Commissioner of Income Tax vs Essar Oil Ltd.

The Commissioner of income tax has raised three questions in this appeal, which read as under :

(1) Whether the true scope and correct interpretation of section 37(1), section 80HHB and section 9(1)(i) read with sections 4 and 5 of the income tax Act, 1961, and other provisions and whether, on the facts and circumstances of the case and in law, the Hon''ble Tribunal is right in allowing the appeal of the assessee and allowing the deduction of expenditure of Rs. 14,31,730 being the expenditure incurred for exploration and production of oil and gases ?

(2) Whether the true scope and the correct interpretation of section 80HHB of the income tax Act, 1961, and other provisions and whether, on the facts and circumstances of the case and in law, the Hon''ble Tribunal is right in allowing the appeal of the assessee as to the deduction of Rs. 6,27,12,192 being the actual money brought into India in convertible foreign exchange?

(3) Whether the true scope and correct interpretation of section 9(1)(i) read with sections 4 and 5 of the income tax Act, 1961, and other provisions and whether, on the facts and circumstances of the case and in law, the Hon''ble Tribunal is right in allowing the exclusion of profit of Rs. 14,79,10,603 being the profit earned in Oman?

As regards the first question is concerned, the counsel on both the sides agree that similar question raised by the Revenue in Income Tax Appeal (Lodg.) No. 921 of 2006 (CIT v. Essar Oil Ltd.) has been dismissed by us today, i.e., on October 16, 2008.

So far as the second question is concerned, it is not in dispute that the assessee had executed certain contracts in the countries, viz., Oman and Qatar. The foreign currency earned from the said project was partially used for repaying the loan taken in foreign currency in the foreign country for executing the said project. The Tribunal relying on the decision of the apex court in the case J.B. Boda and Co. Pvt. Ltd. Vs. Central Board of Direct Taxes, New Delhi, held that the assessee is entitled to claim deduction u/s 80HHB of the income tax Act in respect of the entire foreign currency earned from the aforesaid projects. Although the decision of the apex court in the case J.B. Boda and Co. Pvt. Ltd. Vs. Central Board of Direct Taxes, New Delhi, related to the deduction u/s 80-O of the income tax Act, in our opinion, the ratio laid down therein would apply to the facts of the present case relating to grant of reduction u/s 80HHB of the income tax Act because the loan amount was paid in foreign currency is not disputed and even if the entire foreign currency was brought into India, the assessee would have been required to remit the foreign currency to discharge the loan taken in foreign currency for executing the project. Therefore, the second question raised by the Revenue does not survive.

As regards the third question is concerned, it is not in dispute that the assessee has a permanent establishment at Oman and the assessee has been taxed in respect of the income earned from the said establishment under the provisions of the income tax law at Oman. Therefore, in the light of article 7 of the Double Taxation Avoidance Agreement (DTAA) entered into by and between India and Oman and in the light of the judgment of the apex court in the case Commissioner of Income Tax Vs. P.V.A.L. Kulandagan Chettiar (dead) through L.Rs., the decision of the Tribunal in excluding the profit earned from the permanent establishment at Oman cannot be faulted. In this view of the matter, we see no merit in the appeal and accordingly, the same is dismissed.