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Commissioner of Income-tax, Tamil Nadu-iii, Madras Vs. Madras Motors (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 44 of 1977 (Reference No. 39 of 1977)
Judge
Reported in[1984]150ITR150(Mad)
ActsIncome Tax Act 1961 - Sections 2(45), 5, 45, 48, 72, 72(2), 80A, 80A(1), 80A(2), 80B, 80B(5), 80C, 80E, 80E(1), 80L, 80M, 80Q and 80T
AppellantCommissioner of Income-tax, Tamil Nadu-iii, Madras
RespondentMadras Motors (P.) Ltd.
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateV. Ramachandran, Adv.
Excerpt:
.....chapter vi-a not available in case where aggregate amount of deduction under chapter vi-a exceeds gross total income - gross total income computed in accordance with provision of act was nil - as gross total income has been found to be nil no deduction could be permitted in view of limitation placed by section 80a (2) - answered in favour of revenue. - - 80b(5). that the total income is to be computed in a accordance with the provisions of the act before giving deductions with the provisions of the act before giving deductions under chapter vi-a clearly shows the intention of parliament that the deduction under chapter vi-a is contemplated only after the total income is computed after setting off the unabsorbed depreciation as per s. the supreme court rejected that contention for..........appellate tribunal was right in holding that deduction under chapter vi-a should be given from the gross total income before setting off of past losses, unabsorbed depreciation and development rebate (2) whether, on the facts and in the circumstances of the case, the assessee was entitled to the relief under section 80l, 80m and 80q for the assessment year 1970-71 ?' 2. the assessee is a private limited company. for the assessment year 1970-71, the ito determined the net income at rs. 24,981. after setting off 1965-66 unabsorbed depreciation, the net taxable income was, however, determined at 'nil'. the assessee filed an appeal before the aac cleaning that it was eligible for the relief under ss. 80l, 80m and 80q of the i.t. act, 1961. (hereinafter referred to as 'the act'), amounting to.....
Judgment:

Ramanujam, J.

1. At the instance of the Revenue the following two questions have been referred by the Income-tax Appellate Tribunal, Madras, for the opinion of this court :

'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that deduction under Chapter VI-A should be given from the gross total income before setting off of past losses, unabsorbed depreciation and development rebate

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the relief under section 80L, 80M and 80Q for the assessment year 1970-71 ?'

2. The assessee is a private limited company. For the assessment year 1970-71, the ITO determined the net income at Rs. 24,981. After setting off 1965-66 unabsorbed depreciation, the net taxable income was, however, determined at 'nil'. The assessee filed an appeal before the AAC cleaning that it was eligible for the relief under ss. 80L, 80M and 80Q of the I.T. Act, 1961. (hereinafter referred to as 'the Act'), amounting to Rs. 500, Rs. 26,470 and Rs. 70 respectively. The AAC by a short and laconic order upheld the assessee's claim without giving any reason saying 'as the contentions made under this head by the assessee's representative being in order, it is accepted.'

3. The Revenue took the matter in appeal before the Income-tax Appellate Tribunal contending that the assessee is not entitled to relief under the said three sections, that after set off of the unabsorbed depreciation the resultant figure was 'nil', that the deductions under Chapter VI-A will have to be made only after computation of gross total income as per the provisions of the Act, that such computation will have to be done by setting off first the business loss and then the unabsorbed depreciation and development rebate under the Provisions of s. 72(2) of the Act and that since the gross total income itself was nil. the question of deduction under Chapter VI-A did not arise. The assessee on the other hand contended before the Tribunal that the setting off of business loss and unabsorbed depreciation and development rebate have to be done after computation of the total income as has been held by the Mysore High Court in CIT v. Balanoor Tea and Rubeer Co. Limited : [1974]93ITR115(KAR) . The Tribunal has taken the view that the assessee would be entitled to these deductions before setting off unabsorbed depreciation and carried forward development rebate, that these deductions will, however, be subject to the limitation provided in s. 80A(2) i.e., the aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the asssessee. Aggrieved by the order of the Tribunal, the Revenue has sought and obtained the reference on the questions set out above.

4. As already stated, the assessee has claimed deduction under ss. 80L, 80M and 80Q of the Act for the sums of Rs. 500 and Rs. 26,470 and Rs. 70 respectively. It is not in dispute that the net income of the assessee before the set off of the unabsorbed depreciation relating to 1965-66 included a sum of Rs, 44,687 as dividend. The break-up of the said amount is as under :

Rs.(1) The Madras State Industrial Co-operativeBank Limited 70(2) M/s.Hackbridge Hewittic and Easun Limited 2,400(3) The Enfield India Limited 42,217

5. According to the Revenue, the deductions under Chapter VI-A will have to be made only after the computation of the gross total income as per s. 80B(5) and such a computation will have to be done by setting off first the business loss and then the unabsorbed depreciation and development rebate under s. 72(2) of the Act, and that as in this case the gross total income as computed in accordance with the provisions of the Act is nil, the question of allowance of deduction under Chapter VI-A does not arise. Thus the question for our consideration in this case is as to whether the relief under Chapter VIA will have to be made after computation of the net income as contended by the Revenue or without reference to the net income as contended by the assessee.

6. Chapter VI-A provides for deductions to be made in computing the total income. Section 80A(1) provides that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in ss. 80C to 80VV; sub-s(2) of s. 80A says that the aggregate amount of deductions under this Chapter shall not, in any case exceed the gross total income of the assessee. Section 80B defines 'gross total income' as meaning the total income computed in accordance with the provisions of this Act before making any deduction under Chapter VI-A. Section 80A uses two expressions, 'total income' and 'gross total income'. 'Gross total income' has been defined in s. 80B as total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A. Having regard to the above provisions, before making any deduction under Chapter VI-A, the total income of the assessee is to be computed in accordance with the provisions of the Act and such total income will have to be taken as the gross total income from which the deduction under Chapter VI-A has to be allowed. In this case, the gross total income computed in accordance with the provisions of the Act, that is after setting off unabsorbed depreciation relating to 1965-66, was nil. Therefore, there is no positive figure from which deduction under Chapter VI-A could be allowed. The benefit of deduction under Chapter VI-A will not be available in a case where the aggregate amount of deduction under Chapter VI-A exceeds the gross total income which, in this case, is nil. Since the gross total income has been found to be nil, no deduction could be permitted in view of the limitation placed by s. 80A(2). In this case, the Tribunal has taken the view that the deductions under Chapter VI-A have to be allowed even before the set off of unabsorbed depreciation and carried forward development rebate. We are of the view that the Tribunal has not given due weight to the definition of 'gross total income' contained in s. 80B(5). That the total income is to be computed in a accordance with the provisions of the Act before giving deductions with the provisions of the Act before giving deductions under Chapter VI-A clearly shows the intention of Parliament that the deduction under Chapter VI-A is contemplated only after the total income is computed after setting off the unabsorbed depreciation as per s. 72. Section 72 comes under Chapter VI dealing with aggregation of income. Therefore, s. 72 has to be applied before the total income of an assessee is determined, that is, before the deductions under Chapter VI-A are allowed, in view of s. 80B(5) defining gross total income for the purpose of Chapter VI-A.

7. In Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , the assessee had contended that the expression 'total income' appearing in s. 80E(1) has been used in its commercial sense and since neither the unabsorbed depreciation nor the unabsorbed development rebate has anything to do with commercial profits attributable to the business the said two items would not be deductible before arriving at the figure that would be eligible to the 8% deduction. The Supreme Court rejected that contention for more than one reason, and the reasons are given below (p 95) :

'First, in sub-section(1) of section 80E, the expression 'total income' is followed by the words 'as computed in accordance with other provisions of this Act' in parenthesis and the mandate of these words clearly negatives the argument that the expression 'total income' has been used in the sense of commercial profits. Secondly, the expression 'total income' has been defined ins section 2(45) of the Act as meaning 'the total amount of income referred to in section 5, computed in the manner laid down in this Act' and when this definition has been furnished by the Act itself, the expression as appearing in section 80E(1) must, in the absense of anything in the context suggesting to the contrary, be construed in accordance with such definition. Since the words in the parenthesis occurring in sub-section(1) lay down the manner in which the total income of the concerned assessee is to be computed, there would no scope for excluding items like unabsorbed depreciation and unabsorbed development rebate while computing the total income on the basis that the total income spoken of by sub-section(1) means commercial profits.'

8. In CIT v. Venkatachalam : [1979]120ITR688(Mad) , while dealing with the allowance of deduction under s. 80T, the question arose as to whether in computing the capital gains, the loss should be adjusted first and on the balance alone, the provisions of s. 80T should be applied. The Department contended that the capital gains as reduced by loss should alone be taken into account. The assessee's point was that the amount included in the chargeable income in relation to the capital grins and the amount included in the total income would only be the gross amount and not any amount as adjusted, and that such an adjustment at the time of computation of the capital gains. Reliance was placed by the Revenue on the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 846 and also the decision of the Karnataka High Court in Dr. T. Ramadas M. Pai v. CIT : [1978]115ITR883(KAR) . This court held that having regard to the language used in ss. 45, 48 and 80T, it is clear that the amount chargeable under the head 'Capital gains' would only be the amount computed in accordance with the provisions of ss. 45 and 48, that these two provisions do not envisage adjustment of any other loss either of the same year of a different year and, therefore, on the plain language of the provisions, it would be clear that the whole of the amount of capital gains would have to be taken into account even without reference to any other authority. In CIT v. Seshasayee : [1981]129ITR166(Mad) , this court, relying on the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , which dealt with the scope of s. 80E, held that the only difference between ss. 80E and 80T is that in s. 80E itself, the definition, which is now provided in s. 80B(5), was incorporated. In other words, the expression 'as computed in accordance with the other provisions of this Act', found in brackets in s. 80(E) is now to be found in s. 80B(5), and that, therefore, the reasoning of the Supreme Court would directly apply to s. 80T as well. In this case the earlier judgment of this court in Addl. CIT v. Ramaswamy Chettiar : [1979]120ITR694(Mad) , taking a contrary view, is referred to an explained on the ground that the judgment of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) was not available then and therefore, the earlier decision cannot be taken to be good law. In that case, the decision of the Karnataka High Court in Dr. T. Ramadas M Pai v. CIT : [1978]115ITR883(KAR) , which was concerned with s. 80L has been referred to but that was held to be contrary to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) and, hence, that decision cannot be taken to be the correct law, especially when it has not taken note of the definition provided in s. 80B(5).

9. In view of the above decisions, which support the stand taken by the Revenue and which give due weight to the definition of 'total income' in s. 80B(5) as also the limitation provided in s., 80A(2), we have to answer the questions in the negative and in favour of the Revenue. The Revenue will get costs from the assessee. Counsel's fee Rs. 500.


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