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Premier Industrial Drives (P.) Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1984)7ITD800(Mad.)
AppellantPremier Industrial Drives (P.)
Respondentincome-tax Officer
Excerpt:
1. this appeal is by the assessee, premier industrial drives (p.) ltd., relating to its income-tax assessment for the year 1979-80. the assessee-company claimed relief under section 80hh of the income-tax act, 1961 ('the act'), in respect of its chain division, by way of deduction as provided therein in computing its income. in the assessment made by the ito it was found that its income from business from two sections, namely, the transport section and chain division, was determined at rs. 2,26,167 and against the same was set off the unabsorbed business loss of rs. 1,117 for 1977-78 and unabsorbed depreciation at rs. 1,07,651 for 1976-77 and rs. 1,17.279 for the assessment year 1977-78, which absorbed the entire income computed resulting in the determination of the total income at nil.....
Judgment:
1. This appeal is by the assessee, Premier Industrial Drives (P.) Ltd., relating to its income-tax assessment for the year 1979-80. The assessee-company claimed relief under Section 80HH of the Income-tax Act, 1961 ('the Act'), in respect of its Chain Division, by way of deduction as provided therein in computing its income. In the assessment made by the ITO it was found that its income from business from two sections, namely, the Transport Section and Chain Division, was determined at Rs. 2,26,167 and against the same was set off the unabsorbed business loss of Rs. 1,117 for 1977-78 and unabsorbed depreciation at Rs. 1,07,651 for 1976-77 and Rs. 1,17.279 for the assessment year 1977-78, which absorbed the entire income computed resulting in the determination of the total income at nil figure. There was a balance of unabsorbed depreciation for 1977-78 amounting to Rs. 5,373 which could not be absorbed and it was carried forward to subsequent years along with other allowances or relief, such as investment allowance for 1977-78 to 1979-80, development rebate for 1976-77 and relief under Section 80J of the Act for the assessment years 1976-77 to 1979-80 for want of sufficient profits to absorb them in the relevant year. The ITO in the circumstances held that there was no scope for deduction under Section 80HH in view of the fact that the income from Chain Division was only a loss after carry forward and set off of loss of earlier years and unabsorbed depreciation having regard to the provisions of Section 80B(5) of the Act. In the appeal preferred, the assessee objected to the disallowance of its claim for deduction under Section 80HH of Rs. 31,747 on the ground that it is nowhere specified in the Act that Section 80HH allowance will be allowed only after adjustment of all carried forward losses. The Commissioner (Appeals) upheld the action of the ITO stating that the impugned disallowance was quite unexceptionable as there was no gross total income as defined in Section 80B(5) to absorb any part of the deduction under Section 80HH. Aggrieved by his order, the assessee is in further appeal.

2. The assessee's contention before us is that since there was income from Chain Division of its business for the current year before adjustment of any loss or unabsorbed depreciation of earlier years, the assessee is entitled to deduction from the same and only after such deduction the business loss or unabsorbed depreciation of earlier years could be set off. In support of the claim that the deduction under Section 80HH should precede the set off of the unabsorbed business loss and depreciation, reliance was placed on two orders of the Tribunal (1) in IT Appeal Nos. 67 to 70 (Mad.) of 1981 in the case of Veeraraghava Textiles (P.) Ltd., Madras Bench-B, dated 30-11-1981 and ; (2) in the case of Madras Yenpoyees Rubber (P.) Ltd. [IT Appeal Nos. 237 and 238 (Mad.) of 1982 dated 30-12-1982, Madras Bench 'A']. Reference was also made to the decision in CIT v. Tractors & Equipments Ltd. 1982 Tax LR 1844 (Mad.). The learned departmental representative strongly resisted the claim of the assessee. It was contended that in the orders of the Tribunal relied on by the assessee in this connection, strong reliance is placed in support of the view taken therein on the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, but it is pointed out that even according to Cloth Traders (P.) Ltd.'s case (supra) there cannot be a deduction where there is no total income and the overriding effect of Section 80A(2) of the Act has been emphasised. It is argued that the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, which was sought to be distinguished in the orders of the Tribunal, would still govern the dispute arising in this case. It is also the submission of the departmental representative that the ratio of the decision in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) cannot be said to be overruled by the decision in Cloth Traders (P.) Ltd.'s case (supra) and it cannot be said that the decision in Cloth Traders (P.) Ltd.'s case (supra) is restricted to only deduction or relief under Section 80M of the Act in respect of dividend because in considering the dispute in this case reference has been made not merely to Section 80M but also other Sections 80A to 80VV of the Act. Reliance is also placed on the decision of the Madras High Court in CIT v. Rane Brake Linings Ltd. [1979] 120 ITR 82 which was concerned with relief under Section 80-I. In this decision it was held, following Cambay Electric Supply Industrial Co.'s case (supra), that the relief under Section 80-I has to be computed or calculated after adjustment of earlier years losses carried forward. It is pointed out that the language of the provisions of Section 80J is identical to the language of the provisions of Section 80HH involved in this case and, therefore, the Madras High Court decision in Rane Brake Linings Ltd.'s case (supra) squarely applied. Reference was made and reliance also place on the decision of the Madras High Court in CIT v. English Electric Co.

Ltd. [1981] 131 ITR 277 which was concerned with deduction under Section 80E. Reference was also made and reliance placed on another decision of the Bombay High Court in Asian Cable Corporation Ltd. v.CIT [1981] 132 ITR 34 wherein it was held that for the purpose of deduction under Section 80J in respect of new industrial undertaking, the unabsorbed depreciation has to be set off before deduction under Section 80J is allowed. Strong reliance was placed on another order of the Tribunal in the case of Madras Forgings & Allied Industries (P.) Ltd. in IT Appeal Nos. 923 and 924 and 1117 and 1118 (Mad.) of 1980, Madras Bench 'A', dated 25-9-1981. It was submitted that in the orders of the Tribunal relied on by the assessee, the Madras High Court decisions and other decisions have not been referred to or considered presumably as they were not cited. It was further argued that the order of the Tribunal in Madras Forgings & Allied Industries (P.) Ltd.'s case (supra), directly support the department's stands though it was rendered in the context of relief under Section 80J. It was further submitted that there is nothing in the Finance Minister's speech referred to and relied on in the Tribunal's order [1967] 64 ITR (St.) 101, cited on behalf of the assessee, to support the view taken therein that deduction contemplated under Section 80HH is a deduction from the profits before determining the same by adjustment of the earlier year's unabjorbed depreciation or loss.

3. On a careful consideration of the facts and the rival contentions of the parties, we do not find any merit in the assessee's objection in this appeal. Before we refer to the authorities cited on behalf of either party, it would be as well to consider the provisions of the Act in connection with the claim of the assessee for deduction under Section 80HH and to see what would be the logical result of interpretation of all the relevant provisions in this connection.

Section 80HH is entitled 'Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas' and states that where the gross total income of an assessee includes any profits and gains derived from an industrial, undertaking, etc., to which the section applied, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20 per cent thereof.

The substance of this provision is that there must be a gross total income and it must include profits and gains from the industrial undertaking to which the section is applicable and the deduction under the section will be allowed in computing the total income of the assessee. The deduction will be an amount equal to 20 per cent thereof, meaning such profits and gains of the eligible industrial undertaking.

This section occurs in Chapter VIA of the Act, which is entitled 'Deductions to be made in computing the total income'. Section 80A states that in computing the total income of an assessee deductions specified in Sections 80C to 80VV, which includes Section 80HH also, will be allowed from his gross total income. Here also, the emphasis is on the deduction from gross total income and it is in computing the total income of the assessee. Now, gross total income is defined in Section 80B(5) as the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VIA or under Section 280-O of the Act. Subsection (2) of Section 80A puts a limit on the total of deduction allowable under Chapter VIA, i.e., deductions under Sections 80C to 80VV including Section 80HH. This provision of Sub-section (2) of Section 80A is a clear indication that there must be a positive figure of gross total income and where there is no such positive figure of income, i.e., where the gross total income computed as stated in Section 80B(5) is a nil figure or a loss, it would appear that the question of deduction under any or all of the sections in Chapter VI cannot or will not arise even though the 20 per cent of the profits and gains in respect of the specified industrial undertaking as contemplated in Section 80HH may be a positive figure however large it may be. For instance, if the amount equal to 20 per and cent of Section 80HH is, say Rs. 20,000, but the gross total income is either nil or a loss figure, then there is no scope for deducting Rs. 20,000 because the provisions clearly stipulate that the deduction must be from gross total income and cannot exceed it. There can be a possible controversy involving debate on long-drawn process of reasoning as to whether the 20 per cent of the profits and gains from specified industrial undertaking entitled to relief under Section 80HH should be with reference to the profits and gains from such undertaking before carry forward and set off of unabsorbed depreciation or loss, but at this stage we need not concern ourselves with this question because even assuming that the 20 per cent refers to the profits and gains of the year concerned undimmished by the carried forward and set off of loss or unabsorbed depreciation of earlier year, the eligible amount of such deduction calculated with reference to such profits will not be available for deduction in the absence of any positive total income. In the example stated above, if the gross total income is more than Rs. 20,000, the entire sum of Rs. 20,000 will be allowed as a deduction and the balance alone will constitute the total income and if it is less than Rs. 20,000, say Rs. 10,000 and even though the eligible amount of profits and gains available for deduction is Rs. 20,000, only, Rs. 10,000 can be deducted. Where there is a nil gross total income or loss, even though the eligible amount for considering the deduction is Rs. 20,000, nothing will be deductible. This appears to us to be the ordinary commonsense approach and view on the plain language of the provisions considered above. The view canvassed on behalf of the assessee, however, is that the deduction contemplated under Section 80HH must get priority over the carry forward and set off of unabsorbed depreciation and loss in determining the total income, i.e., the deduction must be made from the profits and gains of the specified industrial undertaking determined for the year before setting off the unabsorbed depreciation or loss of the earlier years and the total income has to be computed only after such deduction.

4. As we have already noticed on a plain reading of the provisions of Section 80HH and other relevant provisions of Chapter VIA, the deduction contemplated under Section 80HH is from the gross total income as defined in Section 80B(5), i.e., total income computed in accordance with the provisions of the Act before deduction under Section 80HH in this case. Therefore, the first step to be taken in this connection is to determine the gross total income, i.e., the total income as computed under the Act without considering the deduction under Chapter VIA, in this case under Section 80HH. The question then arises as to how the total income is to be be computed. In this connection, the sections of the Act that come into play are Section 4 of the Act, defining the scope of total income, Section 14 of the Act, stating the heads of income for charge in computation of total income, Section 29 of the Act providing for computation of income under the heads 'Profits and gains of business' which must take in its fold Sections 30 to 43A of the Act, which include Section 32(2) providing for carry forward and set off of unabsorbed depreciation subject to, inter alia, provisions of Section 72(2) of the Act. That means, one cannot arrive at the total income before deduction under Section 80HH designated as gross total income without computing the income under the head 'Profits and gains of business' by reference or recourse to the provisions of Sections 28 to 43A of the Act which means that the unabsorbed depreciation of the earlier years has to be considered and deducted in arriving at such profits and gains. The computation of profits and gains also must take into consideration the provisions of Section 72(1) providing for carry forward and set off of loss, although Section 29 does not specifically refer to that section, but that, Section 72(1) forms an integral part of profits and gains for determining the total income is authoritatively stated by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra). The Supreme Court after considering the Kerala High Court decision in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 and referring to certain observations therein observed as under : ...It will thus appear that the Kerala High Court has regarded Section 72 appearing in Chapter VI as a provision unconnected with the computation of the total income of an assessee and a provision which comes into operation at a stage subsequent to the computation of the total income arising from business done in accordance with Sections 30 to 43A occurring in Chapter IV of the Act and, therefore, the unabsorbed losses cannot be set off before calculating the deduction under Section 80E. It is not possible to accept the view that Section 72 has no bearing on, or is unconnected with, the computation of the total income of an assessee under the head 'Profits and gains of business or profession'. Actually, Section 72(1) provides that where the net result of computation under the head 'Profits and gains of business or profession' is a loss and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off, subject to the other provisions of the Chapter, shall be carried forward to the following assessment year and shall be set off against the profits and gains, if any, of any business or profession for that assessment year. Therefore, Section 72(1) has a direct impact upon the computation under the head 'Profits and gains of business or profession'. In other words, the correct figure of total income, which is otherwise taxable under other provisions of the Act, cannot be arrived at without working out the net result of computation under the head 'Profits and gains of business or profession.

Further, the question whether special benefit under Section 80E as well as the normal or usual benefit of carry forward of losses of previous years should both be available to an assessee, without one impinging on the other, must depend upon the intention of the Legislature and such intention has to be gathered from the language employed. In this view of the matter it is extremely doubtful whether in spite of the legislative mandate contained in the three steps provided by Sub-section (1) of Section 80E, the carried forward losses would not be deductible before working out the 8 per cent deduction contemplated by Section 80E and, therefore, the contention that by parity of reasoning or on a priori reasoning unabsorbed development rebate and unabsorbed depreciation should be held to be non-deductible before working out the 8 per cent deduction under Section 80E(1) cannot be accepted. ... (p. 97) In that case there were carried forward unabsorbed depreciation of Rs. 1,42,955 and unabsorbed development rebate of Rs. 1,11,658 which was set off by the ITO against the income from business for the concerned year after allowance of deduction under Section 80E(1), but the Commissioner considered this to be erroneous in law and prejudicial to the interests of the revenue and, accordingly, set aside the assessment. The question that arose for consideration by the Supreme Court is as to whether the unabsorbed depreciation and development rebate is not deductible in computing the profits under Section 80E(1).

It must be remembered that in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) the words 'as computed in accordance with other provisions of the Act did not refer to the computation of profits and gams from business, but govern the expression 'total income'. It is further to be noted that in that case the total income itself consisted of only the income from business and not income under any other head so that the total income as well as the income from profits and gains from business coincided. It is also to be noted that in this decision the Supreme Court has referred to the Mysore High Court decision in CIT v.Balanoor Tea & Rubber Co. Ltd. [1974] 93 ITR 115 and distinguished it by pointing out that there the position was as to whether the profits and gains of a priority business entitled to 8 per cent deduction under Section 80E would require to be reduced by loss in non-priority business and only on the net amount Section 80E deduction was allowed.

The decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra), according to us, clearly establish the point that for the purpose of determining gross total income (before deduction under Section 80HH or other sections of Chapter VIA), the carried forward unabsorbed depreciation, development rebate and losses must be set off in arriving at the total income for tax purposes and considering the deduction under Chapter VIA, Section 80HH in this case.

It is now necessary to refer to the Supreme Court decision in Cloth Traders (P.) Ltd.'s case (supra) and see how far the assessee in this case can gain support for its contention from the said decision. The decision in Cloth Traders (P.) Ltd.'s case (supra) was concerned with the question as to whether the relief under Sections 80M and 85A of the Act in respect of dividend received by the assessee from an Indian company is to be on the amount of dividend so received from the Indian company or on the income in respect of such dividend computed under the provisions of the Act by deducting therefrom the deductions specified under Section 57 of the Act. It is in that context it was held that the expression 'income by way of dividends' referred to the entire dividend received without reducing it by the expenditure under Section 57. That case obviously dealt with the quantum of the amount of income eligible for deduction under Sections 80M and 85A, but it is pertinent to notice that in that decision their Lordships have also referred to the overall limit or ceiling of the deduction to be allowed under Section 80B. The following observations bring out the position that the deduction is subject to the ceiling limit of the positive figure of total income : ... What Section 80A, Sub-section (1), requires is that, first, the total income of the assessee must be computed in accordance with the provisions of the Act without taking into account the deductions required to be made under Chapter VIA or under Section 280D and then from the gross total income thus computed, the deductions specified in Sections 80C to 80VV must be made in order to arrive at the total income. But Sub-section (2) of Section 80A provides that the aggregate amount of the deductions required to be made under Chapter VIA shall not exceed the gross total income of the assessee so that the total income arrived at after making the deductions specified in Sections 80C to 80VV from the gross total income can never be a minus or negative figure. This provision imposing a ceiling on the deductions which may be made under Sections 80C to 80VV clearly postulates that in a given case the aggregate amount of these deductions may exceed the gross total income. It is in the context of this background that we have to determine the true interpretation of Section 80M....(p. 257) What the decision of the Supreme Court in Cloth Traders (P.) Ltd.'s case (supra) postulates is that the quantum of eligible deduction or allowance under Section 80M in respect of dividend from Indian company is the percentage of the amount of such dividends actually received before reducing it by the items of expenditure permitted under Section 57 in computing the income from the dividend assessable under the head 'Income from other sources', but this decision is not an authority for the proposition that even though gross total income, meaning the total income computed under the Act before deductions contemplated under Section 80HH or other provisions of Chapter VIA, is a nil figure or minus figure, the assessee would still be entitled to the deduction. On the other hand, the observations in the decision are to the contrary pointing out that there is a ceiling on the amount of deduction which can be allowed being the total income computed under the Act even though the eligible quantum of deduction or deductions under Chapter VIA may be a larger amount than the gross total income. We have already noticed in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) that both the computation of income under 'profits and gains' and the 'gross total income' coincided. Therefore, according to us, there is no conflict between the two decisions and it cannot be said that the ratio of the decision in Cloth Traders (P.) Ltd.'s case (supra) override the ratio of the decision in Cambay Electric Supply Industrial Co. Ltd.'s case (supra). In the present case, it is not the controversy as to what is the eligible quantum of amount for the purpose of deduction under Section 80HH in respect of the income under the chain division and if such were the dispute, though we are not required to decide that issue and do not express our final view thereon, perhaps there might be some force in the assessee's contention that the determination of such quantum of income eligible for deduction under Section 80HH has to be made with reference to the profits of the current year but the real dispute is as to whether the assessee is at all eligible for such deduction in view of the fact that there is no positive figure of gross total income, because, as we have already noticed, there is a ceiling on the amount and since the gross total income itself is nil, the assessee cannot get any allowance under Section 80HH beyond this limit so as to arrive at a loss figure. The decision of the Madras High Court in Rane Brake Linings Ltd.'s case (supra) dealt with the question of relief under Section 80-I and in that decision following the ratio of the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd.'s case (supra), it was held that the relief available to the assessee under Section 80-I will have to be computed after adjustment of carry forward of losses of earlier years. In English Electric Co. Ltd.'s case (supra), it was held that deduction under Section 80E could be allowed only after the computation of total income under the provisions of the Act, which means after setting off the business loss, unabsorbed depreciation and development rebate. In that decision at pages 283 and 284, the process of working out the deduction has been given as stated by the Gujarat High Court in CIT v. Camhay Electric Supply Industrial Co. Ltd. [1976] 104 ITR 744 and it is observed that according to the plain and simple scheme of Section 80E, it is definitely suggestive of the fact that working out of the total income contemplated by the first part of the section is a condition precedent to the working out of 8 per cent deduction contemplated by second part. These two decisions, according to us, support the department's contention in this case. Further, the decision of the Bombay High Court in Asian Cable Corpn. Ltd.'s case (supra) also support the department's case. There the question of Section 80J relief was involved and it was stated that the definition of gross total income in Section 80B(5) makes it clear that the total income has to be computed in accordance with the provisions of the Act before making any deduction under Chapter VIA, in which Section 80J is included.

Therefore, unabsorbed depreciation has to be taken into account before deduction under Section 80J in respect of profits and gains of a new industrial undertaking is effected. What applies to Section 80J equally applies to Section 80HH, which also occurs in Chapter VIA and the deduction under which must follow the determination of gross total income in accordance with the provisions of the Act and subject to the limit specified in Section 80A(2). It, therefore, appears to us on a plain reading of the relevant provisions of the Act and the authorities referred to above that deduction under Section 80HH is dependent upon the determination of a positive gross total income and the quantum of deduction is also limited to the extent of such gross total income where the quantum of eligible deduction is higher than the gross total income itself. It follows, therefore, that when there is no total income being determined and nil, there is no scope for any deduction under Section 80HH. As regards the two orders of the Tribunal relied on by the assessee, we find that in one of them, namely, in Madras Yenpoyees Rubber (P.) Ltd.'s case (supra) reference has been made to two decisions of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) and in Cloth Traders (P.) Ltd.'s case (supra) and we have already considered the two decisions and their ratio to be applied in such cases. The other decision in Veeraraghava Textiles (P.) Ltd's case (supra) does not advert to any reported decision and it appears to us that the list of priority set down therein runs counter to the ratio of the decisions cited on behalf of the revenue, including the two Supreme Court decisions, the two Madras High Court decisions and the Bombay High Court decisions. There is no reference to the Madras and Bombay High Courts decisions in either of the two orders.

One of the reasons referred to in one of the orders for holding that deduction under Section 80HH will have to take precedent is that if the deduction under the various sections are intended to grant benefit of tax holiday, it will be defeated if the unabsorbed depreciation, which has no time-limit, is to be deducted first. We find that a more or less similar reasoning of the Kerala High Court in Indian Transformers Ltd.'s case (supra) has been adverted to in the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) at page 97 and if we may risk a repetition it has been stated by the Supreme Court as follows : ... Further, the question whether special benefit under Section 80E as well as the normal or usual benefit of carry forward of losses of previous years should both be available to an assessee, without one impinging on the other must depend upon the intention of the Legislature and such intention has to be gathered from the language employed. In this view of the matter it is extremely doubtful whether in spite of the legislative mandate contained in the three steps provided for by Sub-section (1) of Section 80E, the carried forward losses would not be deductible before working out the 8 per cent deduction contemplated by Section 80E and, therefore, the contention that by parity of reasoning or on a priori reasoning unabsorbed development rebate and unabsorbed depreciation should be held to be non-deductible before working out the 8 per cent deduction under Section 80E(1) cannot be accepted. As observed earlier, on a proper construction of the provision contained in Sub-section (1) of Section 80E, items like unabsorbed depreciation and unabsorbed development rebate will have to be deducted in arriving at the figure which would be exigible to deduction of 8 per cent under Section 80E(1).(p. 98) It will be apparent, therefore, that whatever be the legistative intention in enacting the provisions, they must be reflected in appropriate language and if it was the intention of the Legislature to grant the deductions under Chapter VIA in addition to the adjustment of carried forward losses or unabsorbed depreciation and development rebate, such intention should be reflected in the language actually used. It is well settled that considerations stemming from legislative history must not be allowed to override plain words of the statute as held in CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC) and it is impossible to read into a taxing provision any words which are not there or exclude words which are there and the words found in the provisions must be given their natural meaning-CED v. R. Kana-kasabai [1973] 89 ITR 251 (SC). It is only where the language used is ambiguous or not capable of clear interpretation or where it leads to absurdity that one can have the, guidance of the legislative history and the intention behind the enactment, but where the language used is plain and simple and is capable of reasonable interpretation according to their ordinary meaning, there is no scope for importing any other consideration based on legislative history or the supposed intention of extending any benefit to the assessees which are not sufficiently reflected in the enactment. In these circumstances, we are satisfied that the order of the Commissioner (Appeals) holding that no deduction under Section 80HH is permissible in this case is correct and does not call for interference. The appeal is dismissed.


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