Deduction under section 80-0 of the Income-tax Act, 1961 is to be allowed only on the net income after deducting the expenses incurred in India.

( 1 ) ON applications under section 256 (1) of the Act 1961 following questions are referred for our opinion.

( 2 ) IN R. A. No. 259 (Cal) of 1990 following questions are referred :-1. "whether on the facts and in the circumstances of the case and on a correct interpretation of the sections 37 (3a), 37 (3b) of the IT Act, 1961 read with Explanation (c) thereof, the Tribunal was justified in law in holding that since it is not the case of the CIT that the expenditure incurred on the motor cars on running and maintenance is on hire charges for engaging cars plied for hire the view taken by the Assessing Officer was not incorrect?2. WHETHER, on the facts and in the circumstances of the case and in view of the fact that the assessee at the first assessment claimed relief under section 80-0 of the IT Act, 1961, only on the net income from the foreign exchange, the Tribunal was justified in law in allowing the assessee to agitate against the issue whether the relief under section 80-0 of the IT Act, 1961, will be allowed on the gross or net income?3. WHETHER in view of the insertion of section 80ab w. e. f. 1. 4. 1981 and in view of the decision of the Supreme Court in 155 ITR 120 Distributors (Baroda) Ltd. , the Tribunal was justified in holding that two view are possible on the point whether relief under section 80-0 of the I. T. Act, 1961, will be allowable on the gross income from foreign exchange?4. WHETHER on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order of the Commissioner under section 263 of the IT Act, 1961?"

( 3 ) ON R. A. No. 8 (Cal)/1992 following questions are referred :-"1. WHETHER, on the facts and in the circumstances of the case and on a correct interpretation of section 80-0 and 80-AB of Income-tax Act, 1961, the Tribunal was justified in law in holding that the deduction under section 80-0 of the said Act would be admissible to the assessee on the gross convertible foreign exchange brought into India without taking into account expenses, direct or indirect, incurred in India?2. WHETHER, on the facts and in the circumstances of the case and in view of the ratio of the decision of the Supreme Court in 156 ITR 120 Distributors (Baroda) Ltd. the Tribunal was justified in law in holding that relief under section 80-0 of the Income-tax Act, 1961 would be admissible to the assessee on gross amount of convertible foreign exchange brought into India without taking into account the expenses incurred to earn the income?"

( 4 ) SINCE basic common issue does arise in both the reference applications, whether the assessee is entitled for deduction, under section 80-0 of the Act on gross amount of convertible foreign exchange brought into India, without taking into account the expenses direct or indirect incurred in India.

( 5 ) THE assessee was engaged in the business of consulting and engineering with a number of major engineering projects in India and abroad during the assessment year 1984-85 and 1985-86. In the assessment year 1984-85 original assessment was completed on 24. 10. 85. The Assessing Officer allowed deduction under section 80-0 of the I. T. Act on gross amount of convertible foreign exchange brought into India without taking into account the expenses incurred in India to earn the income.

( 6 ) THE Assessing Officer has also allowed the expenses on motor car repairs and insurance amounting to Rs. 5,93,678/- in computing the total income of the assessee company.

( 7 ) THE Commissioner of Income-tax has examined and on scrutiny of the assessment order dated 24. 10. 85 for assessment year 1984-85, he found that Assessing Officer has allowed excess relief under section 80-0 and Assessing Officer had also not deducted 20 per cent from expenses on motor car repairs and insurance amounting to Rs. 5,93,678/- under section 37 (3a) of the Income-tax Act. According to him the assessment made by the Assessing Officer was erroneous and prejudicia