By K. B. Bhujle, Advocate
New Page 1
30 Profits and gains from foreign projects :
Deduction u/s.80HHB of Income-tax Act, 1961 : A.Ys. 1997-98 and 2000-01 :
Project in Iraq : Payment held up due to war in Iraq : Payment received in terms
of agreement between Governments of India and Iraq in terms of RBI bonds and
interest on RBI bonds : Deduction u/s.80HHC allowable on interest component
also.
[CIT v. Arvind Construction Co., 172 Taxman 5 (Del.)]
The assessee carried out certain construction work in two
different projects in Iraq as a subcontractor of the Indian Railway Construction
Corporation (IRCON). On account of the outbreak of war in Iraq, the payments to
IRCON were held up. Subsequently, by an agreement between the Governments of
India and Iraq, a settlement was arrived at by which the payment would be made
to IRCON on the deferred basis. The total sum due to the assessee together with
interest was calculated at Rs.54.93 crores for the A.Y. 1997-98 and the said sum
was settled as under :
(i) RBI Bonds Rs. 42,69,91,452
(ii) ECGC Bonds Rs. 5,61,12,153
(iii) Interest on RBI Bonds Rs. 6,61,83,046
The assessee claimed deduction u/s.80HHB of the Income-tax
Act, 1961, inter alia in respect of interest on RBI Bonds. The Assessing
Officer rejected the claim on the ground that the interest on RBI Bonds was not
an income derived from the business activities of the assessee. The Tribunal
allowed the claim.
On appeal by the Revenue, the Delhi High Court upheld the
decision of the Tribunal and held as under :
“We find that as regards the interest on the RBI Bonds,
this was part of the total settlement package by which the assessee was to
receive Rs.54.93 crores for the works undertaken in Iraq as a sub-contractor
of IRCON. In the facts and circumstances of the case, it is not possible to
view the interest received on the RBI Bonds as payment de hors the
activity of the assessee pursuant to the execution of the contract.”
