COMMISSIONER OF INCOME TAX vs INDUS SERVICES LTD.

Very intricately vexed, but otherwise plainly and simply speaking, the following four questions have been referred to us for our opinion :

"(1) Whether, on the facts and in the circumstances of the case, where the CIT gave a clear finding of fact in his order under s. 263 of the IT Act, 1961, that the ITO allowed relief under s. 80-O of the said Act to the assessee on the entire amount of convertible foreign exchange receivable on account of the Nigerian contract without verifying whether the entire amount of such foreign exchange was received in India, the finding of the Tribunal that there is no good reason brought on record by the CIT for setting aside the assessment is based on any relevant evidence or perverse ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that s. 80-O of the IT Act, 1961, did not prescribe any time limit for bringing the convertible foreign exchange into India for the purpose of relief under that section ?

(3) Whether, on the facts and in the circumstances of the case, and in view of -

(i) the factum of receipt of the entire convertible foreign exchange being come to light on 24th July, 1990, only, i.e., much after the orders of the ITO.

(ii) Sec. 155(12) of the IT Act, 161, not being on the statute after 1st April, 1988; the Tribunal was justified in law in considering the provisions of s. 155(12) of the said Act to come to the conclusion that it would be incorrect to say that the assessment was erroneous and prejudicial to the interests of the Revenue ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order under s. 263 of the IT Act, 161, passed by the CIT ?"

Culling out the extracts after hearing the parties, we feel and find that only question No. 4 (supra) is sufficient for our reference, because this question contains the pith and substance of the controversy between the parties.

The assessee claimed allowance under s. 80-O of the IT Act on the ground that the income in convertible foreign exchange had arrived in India, which was covered by s. 80-O of the Act. The AO allowed deduction at the rate of 50 per cent on Rs. 45,64,536. The CIT, however, in proceedings under s. 263 of the Act set aside the allowance on the ground that the entire income forming the subject-matter of the percentage of the allowance had not been received in convertible foreign exchange in India. While, therefore, setting aside the order of assessment relating to the deduction under s. 80-O of the Act, he directed the ITO to make a fresh assessment after due enquiry into the facts and with reference to the provisions of law as contained in s. 80-O of the Act. He also directed the ITO to give reasonable opportunity of being heard before the completion of the fresh assessment proceedings.

The Tribunal, however, disagreed with the CIT and found that since there were some problems in receiving the entire amount of Rs. 45,64,536 because of some trouble regarding remittance in Nigeria, it observed that the assessee was entitled to full allowance at the rate of 50 per cent on the amount of Rs. 45,64,536 and that the CIT was wrong in setting aside the assessment order of the ITO. The Tribunal accordingly directed that the assessment order as originally passed by the ITO be maintained.

We have heard learned counsel for the parties. In our considered view, s. 80-O of the Act while prescribing the entitlement to the allowance, does say clearly that the allowance is to be given only of the percentage of the income actually received in India by way of convertible foreign exchange. The admitted case of the parties is that as on the date of the passing of the assessment order, the assessee had only received Rs. 22,91,355 in convertible foreign exchange, even though the contract to the tune of Rs. 45,64,536, from out of a total amount of Rs. 1,16,00,000 was completed. It was the admitted case of the parties as on the day of the passing of the assessment order that the remaining amount had not been received in India, even though it might have been paid to the assessee in the local currency in Nigeria. In this view of the matter, therefore, we cannot say that the CIT did any error in setting aside the assessment order and directing the ITO to make a fresh assessment.

An observation has been made by the Tribunal that during the interregnum, the remaining amount was also received in India by way of convertible foreign exchange and in any event, therefore, the assessee was entitled to the full allowance. If, in fact, the amount was actually received by way of convertible foreign exchange, undoubtedly the assessee is entitled to the full allowance if the section permits that. In any case, this is a matter which lies within the domain and purview of the ITO. All that the CIT has done is to refer the matter back to the ITO for reconsideration. Undoubtedly, the ITO is under an obligation to reconsider the entire matter in the light of the provisions of law as contained in ss. 80-O, 154 and 155(12) of the Act as applicable to the case of the assessee and to decide about the extent of the allowance admissible to him with reference to the arrival of the convertible foreign exchange in India as covered by the aforesaid provisions of law. Before completing the fresh assessment proceedings, he is also under an obligation to afford opportunity to the assessee and to hear him in the matter.

We are of the view that the Tribunal was not correct in upholding the order of the AO and disturbing the judgment of the CIT.

We accordingly answer the question in the negative and in favour of the Revenue.