In a recent decision, the division bench of the Bombay High Court held that the deduction under section 80O of the Income Tax Act, 1961 is allowable on net income, not on gross receipts. The Court while holding so, observed that the section 80AB of the Income Tax Act is applicable while computing deduction under section 80O of the Income Tax Act.
In the instant case, the assessee contended that the deduction should be allowed on gross basis i.e. dehors the provisions of Section 80AB of the Income Tax Act. The Income Tax Appellate Tribunal, based on its decision in the earlier year, held that the assessee would be entitled to deduction after deducting corporate expenses, after computing the income according to the provisions of the Act, in compliance with the provisions of section 80AB of the Act. The Tribunal sought for an opinion of the High Court through Reference under Section 256(1) of the Income Tax Act. The substantial question of law raised before the Court was that whether deduction under Section 80O is allowable on the gross receipts?
The Court noticed its decision in CIT v/s. Asian CableCorporation Ltd., (No.2) 262 ITR 537. In which it was held that income earned in foreign exchange for services rendered, has to be allowed on net basis, inter alia, on application of Section 80AB of the Act.
The Court also noticed the decision of the Apex Court in the case A. M. Moosav/s. CIT in which it was held that Section 80AB of the Act has an overriding effect over all Sections of Chapter VIA of the Act. Undisputedly, Section 80O of the Income Tax Act is part of Chapter VIA of the Act and,therefore, would be governed by Section 80AB of the Act.
In view of the above judicial pronouncements, the Court concluded the issue in favour of the Revenue.
Read the full text of the Judgment below.
