SETHURAMAN J. - This is a reference under s. 256(1) of the I.T. Act, 1961, on the following question :
'Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the deduction under section 80p should be allowed before set off of unadsorbed loss and unabsorbed depreciation of the earlier years ?'
The assessee in a co-operative society. For the assessment year 1969-70 and 1970-71, assessments were made on March 20, 1971. For the assessment year 1969-70, as against the loss of Rs. 20,050 shown by the assessee, the actual amount arrived at as loss was Rs. 22,650 and the depreciation for that year as determined at Rs. 3,316. Thus, the aggregate deficit for that year was Rs. 25,966. For the assessment year 1970-71, the assessee had shown an income of Rs. 26,580. The ITO determined the income at Rs. 29,584. He set off the deficit of Rs. 25,966 relation to the earlier year and arrived at a net income of Rs. 3,618. It appears that this figure has undergone some modification but that in not really material for our present purpose.
The ITO reopened the assessments for these two years. In the reassessment the income computed for the assessment year 1969-70 was Rs. 526 under the head 'Other sources' and for the assessment year 1970-71, it was Rs. 42,040. The assessee contended before the ITO that, after computation of the business income, the relief available under s. 80P had to be given before setting off the carry forward losses of earlier years. He relied on a decision of the Kerala High Court in Indian Transformers Ltd. V. CIT : 86ITR192(Ker) . The ITO did not agree with that contention of the assessee, since, after the set off of the carried forward losses. there was no positive business income and thus no deduction was given under s. 80P. For the assessment year 1970-71, the relief was given but, here again it was after an adjustment of the carried forward losses.
There were also assessments for 1971-72 and 1972-73, similarly made by the ITO. It is unnecessary for out present purpose to go into those figure as those assessments depend entirely on the answer to the question referred to this court for the assessment years 1969-70 and 1970-71.
The assessee felt aggrieved by the order of the ITO setting off the losses of the earlier years prior to the granting of the relief under s. 80P and, therefore, took the matter on appeal to the AAC who agreed with the ITO. Thereafter, the assessee appealed to the Tribunal which accepted the assessee`s claim. In the view of the Tribunal, the deduction allowable under s. 80P would have to precede the adjustment of any unabsorbed loss or unabsorbed depreciation, as the case may be. It is this order of the Tribunal that is now challenged in the present common reference for all the four years, namely, 1969-70 to 1972-73. We have already extracted the question which has been referred to this court.
Section 80P occurs under Chap. VI-A. The relevant section reads as under :
'(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely : - ....
(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b)... so much of its profits and gains attributable to such activities as does not exceed.... twenty thousand rupees.'
The learned standing counsel contended that the answer to this reference is found in the decision of the Supreme Court in Bombay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) . In that case, the assessee computed the income from business at Rs. 46,319. It seems that old machinery and buildings were sold, resulting in the application of s. 41(2) , bringing to tax a sum of Rs. 7,55,607. There the unabsorbed depreciation of Rs. 1,42,955 and unabsorbed development rebate of Rs. 1,11,658, aggregating to Rs. 2,54,613, was of the earlier years. The ITO, in computing the income for assessment, took the business income of Rs. 46,319 as well as the income of Rs. 7,55,807 taxed under s. 41(2) , totaling Rs. 8,02,126 and granted a rebate under s. 80E(1) in the form of a deduction amounting to Rs. 64,170. This left a balance of Rs. 7,37,956 and as against this amount the unabsorbed depreciation and development rebate of Rs. 2,54,613 was set off. The balance of the income was charged to tax. The Addl. CIT examined the assessment records of the assessee and sought to apply the provisions of s. 263 of the Act. That is a provision enabling him to revise the assessment in cases where there was prejudicial to the revenue an error in the order of the ITO. He considered that a rebate of 8 per cent. could not have been given on Rs. 8,02,126 which represented the income from business as well as the income under s. 41(2). According to him, the income taxed under s. 41(2) would not be eligible for the rebate under s. 80E(1) and further the unabsorbed depreciation and development rebate of the earlier years ought to have been set off as against a sum of Rs. 46,319 representing the business income of the assessee for that year. The result was that there was no scope for applying the deduction contemplated under s. 80E. It is the legality of this order which was challenged ultimately before the Supreme Court. The Supreme Court held in the above case that, on a construction of s. 80E(1) , items of unabsorbed depreciation and unabsorbed development rebate carried forward from earlier years would have to be deducted before arriving at the figure from which the 8 per cent. contemplated by s. 80E was to be deducted. In the course of the said judgment, their Lordships have considered the adjustment of unabsorbed losses under s. 72 , also. The learned standing counsels contention is that the unabsorbed depreciation and development rebate would all have to be treated on an identical basis and adjusted before arriving at the income eligible for deduction under s. 80P in the present case.
For the assessee, the submission is that there is a later decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) and also a decision of this court in CIT v. Venkatachalam : 120ITR688(Mad) . In the case before the Supreme Court referred to above, the assessee derived income from dividends. Sections 85A and 80M contemplated relief being granted to the assessee in a particular manner. For instance, s. 85A provided.
'Deduction of tax on intercorporate dividend. - Where the total income of an assessee being a company includes any income by way of dividends received by it from an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no income-tax is payable under the provisions of this Act) as exceeds an amount of twenty-five per cent. thereof :..........'
Section 85A was replaced by s. 80M and that was the provision applicable for certain other years. Section 80M , in so far as it is material for our purposes, runs as follows :
'Where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to -........'
A percentage of the category of income has to be allowed as deduction. It is not necessary to go into the respective percentages specified in s. 80M. The Supreme Court held that the assessee would be entitled to relief under s. 85A or s. 80M in respect of the entire amount of the dividend income without deduction of interest paid on borrowing for acquiring the shares. In this decision, the earlier decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) has not been noticed.
We were concerned with a similar question arising under s. 80T in CIT v. Venkatachalam : 120ITR688(Mad) . In that case, the assessee claimed that the relief available under s. 80T should be calculated on the gross capital gains of Rs. 1,02,740 after deducting the basic allowance of Rs. 5,000 and not after an adjustment of the business loss of Rs. 41,892 for the earlier years. The ITO negatived the claim and the matter ultimately reached this court on a reference. It was held that having regard to the close similarity in the language of s. 80M and that of s. 80T the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) , which dealt with s. 80M , would apply to the claim under s. 80T as well. The result was, the assessees claim succeeded in this court.
Apart from these cases, there is a later decision of the Gujarat High Court in CIT v. Gautam Sarabhai : 129ITR133(Guj) , which has considered the question of relief available to the assessee under s. 80T in respect of capital gains. It is not necessary to go into the facts of that case but it is enough to mention that the learned judges have dissented from the view taken by this court in Venkatachalams case : 120ITR688(Mad) and have followed the decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) . They distinguished the Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) .
The problem is of course not easy of solution especially having regard to the manner in which these provisions have been drafted and the method of deduction that has been followed thereunder. However, having regard to the nature of s. 80P , we consider that the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : 118ITR243(SC) requires to be followed and applied. In the case on hand, the assessee is a co-operative society. Its gross total includes income coming within the scope of s. 80P(2)(c). That is, it is a co-operative society engaged in activities other than those specified in cls. (a) and (b) of s. 80P(2). The gross total income of the assessee is to be arrived at in order to adjust the relief available under s. 80P. We consider that the co-operative societies stand on a separate footing, apart from other types of assessee and that is why s. 80P gives certain concessions in tax to them. It will not to be possible whittle down the concessions by reference to any reasoning which is not warranted by the nature of the provision. So long as the gross total income included the amount of income referable to the activities of the co-operative societies by s. 80P(2)(C) , the assessee would be eligible for the deduction, and, if there is any amount left thereafter that could be the subject of consideration for adjustment of carried forward losses or other items which would require to be considered. We, therefore, answer the question referred to us in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsels fee RS. 500. One set.
When this judgment was pronounced, the learned standing counsel applied orally for grant of leave to appeal to the Supreme Court stating that there is some difficulty in the application of the particular decision of the Supreme Court to the relevant facts of this case and also brought to our notice the grant of leave by the Gujarat High Court in the case referred to above.
Taking into consideration all the facts, we consider that this is a case in which leave should be granted and leave is granted on the question as to whether the relief under s. 80P requires to be calculated before a after the adjustment of unabsorbed depreciation or unabsorbed development rebate, as the case may be.