SOM DATT BUILDERS P LTD Vs. INCOME TAX OFFICER
LAWS(IT)-1989-2-14
INCOME TAX APPELLATE TRIBUNAL
Decided on February 03,1989

Appellant
VERSUS
Respondents

JUDGEMENT

T.A. Bukte, Judicial Member - (1.)THE appellant-company has filed this appeal against the order of the CIT, WB-IV, Calcutta, dated 11-3-1988. THE CIT perused the assessment record and found that the assessment was erroneous and prejudicial to the interests of revenue on the following two grounds :
(i) That the appellant-company was granted excessive relief under Section 80HHB of the Income-tax Act, 1961 to the extent of Rs. 32,00,779 ; and

(ii) that relief under Section 91 of the Income Tax Act, 1961 was wrongly allowed" to the appellant-company in respect of Rs. 1,22,400 being the tax paid in Saudi Arabia and another sum of Rs. 11,72,869 being the tax deducted at source in Iraq. THE CIT(A) gave six reasons to arrive at such conclusions in his order. THEy are as follows :

(i) According to him, for the purpose of Section 80HHB all foreign projects have to be taken together as the term 'foreign project' appearing in the said section would include the plural thereof also.

(ii) He perused the records and felt that the income of Rs. 2,55,21,864 had been worked out by the appellant-company for different projects in Iraq. THE appellant-company took into account only the contract receipts in making calculation. It deducted therefrom the contract expenditure and depreciation in respect of individual projects. According to him, no account had been taken of the other expenditure which had been incurred in respect of the projects in Iraq.

(iii) According to the CIT, no separate accounts had been filed in respect of projects in foreign countries to show that they have resulted in profit or loss. Even in respect of contracts in Iraq regarding which the assessee has given the calculations of profits he found from the auditor's report dated 10-10-1984 that they did not prepare the Profit & Loss Account in respect of any of these projects.

(iv) According to the CIT, under Section 80HHB(3)(i) of the Income Tax Act, 1961 deduction is admissible only when the assessee maintains separate accounts in respect of profits and gains derived from the execution of foreign projects. Since it appeared from the report of the overseas auditors of the appellant-company that no Profit & Loss Account had been drawn in respect of foreign projects the ITO was clearly wrong in proceeding on the basis of the Profit & Loss statement in this regard.

(v) According to the CIT, the ITO was not correct in taking only the profitable projects, and not taking into account the other foreign projects of the assessee for the purpose of working out the total profit or loss under Section 80HHB/ 80AB. According to him, all foreign projects of the appellant-company should have been taken together to grant relief under Section 80HHB only on the net profit or loss arising in overseas projects, and not by taking only the profitable projects or ignoring the other projects where there were losses.

(vi) According to the CIT, the Governments of Saudi Arabia and Iraq did not deteirmine the assessable income in those countries and the taxes payable thereon. He held that according to the appellant-company's own calculation there was no assessable profit in India in respect of the projects in Saudi Arabia and, therefore, there was no doubly taxed income on which the assessee could have been allowed any relief under Section 91 even when certain payments were made by it by way of income-tax on the profits assessed to tax in Saudi Arabia. He felt that the rate of tax in Saudi Arabia should have been treated as 'nil' and no relief was admissible to the appellant-company in respect of tax paid in Saudi Arabia.

(2.)According to the CIT, in respect of the projects in Iraq also income has to be determined in respect of all the projects taken together and relief is admissible under Section 91 only to the extent such income is included in the appellant-company's total income. In that country, taxes were paid by the appellant-company by way of deduction at source. According to him, no final assessment was completed during the previous year relevant to the assessment year 1984-85 by the Government of Iraq. Therefore, in the opinion of the CIT the appellant-company was not entitled to any relief under Section 91 in respect of taxes deducted at source at Iraq.
To appreciate the reasons given by the CIT it is necessary to consider the factual and legal aspects of the matter. The factual aspects are as follows :

The appellant-company is engaged in the business of executing construction contracts at various sites at Iraq, Saudi Arabia and Algeria. At present, we are not concerned with Algeria. The appellant-company was executing 21 contracts for construction at various sites in Iraq during the relevant previous year corresponding to the assessment year 1984-85. There were 4 construction projects at Saudi Arabia. The appellant-company is following the Mercantile system of accounting. Accounts are prepared on the percentage of completion method. This is one of the recognised methods for accounting construction contracts in accordance with the standard laid down by the Institute of Chartered Accountants of India "AS 7". Separate books of account have been maintained in respect of each of its foreign projects. Such accounts were audited by the overseas auditors and trial balances were drawn from the overseas books in respect of each of these projects incorporating all expenses and receipts attributable to the respective projects. Such accounts were sent to the Head Office of the appellant-company in India. The Head Office incorporated these overseas trial balances in the consolidation register by converting the overseas accounts prepared in foreign currency into Indian currency.

(3.)SEPARATE Profit & Loss Account in respect of each of these projects were drawn by the appellant-company in its consolidation register maintained at the Head Office. Such accounts were drawn in Indian currency and the final results thereof were duly incorporated in the final accounts certified by the Indian auditors. The details of the foreign projects have been filed by the appellant-company in Paper Book No. 1 at pages 62 to 67 and in Paper Book No. 2 at pages 1 and 2. The project-wise profit and loss account is drawn in respect of 21 projects at Iraq. The same appears at page 3 of Paper Book No. 2. Similarly, the project-wise profit and loss account was drawn from 4 projects in execution in Saudi Arabia during the relevant previous year. This appears at page 4 of Paper Book No. 2. The consolidated profit & loss account in respect of Indian activities as well as overseas activities is drawn separately for each overseas country accounts. The same has been filed at page 6 of Paper Book No. 2. The final accounts of the appellant-company for the calendar year 1983 corresponding to the assessment year 1984-85 appear at pages 80 to 100 of Paper Book No. 1. All overseas results have been incorporated in it. All these documents were before the assessing officer as well as the CIT.


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