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Pharmson Pharmaceuticals Ltd. Vs. Deputy Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(2003)87ITD668(Ahd.)
AppellantPharmson Pharmaceuticals Ltd.
RespondentDeputy Commissioner of Income Tax
Excerpt:
1. this is an appeal by the assessee against the order of cit(a) for asst. yr. 1993-94.2. an interesting issue has been raised in this appeal and that is whether the assessee can be allowed the loss under the head "capital gains" as worked out on indexed cost basis as is arising on sale of assets used for scientific research, the entire cost thereof has been allowed as deduction under section 35 of the act, 3. the assessee has incurred capital expenditure on building and equipment and furniture in its scientific research centre and claimed 100 per cent deduction of the cost thereof under section 35(1)(iv) r/w section 35(2)(ia) of the act. these assets were acquired and used from 1979 to 1986-87 and were sold in the year under consideration and before they ceased to be scientific research.....
Judgment:
1. This is an appeal by the assessee against the order of CIT(A) for asst. yr. 1993-94.

2. An interesting issue has been raised in this appeal and that is whether the assessee can be allowed the loss under the head "capital gains" as worked out on indexed cost basis as is arising on sale of assets used for scientific research, the entire cost thereof has been allowed as deduction under Section 35 of the Act, 3. The assessee has incurred capital expenditure on building and equipment and furniture in its scientific research centre and claimed 100 per cent deduction of the cost thereof under Section 35(1)(iv) r/w Section 35(2)(ia) of the Act. These assets were acquired and used from 1979 to 1986-87 and were sold in the year under consideration and before they ceased to be scientific research without using them in the business. These assets were thus held for more than 36 months and consequently they were long-term capital assets on the date of sale, The sale consideration to the extent of cost as was allowed under Section 35 was assessed to tax under Section 41(3) of the Act. The difference between the cost as increased to indexed cost and sale consideration was claimed as a long-term loss under the head "capital gain". It is also claimed as loss under the head "business". The position of the cost, the sale price, the indexed cost and the loss is tabulated as under : There seems to be some difference in the figures as given in the preciation chart for the year under consideration as to the cost of equipment and furniture and R&D building which are correspondingly shown in the balance sheet at Rs. 7,14,502 (Rs. 6,61,496 plus Rs. 53,006) and Rs. 6,83,475 respectively.

4. The AO did not accept the claim of loss on sale of these R & D assets and the reasons given are as under : "(1) Although R & D are in the nature of capital but expenditure on these assets has been allowed as revenue expenses under Section 35(1)(iv) of the Act, therefore, capital gain on the transfer of these assets cannot be computed as whole of the expenditure on these assets has already been allowed as revenue expenses at the time of computing the business income in the year of its purchase. On account of allowing 100 per Cent depreciation in respect of these expenditure on these assets "actual cost" has become Rs. zero.

Consequent upon transfer of these assets, whole of the sale proceeds has to be taxed as income under Section 41(3) of the Act.

(2) Without prejudice to the abovementioned finding it is further emphasised the capital gain is always computed with reference to the "actual cost" in the hand of the concerned person. Since the "actual cost" of the transferred R & D assets in the hands of the assessee-company the following deduction under Section 35 of the Act is zero as per the provisions of Section 43 of the IT Act, the whole of the sale proceeds is to be taxed as revenue receipt only.

In view of the abovementioned facts and circumetances I hold that assessee has made a wrong claim of long-term capital loss in respect of transfer of R&D assets. Accordingly, assessee's claim of Rs. 11,20,857 as a long-term capital loss in respect of R & D building at Nurpura and the claim of long-term capital loss of Rs. 15,03,190 in respect of R&D equipment and furniture is rejected." He also rejected the assessee's claim to allow the loss as a business loss by observing as under : "Assessee has himself emphasised that loss on account of sale of R&D assets is in fact a business loss. But it is quite interesting to note that he has computed it under the chapter capital gain. In fact, there are clear provisions of Section 41(3) of the Act which have dealt out the income (inclusive of losses) to be worked out on account of sale of the R&D assets. As per these provisions, assessee has in fact earned the income chargeable under Section 41(3) of the Act.

The decision quoted by the assessee-company of Hon'ble Gujarat High Court in the case of CIT v. Bhavnagar Trust Corporation (P) Ltd, (1968) 69 ITR 278 (Guj) is not applicable at all because the dividend income earned on the shares were in fact the business assets held as stock-in-trade. Accordingly, dividend income has correctly been treated as business income as per the decision of Gujarat High Court. In fact, this decision goes against the assessee's claim of computing the capital gain on the sale of R&D assets as it was a business asset and accordingly expenditure on that allowed as a revenue expenditure under Section 35 of the Act.

Assessee has also quoted a Supreme Court decision in the case of Western State Trading Co. (P) Ltd. v. CIT (1971) 80 ITR 21 (SC). A careful reading of this decision is merely an approval of the decision of the Gujarat. High Court. Since it has already been held that Gujarat High Court is not applicable in the instant case, the applicability of the decision of Hon'ble Supreme Court does not arise.

From the abovementioned facts and circumstances as discussed in detail, I hold that assessee-company has not only made a wrong claim of the long-term capital loss, but had set off of the same against the current year's business income after taking the contradictory views in respect of the nature of the R&D assets. I hold that there is no dispute in respect of the fact that R&D assets were very much business assets only and as Co. 100 per cent revenue expenses were allowed on these assets, "actual cost" of the same has been zero in the hands of the assessee-company and any sale proceeds received thereafter consequent upon the transfer of these assets has to be taxed as revenue receipt only." 5. The CIT(A) upheld the order of the AO on both the counts. On the first issue, he followed his order in appeal under Section 154 against the prima facie adjustment under Section 143(1)(a) wherein he observed at p. 2 of his order as under : "I have considered the facts and appellant's submissions. It is relevant to note that the AO has discussed the relevant facts in detail before disallowing the appellant's claim for loss on the sale of the assets used in scientific research. The AO has highlighted the fact that since 100 per cent deduction of the expresses incurred for acquiring the said assets had already been given under Section 35(1)(iv) r/w Section 35(2)(ia), the amount of proceeds on the sale of the said assets has to be taxed as per the provisions of Section 41(3), It is relevant to note that as per the clear provisions of Section 41(3), where an asset representing expenditure of a capital nature on scientific research within the meaning of Clause (iv) of Sub-section (1) of Section 35, is sold, and the proceeds of the sales together with total amount of deductions made under Section 35(2)(ia) exceed the amount of capital expenditure, the excess or the amount of deductions so made, whichever is less, is chargeable to income-tax as income of the business or profession of the previous year in which the sale took place. It is an established principle that the taxing statutes are to be strictly construed. It is also an established principle of interpretation of statutes that a specific provision of the statute overrules the general provision of the statute. Vide its judgment reported as CIT v. TV. Sundaram Iyenger & Sons (P) Ltd (1975) 101 CIT 764 (SC), the Supreme Court has laid down that if the language of the statute is clear and unambiguous, it would be wrong to discard the plain meaning of the words. Similar principle has been laid down by the Supreme Court in its judgments CIT v. Ajax Products Ltd. 91965) 55 ITR 741 (SC) and CIT v. Sodia Devi (1957) 32 ITR 615. Considering the facts of the appellant's case and considering the clear and unambiguous language of Section 41(3), it is held that the appellant's case is covered by the provisions of Section 41(3). Accordingly, it is held that the AO's action in disallowing the appellant's claim for the alleged capital loss is in keeping with the statutory provisions of Section 41(3). Therefore, the AO's action in rejecting the appellant's claim for alleged capital loss on the sale of research and development (scientific research) assets stands confirmed. Moreover, considering the facts and clear provisions of Section 41(3), it is held that the AO's action in rectifying the said mistake by resorting to the provisions of Section 154 also stands confirmed." The said decision of the CIT(A) has been vacated by the Tribunal vide order dt. 13th Dec., 2000, in ITA No. 2486/Ahd/1996 on the ground that the disallowance could not be a matter of prima facie adjustment within the meaning of Section 143(1)(a) of the Act. As regards the other issue, he observed in the impugned order in para 2(v) as under : Vide the impugned assessment order, the AO has mentioned that the appellant has claimed set off of the alleged capital loss against business income. The AO has mentioned that apart from the fact that the appellant's claim for the set off of the alleged capital loss against the business income is in violation of the amended provisions of Section 71 applicable for the asst. yr. 1992-93 onwards, amount of receipt on the sale of research and development (scientific research) assets is to be dealt with as per the provisions of Section 41(3). Accordingly, the AO has rejected the appellant's claim for set off of the alleged loss on the sale of research and development assets, The appellant has repeated the submissions made in this regard before the AO. It is contended that its claim for the set off of the alleged loss on the sale of research and development (scientific research) assets is in keeping with the statutory provisions, and that the AO's action in rejecting the appellant's claim in this regard is unwarranted.

I have considered the facts and appellant's submissions. Apart from the fact that the appellant's claim for set off of capital loss against business income is in violation of the provisions of Section 71(3) as applicable for the asst. yr. 1992-93 onwards, in view of the clear and specific provisions of Section 41(3), vide paragraph number 2(iv) of this order, I have confirmed the assessing officer's action in disallowing the appellant's claim for the alleged capital loss. In the circumstances, the AO's action in rejecting the appellant's claim for set off of the alleged capital loss stands confirmed. Therefore, this ground of appeal stands dismissed." 6. The learned counsel of the assessee submitted that the Departmental authorities are not justified in disallowing its claim merely on the ground that the deduction of the cost of these assets had been allowed under Section 35 of the Act. He referred to in this connection two decisions of Bombay High Court (1) in the case of CIT v. Morris Electronics Ltd. (1991) 190 ITR 653 (Bom) and CIT v. A.L.A. Chemicals (P) Ltd. (1993) 203 ITR 891 (Bom) and a decision of Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd. (1986) 160 ITR 217 (AP), the decision of Karnataka High Court in the case of CIT v. H.M.T.Ltd. (1993) 203 ITR 811 (Kar) and the decision of Gujarat High Court in the case of CIT v. Sarabhai Sons (P) Ltd. (1993) 204 ITR 728 (Guj).

These are the cases where the cost of the assets used in scientific research were attempted to be excluded while computing the capital employed for the purposes of deduction under Section 80J on the ground that the entire cost of these assets had been allowed as a deduction under Section 35. The Courts have held that these were not to be reduced. For the proposition that the loss is to be allowed as set off, the learned counsel of the assessee relied upon the provisions of Section 71(2) and the Supreme Court decision in the case of Western States Trading Co. (P) Ltd. v. CIT (1971) 80 ITR 21 (SC) and the Gujarat High Court decision in the case of CIT v. Bhavnagar Trust Corporation (P) Ltd. 7. The learned Departmental Representative supported the order of the CIT(A) by relying upon heavily on the decision of the Supreme Court in the case of Escorts Ltd. and Anr. v. Union of India and Ors. (1993) 199 ITR 43 (SC) and submitted that the cost or the indexed cost cannot be allowed while computing the capital gain arising on transfer of these assets because the entire cost thereof has been allowed as a deduction.

The learned Departmental Representative also distinguished the cases relied upon by the learned counsel for the assessee by stating that all these cases were for computing capital employed which has distinguished the Supreme Court decision on the ground that the legislature intended to give an additional deduction under Section 80J and, therefore, there was no question of double deduction while computing the income of the assessee under Section 28 of the Act. On the contrary the cost of acquisition of the assets is being claimed by the assessee twice over in the present case once under Section 35 and against under Section 48 of the Act. As regards the alternative claim of the assessee that the loss should be allowed to be set off against the business income, he submitted that no loss has been incurred by the assessee under the head "business" and the computation of the loss in any case is worked out by the assessee himself under the provisions of Section 48 of the Act by adopting indexed cost which is to be adopted only while computing the profit or gain under the head "capital gain". It would be in clear violation of Section 71(3) which deals with carry forward and set off losses under the head capital gain arising on transfer of long-term capital asset.

8. We have heard the parties and considered the rival submissions. The capital expenditure was stated to have been incurred by the assessee for acquiring these assets namely the equipment and furniture and the building. These assets were the properties and, therefore, capital asset within the meaning of Section 2(14) of the Act. It is true that the deduction of the entire cost thereof has been allowed under Section 35(1)(iv) r/w Section 35(2), it being expenditure of capital nature on scientific research related to the business carried on by the assessee, but the mere fact that it has been allowed as a deduction under Section 35 does not mean that the. asset used for scientific research ceases to be an asset or a capital asset within the meaning of Section 2(14) of the Act. We may usefully refer to the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd. (supra) wherein the Court observed at p. 227 of the report as under : "The fact that deduction is given for the purpose of computing taxable income under Section 35 for expenditure on scientific research does not mean that it ceases to be capital employed or an asset." These observations were approved by Their Lordships of Gujarat High Court in the case of Sarabhai Sons (P) Ltd. (supra) by stating "hence the fact that deduction is given for the purpose of computing taxable income under Section 35 or the expenditure on scientific research does not mean that it ceases to be capital employed or an asset and, therefore, in computing the total value of assets under Rule 19A(2) of the IT Rules, 1962, capital expenditure on scientific research which has already been allowed should be included." It is true that these were the observations in regard to assessee's claim under Section 80J wherein the cost of scientific research assets were to form part of capital employed was the question but they apply with equal force to the present case where the question is for computation of scientific research assets for the purposes of capital gain. As a fortiori the cost of the asset also does not cease to be the cost of acquisition of the asset to the assessee. Therefore, by the mere fact that the entire cost of the asset has been allowed as a deduction under Section 35 of the Act neither the asset ceases to be capital asset nor the cost thereof ceases to be cost of acquisition. The observations of the Departmental authorities that by allowance of 100 per cent deduction under Section 35, the cost becomes zero has no force.

9. The submission of the Revenue that, if the entire cost which has been allowed as deduction under Section 35 is again allowed as cost of acquisition while computing capital gain, it would amount to double deduction in the light of Supreme Court decision in the case of Escorts Ltd. & Am. v. Union of India (supra) has also no force. In the said decision the Court held at p. 58 of the reports as under : "......There is a basic legislative scheme, unspoken but clearly underlying the Act, that two allowances cannot be, and are not intended to be, granted in respect of the same asset or expenditure....." 10. In the headnote it is observed that "Where a capital asset used for scientific research related to the business of the assessee is also ipso facto an asset used for the purpose of the business, it is impossible to conceive of the legislature having envisaged a double deduction in respect of the same expenditure, one by way of depreciation under Section 32 of the IT Act, 1961, and the other by way of allowance under Section 35(1)(iv) of a part of the capital expenditure on scientific research, even though the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions," It is further observed that. "There is a fundamental, though unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions both under Section 10(2)(vi) and Section 10(2)(xiv) of the 1922 Act or both under Section 32(1)(ii) and Section 35(1)(iv) of the 1961 Act." It is also held that "The deduction of the allowance on scientific research asset and the depreciation are basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profit".

11. On a careful reading of the decision of supreme Court, it would be noticed that the Court itself made an exception by stating that "if in absence of clear statutory indication to the contrary". In other words, the legislature may provide for allowance of the same amount of expenditure for various purposes. We may mention a few cases which come under Section 80J and the inclusion of scientific research assets allowed fully under Section 35, were again held includible in computing capital employed. The cost of acquisition is includible in computing capital employed. The cost of acquisition is included in value of assets while computing the capital employed under Section 80J. It is not an allowance as such. It is included to determine the capital employed to grant deduction under Section 80J. It is value on the 1st day of the computation period and irrespective of its disposal in the midst of the year it is not to be diluted. These considerations along with others as pointed out by three High Courts aforesaid are clear indications of legislature having contemplated additional benefit under Section 80J over and above the normal allowance of deduction of cost.

It fell in Chapter VI-A of the Act..

12. The two decisions of the Andhra Pradesh High Court and Gujarat High Court were such decisions. In these two decisions referred to above and the other decisions of Bombay High Court, Karnataka High Court referred to above and another decision of Bombay High Court in the case of CIT v. Pyrene Rai Metal Treatment Ltd (1993) 203 ITR 752 (Bom) the cost of such assets was held to be includible in computing the capital employed irrespective of the fact that the entire cost thereof has been allowed as a deduction under Section 35 of the Act and in spite of the fact that Expln. 1 to Section 43(1) specifically excludes the amount of deduction under Section 35 from the cost of acquisition and the meaning of the term Cost of acquisition as defined in Section 43(1) has been adopted as 'cost of the assets' for the purposes of capital employed under Section 80J of the Act. In the judgments of A.L.A. Chemicals (P) Ltd. of the Bombay High Court and of Sarabhai Sons (P) Ltd. of Gujarat High Court, the decision in the case of Escorts Ltd. (supra) was considered and distinguished on the ground that the deduction for depreciation under Section 32 and for cost of scientific research assets under Section 35 both are under Chapter IV to be taken into consideration while computing income under Section 28 of the Act, whereas Section 80J deduction is under Chapter VI-A which provides for the additional deduction from the total income of the assessee. The two deductions are different and, therefore, it was held that there is no question of double deduction like the one as considered by the Supreme Court in the case of Escorts Ltd. (supra). The Bombay High Court observed in this connection as under : "In such a situation, there is no question of any double deduction of the nature contemplated by the Supreme Court in Escorts Ltd. and Anr. v. Union of India and Ors. (1993) 199 ITR 43 (SC). In fact, the Supreme Court has made this clear (p. 874 of (1922) 2 Scale) when it says that the two deductions, i.e., deductions under Sections 32 and 35 are (at p. 59 of 199 ITR) : "basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profits". A deduction under, Section 80J is not of the same nature as a deduction under Section 35. Therefore, in our view, the ratio of the Supreme Court judgment in Escorts Ltd.'s case (supra) will not apply to the computation of capital under Section 80J for the purpose of determining the quantum of deduction under Section 80J." 13. The observations of Gujarat High Court in the case of Sarabhai Sons (P) Ltd. (supra) in this connection are at p. 733 of the report as under : "Section 80J falls in Chapter VI-A of the Act. Section 80A, as it then stood, provided that, in computing the total income of the assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in Sections 80C to 80U, Clause (5) of Section 80B defined "gross total income" as the total income computed in accordance with the provisions of the Act before making any deduction under the Chapter or under Section 280-0. Section 2(45) defines "total income" to mean the total amount of income referred to in Section 5, computed in the manner laid down in the Act. One of the heads which is chargeable to income-tax is "profits and gains of business or profession". Section 29 provides that the income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43A. Thus, while computing the income from profits and gains of business or profession, the expenditure incurred for scientific research becomes a permissible deduction. Deduction by way of depreciation is permitted as the capital asset depreciates in value as a result of its use. Such deduction is permitted while computing the total income of the assessee. Section 80J was enacted for the purpose of giving an incentive to enterpreneurs to establish new Industrial undertakings and for certain other purposes. It provided for deduction, no doubt, while computing the total income of the assessee, but on a different basis. The deduction was provided to encourage establishment of new industrial undertakings and for that reason, the deduction was related to the capital employed in the new industrial undertakings.

Whereas expenditure on scientific research is made deductible under Section 35 on the ground that it is expenditure incurred for the purpose of scientific research related to the business of the assessee, the deduction contemplated by Section 80J is not because of the fact that the assessee has incurred expenditure on scientific research related to his business but because he has employed capital in establishing a new Industrial undertaking, though the capital employed by the assessee may also be for the purpose of acquiring an asset for scientific research. Thus, not only are the heads under which the deductions are provided different but the nature of these deductions is also different as the objects for which the deductions are granted are also different. This is also borne out by the provisions of the Act.

Section 80J appeared in Chapter VI-A and the Chapter was added in the Act; the legislature though it fit to define gross total income to mean total income computed in accordance with the provisions of the Act, but before making any deduction under that Chapter. Thus, for the purpose of that Chapter, the income as computed in terms of Section 28 to 43A was to be regarded as the gross total income.

Having provided like this, the legislature then provided for a deduction under Section 80J. This is a clear indication in the Act itself to show that the deduction contemplated by Section 80J was to be granted in addition to other deductions that were available under other provisions of the Act." 14. The deduction claimed by the assessee is of the indexed cost which is the amount of the actual cost which is allowed under Section 35 and the amount of increase on account of inflation index. The cost of acquisition for the purposes of Section 48 as is generally understood in the common parlance is the price paid for the acquisition of an asset. Section 55(2) provides for some different amount to be the cost of acquisition in certain eventualities with which we are not concerned in this case. If the cost of acquisition of an asset is the price paid by the assessee that amount has to be allowed as a deduction under the main provisions of Section 48 of the Act. It has to be allowed at a higher amount as an indexed cost of acquisition by virtue of the second proviso to Section 48. Second proviso of Section 48 reads as under : "Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of Clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted." The indexed cost of acquisition has been defined in Clause (iii) of the Explanation to Section 48 which reads as under : "(iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later." The claim of allowance of this statutory increase in cost is not on account of double deduction but on account of inflation index and is contemplated and provided by the second proviso to Section 48 itself and to that extent, there cannot by any claim for double deduction. It is in fact not a cost of double deduction at all as the increase in cost on account of inflation index has never been subject-matter of any allowance earlier. The legislature itself has allowed the extra benefit to the assessee and those cases would fall in the category of decision dealing with deduction under Section 80J referred to above. We, accordingly, allow the loss of Rs. 19,82,845 under the capital gain.

15. The cost of acquisition is to be allowed to the assessee while computing capital gain under Section 48 and this section falls in computing the income in Part-E of Chapter-IV providing for computing capital gain which arises to an assessee on transfer of a capital asset, The deduction under Section 35 which allows the entire cost as capital expenditure on scientific research falls in Chapter-D providing for computation of profits and gains of a business or profession carried on by an assessee under Sections 28 to 43A of the Act. Both are grouped under the same Chapter-IV, and allow the cost of acquisition, as deduction, one for computing income by way of capital gain and the other for computing business income, The fact that a deduction of the entire cot of acquisition has been allowed to an assessee under Section 35 while computing the business income of the assessee may be a relevant consideration for not allowing the cost of acquisition while computing the capital gain arising on transfer of the capital asset, on the principle of prohibition for double deduction of the same amount of capital expenditure or the cost of acquisition. As both the sections deal with computing the income of the assessee under the same Chapter IV of the Act, it would be a case of allowing double deduction to the assessee of the same amount once while computing income under Section 28 and again under Section 45 of the Act and which may be held to be not contemplated by the legislature as envisaged by the Supreme Court in the case of Escorts Ltd. (supra), We, therefore, hold that the assessee is not entitled to deduction of cost of acquisition of the scientific research assets as the same has been allowed already as a deduction under Section 35.

16. The further claim of the assessee that the said loss is to be allowed as a business loss, in our opinion, has no force. The loss is arising firstly because of the enhanced cost of acquisition by reason of the inflation index and that is the procedure provided under the head "capital gain". Such loss is not contemplated while working out the business loss of the assessee. Again, the loss is arising on account of sale of the capital asset and the capital gain or loss is specifically provided to be assessed under the head "capital gain" and, therefore, the same cannot be allowed as a business loss even though the asset was used for the purposes of business before its sale. The provisions of Section 71(2) are not applicable to such loss. Secondly, the provisions of Section 71(3) are clear which provide for the set off and carry forward of the loss arising under the head "capital gain" in a specific manner. For the sake of convenience, we reproduce here the provisions of Section 71(3) of the Act as under : "Where, in respect of any assessment year, the net result of computation under the head 'capital gain' is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against the income under the other head." There is thus a specific ban for setting off the loss under the head "capital gain" against any other head which includes the head under which the business income is computed. We, therefore, do not find any merit in this claim of the assessee and the same is accordingly, rejected. The Supreme Court decision in the case of Western State Trading Co. (P) Ltd. (supra) and the Gujarat High Court decision in the case of Bhavnagar Trust Corporation (P) Ltd. (supra) relied upon by the learned counsel of the assessee are the cases of a reverse situation.

In those cases there was a profit/income which was assessed under the head "other sources" and the question of allowing the carry forward of the business loss was the subject-matter of consideration. In the present case, on the contrary, there is a loss under the head "capital gain" which the assessee wants to get set off against the business income. This type of situation would be contrary to the specific provisions of Section 71(3) referred to above. We, therefore, reject the alternative claim of the assessee.

17. The ground pertaining to investment allowance on plant and machinery written off is not pressed. It is accordingly, rejected.

18. The last ground is against upholding the view of the AO that the adjusted profit for the purposes of Section 80HHC of the Act is negative and, therefore, the assessee is not entitled to deduction thereunder. The assessee worked out the deduction under Section 80HHC at Rs. 20,523. The AO, however, observed that as per the provisions of Section 80HHC applicable from asst. yr. 1993-94 the adjusted profit, i.e., assessed profit minus 90 per cent of capital incentive of Rs. 79,400, interest received Rs. 29,27,678 and Rs. 76,00,986, rent and taxes amounting to Rs. 4,36,740 and financial charges of Rs. 12,15,450 worked out in a negative figure and, therefore, denied the claim of the assessee. The CIT(A) upheld the order of the AO as the assessee has not been able to explain as to how the action of the AO in this regard could be faulted.

19. Before us also, no material has been placed on record which would justify a contrary view. In these circumstances, we have no option but to uphold the orders of the authorities below. This ground of the assessee is rejected.


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