JUDGMENT
Arijit Pasayat, C.J.
1. This judgment will cover I. T. Rs. Nos. 132 to 135 of 1978,
2. Expressing doubt about the correctness of the ratio indicated in CAT v. Marketing Research Corporation, reference has been made by a Division Bench for interpreting the scope and ambit of Section 80-O of the Income-tax Act, 1961 (in short “the Act”).
3. The background in which the reference has been made is as follows :
At the instance of the Revenue, the Income-tax Appellate Tribunal (in short “the Tribunal”) referred the following two questions for the opinion of this court under Section 256(1) of the Act :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessed is entitled to exemption under Section 80-O on the gross receipts and not on the net income ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the disallowances made by the Income-tax Officer of the consultation fees and commission paid to the managing director, Shri T. K. Roy ?”
4. During the hearing of the references learned counsel for the Revenue submitted that the issues stand concluded in view of the judgment in Marketing Research Corporation’s case. Learned counsel for the assessed, on the other hand, contended that the Marketing Research Corporation’s case was decided ex parte by a short order taking note of the decision of the apex court in Distributors (Baroda) P. Ltd. v. Union of India . The said case related to Section 80M of the Act and Section 80-O was contex-tually different. Reliance was placed on several decisions to substantiate this stand. The Bench hearing the matter felt that there was some substance and, therefore, the reference has been made. The dispute relates to the assessment years 1968-69, 1969-70, 1970-71 and 1971-72.
5. Learned counsel for the Revenue submitted that though Marketing Research Corporation’s case was disposed of with reference to Distributors (Baroda) P. Ltd.’s case , dealing with Section 80M, the ratio had full application to a case under Section 80-O. He also submitted that Section 80AB applies to Section 80-O and that made the decision fully applicable. Learned counsel for the assessed submitted that though at first flush the stand of the Revenue would appear attractive, in reality, it is not so. The effect of Section 17 of the Finance Act, 1974, which brought about certain amendments to Sections 80N and 80-O have not been noticed and a bare reading of the provision introduced by way of amendment makes the position clear that Section 80AB has no application to the facts of the case.
6. In order to appreciate the rival submissions, it would be proper to quote Sections 80AB and 80-O. They, at the relevant point of time, read as follows :
“80AB. Deductions to be made with reference to the income included in the gross total income.–Where any deduction is required to be made or allowed under any Section (except Section 80M) included in this Chapter under the heading ‘C–Deductions in respect of certain incomes’ in respect of any income of the nature specified in that section which is included in the gross total income of the assessed, then, notwithstanding anything” contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessed and which is included in his gross total income.”
7. Section 80-O prior to the substitution by the Finance (No. 2) Act of 1971 with effect from 1972 :
“80-0. Deduction in respect of royalties, etc., received from certain foreign companies.-Where the gross total income of an assessed being an Indian company includes any income by way of royalty, commission, fees or any similar payment received by it from a foreign company in consideration for the use of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to the foreign company by the assessed, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessed under an agreement approved by the Central Government in this behalf before the 1st day of October of the relevant assessment year, there shall be allowed a deduction of the whole of such income, in computing the total income of the assessed.”
8. In the above quoted section, the expression “a deduction of the whole of such income” had been substituted for “deduction from such income of an amount equal to 60 per cent, thereof” by the Finance Act, 1968, with effect from April 1, 1969.
9. Section 17 of the Finance Act, 1974, on which considerable emphasis was laid by learned counsel for the assessed reads as follows (see [1974] 94 ITR (St.) 47) :
“17. Amendment of Sections 80N and 80-O of the Income-tax Act as they stood during certain periods.–The provisions of Section 80N of the Income-tax Act, as they stood immediately before the 1st day of April, 1969, and the provisions of Section 80-O of that Act, as they stood from time to time before the 1st day of April, 1972, shall have and shall be
deemed to have had effect subject to the modification that the deduction under the said provisions shall be allowed only with reference to the income referred to therein which is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the asses-see in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange.
Explanation.–For the purposes of this section,–
(i) ‘convertible foreign exchange’ means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange ;
(ii) any income used by the assessed outside India in the manner permitted by the Reserve Bank of India shall be deemed to have been brought into India in accordance with the law for the time being in force for regulating payments and dealings in foreign exchange, on the date on which such permission is given.”
10. Section 80AB appears in Chapter VI-A reading : “Deductions to be made in computing total income”. Section 80-O appears in the heading “C” which deals with “deductions in respect of certain incomes”. Section 80AB provides that in respect of any deduction which is required to be made or allowed under any section (except Section 80M) included in the Chapter under the heading “C.–Deductions in respect of certain incomes” in respect of any income specified in that section which is included in the gross total income of the assessed, then, notwithstanding anything contained in that section, the manner of computation has to be in accordance with the provisions of Section 80AB. The expression “notwithstanding anything contained in that section” is of great relevance and significance. Use of the expression “notwithstanding anything contained” is known as non obs-tantc clause. Sometimes it is placed at the beginning of a provision and sometimes in the middle of it. The effect of the expression “notwithstanding anything contained” is that in case of conflict between the two provisions overriding effect has to be given over the provisions or statute mentioned in the non obstante clause. As succinctly stated by the apex court in Aswini Kumar Ghose v. Arabinda Bose, , it should be first ascertained what the enacting part of the section provides on a fair construction of the words used according to their natural and ordinary meaning, and the non obstante clause is to be understood as operating to set aside as no longer valid anything contained in the relevant existing laws which is inconsistent with the new enactment. The decision was rendered in the context of two statutory enactments. It has to be noted that the expression “notwithstanding anything contained in” is used in contradis-
tinction to the phrase “subject to”. It was observed in Punjab Sikh Reaular Motor Service v. Regional Transport Authority, , that when a provision A is subject to provision B, a case falling” under the provision B is taken out of provision A. As observed in C and ) Clark Ltd. v. IRC (1973] 2 All ER 513 (Ch D), the phrase “subject to” is a simple provision which merely subjects the provisions of the subject sub-sections to the provisions of the master-sub-sections. Where there is no clash, the phrase does nothing ; if thpre is collision, the phrase shows what is to prevail. The phrase provides no warranty of universal collision. The distinction between the two expressions was again noticed in Kerala State Electricity Board v. Indian Aluminium Co. Ltd., . Anon obstante clause is also to be distinguished from the phrase “without prejudice”. Ordinarily, there is a close approximation between the non obstante clause and the enacting part of the section and the former may throw some light as to the scope and ambit of the enacting part in case of ambiguity. A non obstante clause is a legislative device which is usually employed to give overriding” effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment ; that is to say to avoid the operation and effect of all contrary provisions (see Union of India v. G. M. Kokil, ), a non obstante clause is, to put it differently, a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause or to override it in specified circumstances.
11. In view of the stipulation contained in Section 80AB one thing which emerges clearly is that the mode of computation as indicated in section 80AB has full application to the case relating to Section 80-O. In Motital Pesticides (I) Pot. Ltd. v. CIT [2000] 243 ITR 26, the apex court has observed as under (page 28) :
“Mr. Ramamurti, learned senior counsel, appearing for the appellant, submitted that even though Cloth Waders (P.) Ltd.’s case , was overruled in Distributors (Baroda) P. Ltd.’s case , both the cases pertained to Section 80M only and this court had no occasion to consider the application of Section 80AB with reference to Section 80HH of the Act. He said section 80AB was specifically introduced with effect from April I, 1981, and it would have no application to the assessment years 1979-80 and 1980-81 which were involved in the present case. The effect of Section 80AB was now that deduction would have to be made from the net income and not from the gross income. But then, in all fairness, Mr. Ramamurti also referred to another decision of this court in H. H. Sir Rama Varrma v. an 1994] 205 ITR 433, where this court observed that on a parity of reasoning with Section 80AA as given in Distributors (Baroda) P. Ltd.’s case , if must be held that Section 80AB was enacted to declare the law as it always stood in re/a-
tion to the deductions to be made in respect of the income specified under the head ‘C’ of Chapter VI-A of the Act. Mr. Ramamurti also referred to a circular dated May 10, 1982, issued by the Central Board of Direct Taxes in support of his submission but then this circular has since been withdrawn.” (underlined for emphasis)
12. Earlier in H. H. Sir Rama Varma v. CIT [1994] 205 ITR 433, the apex court had observed as follows (page 440) :
“In the case of Distributors (Baroda) P. Ltd.’s case , it was the retrospective effect of Section 80AA which was under challenge. The court, as aforementioned, interpreted Section 80M in a manner different from that placed upon it in Cloth Traders’ case , it held that the decision in Cloth Traders’ case , was erroneous and had to be overturned. It was, therefore, unnecessary to consider the question of the constitutional validity of the retrospective operation of Section 80AA. Section 80AA, it was held, was, in its retrospective operation, merely declaratory of the law as it always had been since April 1, 1968, when the provisions of Chapter VI-A were introduced.
On a parity of reasoning it must be held that Section 80AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head ‘C’ of Chapter VI-A. The manner of deduction specified under Section 80AB accords with the interpretation that we have placed upon Section 80T, read independently.” (underlined for emphasis)
13. In fact, in Motilal Pesticides (I) Pvt. Ltd.’s case [2000] 243 ITR 26 reference was made by the apex court to H. H. Sir Rama Varma’s case [1994] 205 ITR 433 (SC). The above being the position, the inevitable conclusion is that the mode of computation as indicated in Section 80AB has to be applied while working out the incentives under Section 80-O of the Act. The reference is answered accordingly.
14. The matter shall be placed before the Division Bench for disposal on the merits.