PETRON ENGINEERING CONSTRUCTION LTD Vs. CIT

JUDGEMENT

(1.) The petitioner had, with prior permission dated 3-5-1991 from the Reserve Bank of India, entered into a contract with M/s Gulf Import & Export Co., Dubai for providing services for erection and commissioning of a plant of pulses, barley and soya micronizing with all related service equipments. As per the said terms, the contract period was to be from 17-1-1991 to 16-1-1992. As per the provisions of Section 80HHB(3)(iii) of the Income Tax Act, as in force at that time, the petitioner was required to bring back 50 per cent of profits and gains in convertible foreign exchange into India within period of six months from the end of the previous year i.e., the financial year to take benefit of deduction from the income for computation of income-tax. As per this order and the provisions of law, earnings in foreign exchange were to be brought back on or before 30-9-1992. The petitioner filed returns for the assessment year 1992-93 on 29-1-1993. Thereafter, by letters dated 2-2-1993, 26-5-1993 and 3-8-1993 addressed to the CIT, the petitioner sought extension of time to bring in foreign exchange equivalent to 50 per cent of profits and gains for the purpose of deduction under Section 80HHB of the Income Tax Act. The CIT by impugned order dated 5-8-1993 rejected the application to the extent of deficit in the amount which was to be brought back on or before the end of September, 1992, holding that the assessee had failed to prove that it was unable to remit the foreign exchange for reasons beyond its control. According to the petitioner, there was delay in bringing the foreign exchange to the tune of Rs. 20,64,184, while foreign exchange equivalent to Rs. 25,83,560 was already remitted within the prescribed period. The deficit amount was also brought back in foreign exchange by the end of May, 1993. Due to rejection of application for extension of time, the petitioner would not be entitled to deduction of the amount of Rs. 20,64,184 from the profits for the purpose of computation of income-tax. Therefore, the petitioner has by this petition challenged the order dated 5-8-1993 passed by the CIT.

(2.) Heard the learned Counsel for the parties and perused the contentions made by the petitioner in the present petition as well as in the several letters addressed to the RBI and the CIT in this respect.

(3.) As per the provisions of Section 80HHB, where the gross total income of an assessee, being an Indian company or a person who is resident in India, includes any profits and gains derived from the business of the execution of a foreign project undertaken by the assessee in pursuance of a contract entered into by him with a government of a foreign State or a statutory or other public authority or agency or a foreign enterprise, in computing the total income of the assessee, deduction of an amount equivalent to 50 per cent of such profits and gains would be allowed, provided the consideration for execution of such project or such work is payable in convertible foreign exchange. Sub-section (3) of Section 80HHB puts certain conditions for taking the benefit of deduction. Besides, other conditions, it also provides that an amount equivalent to 50 per cent of such profits and gains is brought back by the assessee in convertible foreign exchange into India, in accordance with the provisions of Foreign Exchange Regulation Act, 1973, within a period of six months from the end of the previous year or where the Chief Commissioner or Commissioner is satisfied, for reasons to be recorded in writing, that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. From this, it is clear that normally, 50 per cent of the profits and gains should be brought into India in convertible foreign exchange within a period of six months. However, if for reasons beyond his control, the assessee is unable to bring the amount back within the period of six months, the period may be extended by the Chief Commissioner or Commissioner.