Commissioner of Income Tax vs Chemical and Metallurgical Design Co. Ltd.

D.K. Jain, J.—By a consolidated statement of the case in respect of the assessment years 1968-69 to 1971-72, at the instance of the revenue, the following questions have been referred by the Tribunal, Delhi Bench, for our decision : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee is entitled to exemption u/s 80-O of the income tax Act, 1961, on the gross receipts and not on the net income ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the disallowances made by the ITO of the consultation fees and commission paid to the Managing Director, Shri T.K. Roy ?

Insofar as the first question is concerned, the learned counsel for the revenue has urged that the issue stands concluded in favour of the revenue by a decision of this Court in CIT v. Marketing Research Corpn. [1987] 61 CTR (Delhi) 204 and, therefore, according to the counsel, the question has to be answered in the negative. In support of the contention, the learned counsel for the revenue has also placed reliance on another decision of this Court in Motilal Pesticides (India) Pvt. Ltd. Vs. Commissioner of Income Tax, and a decision of the Madras High Court in Commissioner of Income Tax Vs. M.K. Raju Consultants (P.) Ltd.,

On the other hand, Mr. P.V. Kapur, the learned senior counsel for the assessee, has submitted that since the decision in the case of Marketing Research Corpn. (supra) was an ex parte decision, certain important decisions of the High Courts, having a direct bearing on the issue involved, have escaped the attention of the Court and it will, therefore, be appropriate that the matter is referred to a larger Bench for reconsideration of the issue in the light of the available judgments. It is asserted that there being material difference in the language of sections 80-O and 80M of the income tax Act, 1961 (''the Act''), the ratio of the decision of the Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, relied upon in Marketing Research Corpn.''s case (supra), is not applicable. It is asserted that the amendment of section 80-O, brought about by section 17 of the Finance Act, 1974 having material bearing on the interpretation of section 80-O has also not been noticed in the judgment of this Court. We are inclined to agree with the learned counsel for the assessee. 2. In Marketing Research Corpn.''s case (supra), following the judgment of the Supreme Court in Distributors (Baroda) (P.) Ltd.''s case (supra) by a short order, it was held as under :

It is not necessary to state the case at great length because the point referred by the Tribunal is already the subject-matter of a decision by the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, The Supreme Court has held that for the purposes of section 80-O, the deduction has to be computed not on the basis of gross income but on the basis of net income. In view of the Supreme Court decision, the question referred to us is answered in favour of the applicant and against the assessee. The question is answered accordingly.

It is evident from the afore-quoted order that the Court had proceeded on the basis that the provisions of section 80M, considered in Distributors (Baroda) (P.) Ltd.''s case (supra) and section 80-O were pari materia and, therefore, the principle of law laid therein applied in a case involving the interpretation of section 80-O as well.

Having perused some of the decisions of the High Courts dealing with section 85 of the Act, as it existed prior to the insertion of section 80-O, we are of the view that the issue involved, namely, whether while calculating the deduction u/s 80-O, expenditure, direct or indirect, incurred in India is to be reduced from the net convertible foreign exchange received in India, requires to be considered in greater detail by a larger Bench, particularly the question whether section 17 of the Finance Act, 1974 has brought about any material change for the purpose of deduction u/s 80-O.

Since the reference is being referred to a larger Bench, it is unnecessary to deal with the second question at this stage. We, accordingly, direct that papers of this case be laid before the Hon''ble Chief Justice for constituting a larger Bench for deciding question No. 1, set out hereinabove, authoritatively.