Case Note & Summary
The case involves an income tax reference by the Income Tax Appellate Tribunal to the Bombay High Court under Section 256(1) of the Income Tax Act, 1961, for the Assessment Year 1983-84. The applicant-assessee, Reliance Infrastructure Ltd., had executed projects in Saudi Arabia and claimed deductions under Section 80HHB for profits from foreign projects. The Assessing Officer allowed a deduction of Rs.48 lakhs for the amount contributed to the Foreign Project Reserve Account during the previous year. In appeal, the Commissioner of Income Tax (Appeals) allowed a further deduction of Rs.50 lakhs transferred from General Reserve to the Foreign Project Reserve during the pendency of the appeal. The Tribunal reversed this, holding that only the amount transferred during the previous year qualifies. The High Court agreed with the Tribunal, emphasizing that Section 80HHB requires the reserve to be created in the previous year itself. Regarding double taxation relief under Section 91, the Tribunal had held that the amounts deducted under Sections 80HHB and 35B should be excluded from the doubly taxed income. The High Court upheld this, reasoning that these deductions reduce the income chargeable to tax in India, and only the net income after deductions can be considered for relief. On the issue of tax paid in Saudi Arabia, the Tribunal held that such tax is not deductible as an expense under the Income Tax Act. The High Court affirmed, noting that foreign tax paid is not an allowable deduction unless specifically provided, and no such provision exists. The court also rejected the assessee's argument that the Tribunal should have followed its earlier decision for a different assessment year, as the facts were distinguishable. The reference was answered in favor of the revenue on all questions, upholding the Tribunal's orders.
Headnote
A) Income Tax - Section 80HHB Deduction - Foreign Project Reserve Account - The assessee claimed deduction under Section 80HHB for Rs.48 lakhs contributed to Foreign Project Reserve Account during the previous year. The Assessing Officer allowed the deduction. The Tribunal restricted it to Rs.48 lakhs and held that a further sum of Rs.50 lakhs transferred from General Reserve during appeal should not be considered. The High Court held that the Tribunal was right in restricting the deduction to the amount actually transferred during the previous year, as the condition under Section 80HHB requires creation of a reserve in the previous year. (Paras 2-5) B) Income Tax - Section 91 DIT Relief - Doubly Taxed Income - The Tribunal held that sums deducted under Section 80HHB (Rs.47,30,951) and Section 35B (Rs.5,59,919) should be excluded from doubly taxed income for computing DIT relief under Section 91. The High Court upheld this, reasoning that these deductions reduce the income that is subject to tax in India, and only the net income after deductions can be considered for double taxation relief. (Paras 6-8) C) Income Tax - Tax Paid Abroad - Deductibility - The Tribunal held that tax paid in Saudi Arabia on which no DIT relief could be claimed was not allowable as deduction in computing income under the Income Tax Act. The High Court affirmed, stating that foreign tax paid is not an allowable expenditure under the Act unless specifically provided, and no such provision exists for taxes paid abroad. (Paras 9-11)
Issue of Consideration
Whether the Tribunal was correct in restricting deduction under Section 80HHB to Rs.48 lakhs and excluding subsequent transfer of Rs.50 lakhs; whether doubly taxed income for Section 91 relief should exclude deductions under Sections 80HHB and 35B; whether tax paid in Saudi Arabia not eligible for DIT relief is allowable as deduction.
Final Decision
The High Court answered all questions in favor of the revenue, upholding the Tribunal's orders. The reference was disposed of accordingly.
Law Points
- Section 80HHB deduction
- Foreign Project Reserve Account
- Section 91 DIT relief
- Section 35B weighted deduction
- tax paid abroad not deductible
