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2009 DIGILAW 977 (KAR)

Commissioner of Income Tax v. Matha Engineers

2009-12-08

ARAVIND KUMAR, K.L.MANJUNATH

body2009
JUDGMENT K.L. Manjunath, J.— The revenue has come up in this appeal, challenging the legality and correctness of the orders passed by the Income-tax Appellate Tribunal in ITA No. 618/Bang./2001, dated 21-11-2003, wherein the Tribunal has reversed the findings of the order passed by the Assessing Officer, which has been confirmed by the Commissioner of Income-Tax (Appeals). Bangalore, for the assessment year 1998-99 of the Respondent-Assessee. 2. The appeal is admitted to consider the following substantial questions of law: 1. Whether the Tribunal committed an error in holding that Section 80-O deduction should be allowed on the gross income received by the Assessee by ignoring the provisions of Section 80-AB of the Act, which contemplates granting of such a deduction on the amount of income as computed in accordance with the provisions of the act and the judgment of the Calcutta High Court - CIT v. M.N. Dastur & Co. (P.) Ltd. (2000) 243 ITR 101 ; (2002) 124 Taxman 91 and that of the Apex Court in 239 ITR 233 (sic)? 2. Whether the Tribunal was correct in holding that the expenses like depreciation and interest paid to the partners was not for earning income from services rendered abroad when the Assessee has no other business income and therefore cannot be taken into account for the purpose of computing deduction under Section 80-O of the Act? 3. The facts leading to this case are as under: The Respondent-Assessee was providing services. During the relevant assessment year, the Assessee has rendered services to two concerns of U.K. namely Aircraft Equipment International and Serk Aviation England. The Assessee filed return of income, declaring Rs. 11,61,854. The Assessee had received in all a sum of Rs. 41,87,969 as income. The return was processed under Section 143(1)(a) of the Income-tax Act (for short, 'the Act'). The order of assessment came to be passed on 29-11-1999, accepting the explanation offered by the Assessee. Thereafter, the Assessing Officer noticed that the Assessee had wrongly claimed deduction under Section 80-O of the Act on the gross service charges and again deducted other expenditures incurred, contrary to Section 80-O read with Section 80-AB of the Act. In the circumstances, a notice under Section 154 of the Act was issued on 24-8-2000. During rectification proceedings, the Assessing Officer noticed that the Assessee has no other business income, except the service charges. In the circumstances, a notice under Section 154 of the Act was issued on 24-8-2000. During rectification proceedings, the Assessing Officer noticed that the Assessee has no other business income, except the service charges. Therefore, he treated interest paid to the partners as business expenditure incurred on the service charges by recomputing income under Section 80-O of the Act. Accordingly, an order was passed on 2-11-2000. Aggrieved by the order passed by the Assessing Officer under Section 154 of the Act, the Assessee filed an appeal before the Commissioner of Income-tax (Appeals), which appeal came to be dismissed on 23-5-2001. Aggrieved by the same, the Assessee filed a second appeal before the Income-tax Appellate Tribunal, Bangalore. The Income-tax Appellate Tribunal, Bangalore, relying upon the earlier decision in the case of M.N. Dastur & Co. (IT Appeal No. 452 (Bang.) of 1997) for the assessment year 1993-94, allowed the appeal, relying on the decision of the Supreme Court, in the case of Commissioner of Income Tax, Madras Vs. R.M. Chidambaram Pillai and Others, AIR 1977 SC 489 holding that interest paid to the partners was not taken into account for computing under Section 80-O of the Act. This order is called in question in this appeal. 4. We have heard the learned Counsel for the parties. 5. The learned Counsel for the revenue, relying on the judgment of the High Court of Calcutta in the case of CIT v. MM Dastur & Co. (P.) Ltd. (2000) 243 ITR 101 contends that the order of Tribunal is bad in law, while considering deduction under Section 80-O of the Act. 6. According to the learned Counsel for the revenue, business of the Assessee is only to provide services and the Assessee was not getting any income from other sources. Therefore, the Assessing Officer was justified in considering interest paid to its partners while computing expenditure under Section 80-O of the Act. According to him, the Tribunal did not consider the same and proceeded with the matter as if the Assessee had income from other sources. Therefore, he contends the order of Tribunal is bad in law. 7. Per contra, the learned Counsel for the Assessee contends that the order of the Tribunal is based on its own order, which order has become final, since the revenue has not challenged the same. Therefore, he contends the order of Tribunal is bad in law. 7. Per contra, the learned Counsel for the Assessee contends that the order of the Tribunal is based on its own order, which order has become final, since the revenue has not challenged the same. He further contends that the order of the Tribunal is also based on the judgment of the Supreme Court, in the case of R.M. Chidambaram Pillai (supra). Therefore, he requires the Court to dismiss the appeal. 8. Having heard the learned Counsel for the parties, we are of the opinion, in the case of M.N. Dastur & Co. (P.) Ltd. (supra), the Hon'ble High Court of Calcutta had an occasion to examine how Section 80-O of the Act has to be considered. But the question in this case is about how the interest paid by the Assessee to its partners has to be accounted, whether the same has to be considered while computing deduction under Section 80-O of the Act or not. 9. According to the revenue, except income from services rendered by the Assessee, he had no other income. Therefore, he contends that interest paid to the partners has to be included while computing Section 80-O of the Act. But according to the learned Counsel for the Assessee, the same cannot be included. The Tribunal in its order has come to the conclusion that interest paid to the partners is not found incurred for earning such income from the services rendered abroad. 10. According to the Assessing Officer, the Assessee has no other business except the service rendered by it and earning income from out of such business. Therefore, the Assessing Officer has come to the conclusion that such business expenditure has to be incurred on service charges. Since the issue that has to be considered by the Assessing Officer has not been considered properly not only by the Assessing Officer, but also by the Tribunal, we have no other business except to remand the matter to the Assessing Officer, keeping all the contentions open without answering substantial questions of law. 11. Since the issue that has to be considered by the Assessing Officer has not been considered properly not only by the Assessing Officer, but also by the Tribunal, we have no other business except to remand the matter to the Assessing Officer, keeping all the contentions open without answering substantial questions of law. 11. In the light of the observations made by the Assessing Officer and the order of the Tribunal, we are of the opinion, it is for the Assessing Officer to give a finding about how the interest paid by the Assessee to its partners has to be reckoned to bring within Section 80-0 of the Act or any other provision of law without answering substantial questions of law. By allowing the appeal, we remand the matter to the Assessing Officer, keeping open all contentions. 12. In the result, all the orders are hereby set aside. The appeal is allowed. The matter is remanded to the Assessing Officer for fresh consideration, without answering substantial questions of law framed in this appeal.