K.C. SRIVASTAVA, A.M. This is appeal by assessee against order of CIT(A) and relates to asst. yr. 1981-82. assessee-company is engaged in manufacture and sale of agricultural implements, X-Ray machines, etc. In addition to this, assessee had rendered some technical services enterprise in German Democratic Republic under three agreements with same party. assessee received in all Rs. 46,28,856 as service charges, foreign allowance and expenses on staff as stipulated in three agreements. These agreements had been approved by Board for purposes of s. 80-0 of IT Act. assessee company had received Rs. 14,66,103 in convertible foreign exchange and balance had been received in Indian Rupees. Before ITO assessee claimed that it should get deduction of Rs.14,66,103 under s. 80-O of IT Act. ITO was, however, of view that under s. 80-O r/w s. 80AB of IT Act assessee was entitled for deduction of only that amount which would be arrived at after deducting proportionate expenses from amount of Rs. 14,66,103 received in convertible foreign exchange. ITO was of view that net income alone was eligible for deduction and w.e.f. asst. yr. 1981-82 only income which is received in convertible foreign exchange minus expenses incurred in earning such income could be deducted under s. 80-O of IT Act. ITO referred to stipulations in letters of approval granted by Board which were as under: "2. income allowable as deduction for asst. yr. 1981-82 and onwards would be income computed after accounting for expenses incurred in earning such income i.e. net income actual deduction to be allowed will, however, be such portion of income which has been 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 in accordance with law for time being in force for regulating payment and dealings in foreign exchange. grant of deduction from total income will be subject to your fulfilling other conditions laid down in Act in this behalf. amount eligible for deduction will be determined by ITO at time of assessment." ITO found that in this work for which total receipt of Rs. 46,28,856 were received by assessee he had incurred expenses to extent of Rs.22,29,123 and thus overall net income was only Rs. 23,99,732. ITO was of view that as this net income had been arrived at after deducting expenditure, net income relatable to receipt by way of convertible foreign exchange could be determined by deducting proportionate expenses from such receipt. He arrived at this proportionate figure at Rs. 7,06,033. Deducting this amount from receipt of Rs. 14,66,102 ITO arrived at figure of Rs.7,60,069 which he held as deductible under s. 80-O of IT Act. In appeal before CIT(A) assessee challenged working by ITO. contention of assessee before CIT(A) was that assessee was entitled to deduction of entire amount which was received in convertible free foreign exchange, i.e., amount of Rs. 14,66,102. This was, however, further limited to limits laid down under s. 80-AB. According to assessee, there was no legal justification for reducing deduction available under s. 80-O proportionately on basis of total expenditure incurred by assessee. contention of Department before CIT(A) was that amount received in free convertible foreign exchange was not net income but is amount received in foreign exchange, and amount deductible should be arrived at after deducting expenditure incurred for earning this income. CIT(A) agreed with view taken by ITO, as according to him, convertible exchange was not net income but only gross receipt of particular type. CIT(A) held as under: "The contention of appellant being that remaining expenditure debited to penal account was incurred solely for earning income in India irrespective of fact that expenditure may indirectly pertain to earning of receipt from 3rd country. appellant has shown amount of Rs. 42,95,948 as sales in P & L account in India. contention that remaining expenditure debited in penal account was incurred in connection with sales effected in India and income earned in India was obviously accepted by Department. only dispute between Department and appellant being apportionment of admitted contract expenditure incurred for earning income in respect of contract undertaken in foreign country. If contention of appellant is accepted it will amount to fact that entire expenditure amounted to Rs. 22,29,123 as per statement filed, incurred for earning gross receipts from foreign country will pertain to earning of only Rupee portion received by appellant which is included in gross receipts. Obviously such interpretation is not acceptable. appellant has stated earlier was entitled to receive payments in Indian currency as well as in foreign currency. This is part of one contract. For earning both components that is amount receivable in Indian Rupee and amount receivable in foreign currency, appellant incurred expenditure amounting to Rs. 22,29,123. expenditure incurred for earning both components, have, therefore, to be apportioned in same proportion, in order to arrive at net income received in convertible foreign exchange entitled to deduction under s. 80-O. language used in s. 90-D refers to such income which is received in convertible foreign exchange in India and not gross amount without deducting expenditure for earning such income. Keeping into view above facts and detailed discussion in assessment order by ITO I hold that ITO was justified in arriving at amount deductible under s. 80-O at Rs. 7,60,069 against claim made at Rs. 14,66,103" ld. Counsel for assessee submitted before us that interpretation placed by ld. ITO and upheld by ld. CIT(A) was not correct. He pointed out that under provisions of s. 80-O 100 per cent of income earned under contracts approved in this regard was deductible. He, however, submitted that further condition in s. 80-O was such income is received in convertible foreign exchange in India. It was contended by learned counsel that it is true that under s. 80-O only net income which is included in gross income could be deducted but only to extent such income had been received in convertible foreign exchange in India. In present case net income was Rs. 23,99,732 and as receipt in convertible foreign exchange in India was less than this amount of net income, whole of such receipt in convertible foreign exchange was deductible. He conceded that limits laid down under s. 80-AB are applicable and assessee cannot get deduction of n amount which is more than gross total income itself. ld. Counsel submitted that ITO and ld. CIT(A) have r/w s. 80-D some provision which is not there, and interpretation placed by them does not follow from language of provision. He pointed out that what ITO has done was to add particular condition that convertible foreign exchange could be reduced by proportionate amount of expenditure before deducting amount under s. 80-D. This according to him, cannot warranted. ld. departmental Representative has relied on order of ld. CIT(A) as well as order of ITO and submitted that assessee cannot get deduction of gross amount of convertible foreign exchange but only n e t income which was included in that gross amount received in convertible foreign exchange. We have considered facts of case and we have also gone through agreements and approvals given by Board under s. 80-D. Sec. 80-D reads as under: "80-D, Where gross total income of assessee, being Indian company, includes any income by way of royalty, commission fees or any similar payment received by assessee from Government of foreign State or foreign enterprise in consideration for use outside India 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 such Government or enterprise by assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by assessee, under agreement approved by t h e Board in this behalf, and such income 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 out- side India, is brought into India, by or on behalf of assessee in accordance with any law for time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to provisions of this section, deduction of whole of income so received in, or brought into, India in computing total income of assessee" Sec. 80AB reads as under: "80-AB. Where any deduction is required to be made or allowed under any section (except section 80M included in this Chapter under heading "C. Deductions in respect of certain income" in respect of any income of nature specified in that section which is included in gross total income of assessee, then, notwithstanding anything contained in that section, for purpose of computing deduction under that section, amount of income of that nature as computed in accordance with provisions of this Act before making any deduction under this Chapter) shall alone be deemed to be amount of income of that nature which is derived or received by assessee and which is included in his gross total income." It may be noted that provisions of s. 80-O have undergone same modifications over number of years. With effect from 1st April, 1972 additional requirement of limiting deduction to receipts in convertible foreign exchange in India was placed and before that this condition was not there and whole of income was deductible. After this modification net income was fully deductible but only to extent that such income is received in convertible foreign exchange in India. But for this condition regarding receipt inconvertible foreign exchange amount deductible in present case could have been Rs. 23,99,732. However after' this restriction amount deductible is Rs. 14,66,102 which was received in convertible foreign currency. There is no question of allocating expenditure to various currencies in which those expenses have been received. interpretation placed by ITO or CIT(A) does not follow from language or provision itself. As amount received in convertible foreign exchange was lesser than net income, this amount received in convertible foreign exchange itself was part of such income and thus it was deductible under s. 80-O. reasoning given by ld. CIT(A) that whole of expenditure could not be related to Rupee payment is not convincing. What law provides is total deduction of net income earned in rendering foreign service, etc. and in case receipt in convertible foreign exchange is less than that amount that receipt in foreign exchange has to be deducted. This, however, could be subject to limits placed in s. 80-AB of IT Act. In other words, deduction under s. 80-O will be further limited to gross total income arrived at without allowing deduction under s. 80-O. learned counsel for assessee has submitted that even if two interpretations were possible, interpretation in favour of subject should be preferred. We are of view that claim of assessee is acceptable on basis of language of provision itself and it was not necessary to invoke principles of benefit of interpretation to subject. ITO has made such of stipulation in letter of approval granted by Board but in our view, that does not warrant interpretation placed by ITO. letter of approval only states that actual deduction to be allowed will be such portion of income which has been received in convertible foreign exchange in India and it only means hat if convertible foreign exchange received in India is less than net income that amount itself would be allowed as deduction but if that amount was more than net income deduction could be limited to net income itself. other requirement for deducting net income is in terms of s. 80-AB and that restriction is only with reference to net income which cannot exceed gross total income. We, therefore, set aside orders of lower authorities on this issue and direct ITO to work out deduction under s. 80-O by limiting deduction to Rs. 14,66,102 but in this case as gross total income is lower, deduction under s. 80-AB should be adopted as figure of gross total income itself. next ground is against disallowance of Rs. 15,987 out of sales promotion expenses claimed by assessee. This ground had not been seriously pressed by ld Counsel though he has given details of these expenses in Paper Book. We find that there is no scope for interference in position. In result, appeal is allowed in part. *** MUNCHUR INDUSTRIES PVT. LTD. v. INCOME TAX OFFICER