A two-judge bench of the Madras High Court held that the term “foreign projects” for the purpose of Income Tax deduction under section 80HHB(2)(b)(ii) of the Income Tax Act, 1961 would also include the works done in connection with shut down of the refinery.
In the instant case, the assessee entered into a Company in Abu Dhabi for undertaking work in connection with shut down of refinery and claimed the deduction by treating as a “foreign Project” under section 80HHB(2)(b)(ii). The Assessing Officer, while examining the deduction claim noted that the assessee was a sub-contractor, and the work awarded to the assessee formed part of general refinery shut down, which was purely a repair and maintenance work, which do not form part of the foreign project defined under the Act. The Assessing Officer further held that the assessee had not contributed for the construction of any road, building, dam, bridge or other structure nor had performed the work of assembly or installation of any machinery or plant. Accordingly, the deduction claim was rejected.
On the second appeal, the Tribunal ultimately held that the work in connection with shut down of refinery undertaken by the assessee would not fall within the definition of the expression ‘foreign project’ as defined under Section 80HHB(2)(b)(ii) of the Act.
Before the High Court, the assessee contended that this was a project by itself, as it had resulted in the construction of a new structure, though called as shut down, which was a technical term and did not constitute repairs or maintenance work
The bench comprising Justice T.S.Sivagnanam and Justice V.Bhavani Subbaroyan noted that the Tribunal lost sight of the most important factor pointed out by the assessee before the CIT (A) that the term ‘shut down’ does not denote repairs and maintenance and that it is a technical term, which is peculiar to the industry in question.
“Therefore, if the Tribunal had to come to a different conclusion, it should have reappreciated the factual position and then rendered a finding, which it has failed to do so. Rather, the Tribunal sought to adopt a very narrow approach by referring to the dictionary meaning of the words ‘assembly’ and ‘installation’,” the bench said.
The bench further said that “It has to be borne in mind that Section 80HHC of the Act is a provision, which grants incentive to the assessee for growth and development and as held by the Hon’ble Supreme Court in several decisions, such provision should be liberally construed, as it will promote economic growth of the country.”
It was, therefore, concluded that the Statute has clearly circumscribed as to what is a foreign project and we agree with the factual findings recorded by the CIT (A) that the scope of work done by the assessee will fall within the meaning of the expression ‘foreign project’ as defined under Sub-Section (2)(b) of Section 80HHB of the Act.
