According to the learned counsel in the present case, the approval granted by the Board created an estoppel for taking the stand that deduction under section 80-O was not applicable in view of the provisions of section 80HHB. He submitted that it was particularly so in the case of Karkh and Diwaniyah Projects where the modified approval order had been issued after the Board had considered the implications of section 80HHB, as applicable to the assessment year 1983-84. 24. The learned counsel for the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct documents and any modification of such drawings approved in writing by the engineer and such other drawings as shall be furnished by the contractor and approved in writing by the engineer or furnished by the engineer." "(q) 'Plant' means machinery, apparatus, station, pipework, materials, articles and all things of a mechanical and electrical kind to be provided under the contract other than contractor's equipment." It was contended by the learned counsel that the contract did not include merely designing of the work but also manufacture, delivery, supply, installation, construction, setting to work, commissioning, operations and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that it was not possible on the reading of the contract and its various provisions that any part of consideration was for rendering of any technical assistance or giving of any technical know-how and the whole consideration was for the execution of the works and the works were no doubt covered under the term 'foreign projects' as given in section 80HHB. 26. The learned counsel for the revenue further referred to the other contracts and pointed out that the contract in Libya was for the construction of a dam and the others related to drainage work, sewerage work or some other work of constructing structures and in this connection, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHB thus cover two different fields of activity and do not override each other and in no case before assessment year 1983-84. In case an assessee can establish that the foreign project executed by an assessee involves the use outside India of any patent, invention, model, design, engineering or constructional services, the assessee would be entitled to the concession referred to in section 80-O of the Income-tax Act." 28. He also referred to the arguments advanced before the Board in the assessee's letter dated2-12-1983which was a representation after the issue of the first order approving the contract for the Karkh Water Supply Scheme. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ientific knowledge. In all the applications, the assessee has made it clear that the consideration for these services was nil and in other words the assessee did not claim to be covered under this part of section 80-O. In the applications, the assessee has tried to bring itself under the second part of the section which refers to the technical services rendered or agreed to be rendered outsideIndiato a foreign Government or a foreign enterprise. He submitted that the essence of all the contracts was not rendering of technical services as such but only the execution of the construction contracts. In none of these contracts, there is any mention 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e then made his submissions about sub-section (5) of section 80HHB. That sub-section reads as under: "(5) Notwithstanding anything contained in any other provision of this Chapter under the heading 'C. Deductions in respect of certain incomes', no part of the consideration or of the income comprised in the consideration payable to the assessee for the execution of a foreign project referred to in clause (a) of sub-section (1) or of any work referred to in clause (b) of that sub-section shall qualify for deduction for any assessment year under any such other provision." It was contended by him that the language of the sub-section is unambiguous 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. Their Lordships held that in a building contract, the agreement between the parties is that the contractor should construct the building according to the specifications contained in the agreement and in consideration therefor received payment as provided therein and in such an agreement there is neither a contract to sell materials used in the construction nor does property pass therein as movable. Their Lordships further held that in a building contract which is one, entire and indivisible, there is no sale of goods and, therefore, sales tax could not be imposed on the supply of materials used in such a contract treating it as a sale. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. The Court cannot import provisions into statute so as to supply deficiency. The counsel submitted that in the present case the provisions of sub-section (5) of section 80HHB were clear and the consideration and receipts in the hands of the assessee fell squarely to be considered only under that section. 35. Reverting to the Board's approval the learned counsel for the revenue submitted that the assessee had made some wrong representation of facts before the Board. He also submitted that the approval was subject to the amendments in law and the application of mind by the ITO. He further submitted that the Board was an approving authority but 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 benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where a wrong view is taken in one year, it was open for the revenue to take correct view in the other year. 36. The learned counsel submitted that the use of the words 'notwithstanding anything contained in any other provision of this Chapter under the heading 'C' ' makes it obligatory first to find out whether the case falls under section 80HHB or not. Once it falls under that section, the deduction of benefit under other sections is barred. As it is not a case for application of section 80-O, the question of giving the better benefit to the assessee does not arise. He submitted that there was no conflict between the two provisions and, therefore, 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessment had bifurcated the considerations falling under section 80-O and not falling under that section. The claim of the assessee has been that the payment made to him was in consideration of technical services rendered or agreed to be rendered outsideIndia. It was with reference to this claim that the approval has been granted. The action of the Board in this regard must have been taken in accordance with the policy laid down for this purpose. In the guidelines issued by the Board in 1975, it had been stated that technical services may be rendered in relation to constructional, industrial or manufacturing operations or engineering services. 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 mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made in respect of Karkh and Diwaniyah Works. Firstly, this is so because these works involved the highest amount of payments and profits and secondly because in these works, there has been a modification of original approval and later clarification given by the Board. The manner in which the contracts for these works were approved and then modified after the order of the Commissioner (Appeals) and then a submission is made that there was nothing much in the approval granted by the Board, does not throw good light on the manner in which this matter has been handled at the level of the Board. We will now proceed to consider the nature of the contracts 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that the agreement between the Indian company and the foreign enterprise should be approved by the Board in this behalf. A plain reading of this section shows that there should be a receipt of royalty, commission, fees or any similar payment either for use outside India of any patent, invention, secret formula, etc., or rendering of any technical service outside India. Admittedly, in the present case, there is no claim under the first part of the section and the claim was that the assessee-company was receiving payments in consideration of technical services rendered outsideIndia. In the light of these two provisions now we have to ascertain whether the 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, construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the starting and completion datas for each complex and major installation including construction of the preliminary works, submission of functional plants and general designs and periods for manufacture, delivery, erection, etc., of all works required, including plant and civil works, pipelines and services. The price schedules were deemed to cover all expenses, costs, risks and all materials necessary for the contractor to execute, operate and maintain the works. 45. The perusal of the contract and its various parts very clearly shows that it was a contract for commissioning of a turn-key project for the Karkh Water Supply Scheme. It is true that 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 specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration and income covered under section 80HHB to be also partly covered under other provisions of that sub-Chapter. This sub-section, however, prohibits the deduction under any other sub-section of this sub-Chapter. As we have already said, it is not possible to bifurcate the consideration or income so as to partly fall under section 80HHB and partly under section 80-O, the whole consideration and the income is related to the execution of the project and, therefore, it is not possible to hold that the assessee-company would still be eligible for deduction under section 80-O. We do not agree with the learned counsel for the assessee that provisions like 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract at the time of approval granted by the Board and the question of estoppel therefore does not arise in such a case. It is true that in respect of Karkh and Diwaniyah projects confusion which has arisen in this case could have been avoided. In the first approval letter the Board confined the approval to the assessment year 1982-83 and referred to section 80HHB for the subsequent years. On representation by the assessee the matter was considered for almost two years and meanwhile the assessment was also made and the first appellate authority also decided the matter. It was only in July, 1985 that the Board rectified their earlier order removing the reference 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee's appeal has, therefore, to be rejected and the conclusion arrived at by the learned Commissioner (Appeals) is upheld. 50. The second ground in the assessee's appeal is in respect of deduction by way of investment allowance under section 32A of the Act. There is ground in the departmental appeal also about this question. Whereas the assessee has stated that the Commissioner (Appeals) erred in not allowing his claim the department has questioned the correctness of the directions of the Commissioner (Appeals) that the claim under section 32A should be examined in the light of order of the Special Bench of the Tribunal in the case of ITO v. Hydle 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these provisions and in these circumstances the order of the Commissioner (Appeals) setting aside this matter for fresh consideration was justified. The assessing officer will, however, be free to consider not only the decisions of the Special Bench of the Tribunal but also the decisions of the Courts as may be available to him. In view of the matter the grounds taken by the assessee as well as by the department on the question of investment allowance are rejected. 53. Though the assessee's appeal refers to several other grounds, they have not been pressed before us and the only submission made before us is regarding the charge of interest under section 215 of the 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 rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he was not justified in observing that the assessee had a prima facie case, the matter should be left to the ITO for deciding on the basis of materials. It is for the assessee to make out a case that in the course of his business some expenses were incurred for exporting services. It was also contended that the matter was again before the Commissioner (Appeals). We, however, modify the directions given by the Commissioner (Appeals) by stating that the assessee's case should be examined in the light of the provisions of section 35B as applicable for this assessment year and on the basis of materials which may support the assessee's claim. Subject to this modification in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (5) of section 40A and found that the provisions of the section do not apply to the remunerations paid for the work done outsideIndia. The learned Commissioner (Appeals) found a rational behind this as the price structure inIndiaand outsideIndiawas different. On this basis he held that for this purpose provisions of section 40A(5) are applicable and the remuneration paid for work done outsideIndiahas not to be considered for disallowance. He, therefore, deleted the disallowance made by the assessing officer. 62. The learned counsel for the department has submitted before us that section 40A(5) applies to employees in general whereas section 40(c) was specifically applicable 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 empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Bharat Vijay Mills Ltd. [1981] 128 ITR 633 that section 40A has an overriding effect and within the framework of that section the limits of allowance and conditions of disallowance have been laid down. We would, therefore, uphold the order of the learned Commissioner (Appeals) on this question and dismiss the ground taken by the department. 66. The last ground in the departmental appeal objects to the directions of the Commissioner (Appeals) for treating the assessee-company as an 'industrial company' for determining the rate of tax. The assessing officer had not treated the assessee-company as an industrial company and has levied the tax accordingly. The Commissioner (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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