TMI Blog1978 (5) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... income, which worked out to ₹ 9,48,668. In working out the income from the priority industry at ₹ 1,18,58,346, the ITO has deducted depreciation, including initial depreciation, amounting to ₹ 34,64,271 and development rebate amounting to ₹ 6,58,720. 3. In an appeal filed before the AAC, the assessee contended that the development rebate amounting to ₹ 6,58,720 should not have been deducted from the profits and gains of the priority industry, while calculating the deduction under section 80-I. No such claim was raised before the AAC, in respect of depreciation, including initial depreciation, amounting to ₹ 34,64,271. The AAC rejected the above claim of the assessee as he had already taken the view, in the appellate order for the assessment year 1969-70 that development rebate was properly deductible in arriving at the profits and gains of the priority industry, for the purpose of working out the deduction under section 80-I. Aggrieved by this order of the AAC, the assessee is in second appeal before the Tribunal. 4. Before the appeal came up for hearing, the assessee moved a petition pointing out that different interpretations on the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate relief for this year also. On a reference by the Commissioner, the High Court confirmed the view taken by the Tribunal that it was competent for the AAC to entertain the assessee s claim and to direct the ITO to give the appropriate relief. On a further appeal by the Commissioner the Supreme Court reversed the decision of the High Court and held that since no claim was made before the ITO and there was also no material on the records, in support of such a claim, the mere fact that such a claim had been allowed in subsequent years did not justify the admission of such claim before the AAC. 6. In the case before us, all the materials relating to the assessee s claim are already contained in the order of assessment passed by the ITO and the claim regarding the deductibility or otherwise of depreciation in computing the relief under section 80-I is purely a legal issue which does not require any further investigation into the facts of the case or involve the bringing on record of any additional facts. Accordingly, we are unable to accept the objection raised on behalf of the department. The assessee will be permitted to raise and argue the ground relating to the deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , used in Section 28, refers to the gross prfits and gains of business or profession, before the deduction of expenditure and allowances referred to in sections 30 to 43A. on this line of reasoning, he submitted that not merely depreciation and development rebate but none of the expenses or allowances referred to in sections 30 to 43A should be deducted in computing the profits and gains of a priority industry, for the purposes of computing the deduction under section 80-I. However, he submitted, the assessee was limited its claim to the non-deductibility of depreciation and development rebate while making such computation, even though, according to him, the assessee would be justified in claiming that none of the expenses or allowances referred to in sections 30 to 43A should be deducted. 9. In support of his contention, Shri Ganesan sought to rely on certain decisions of various High Courts. Firstly, he referred to the decision of the Kerala High Court in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192, wherein the High Court has held that in allowing the deduction contemplated under section 80E, the losses of earlier years, carried forward, should not be set off against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the net dividends. He also referred to the decision of the Madras High Court in CIT v. L.M. Van Moppes Diamond Tools (India) Ltd. [1977] 107 ITR 386 in which their Lordships of the Madras High Court have held that the relief allowable under section 80E is in respect of the income from the priority industry, without setting off the carried forward losses or losses from other business carried on by the assessee. He also referred to the decision of the Supreme Court in CIT v. South Indian Bank Ltd. [1966] 59 ITR 763 . In that case, the Supreme Court was considering a Notification issued by the Central Government under section 60A of the 1922 Act, which provided that no income-tax shall be payable by an assessee on the interest receivable on certain income-tax free loans issued by the former Government of Travancore or by the former Government of Cochin. The question was whether such exemption was in respect of the gross interest or the net interest after deducting the amount spent in collecting it. The Supreme Court held that the notification was a self-contained one giving a total exemption from income-tax and there was no ambiguity about the expression interest receivable . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment rebate as in the light of the above, decisions, depreciation and development rebate reserves represent accumulated profits of the company. 13. On behalf of the revenue, Shri Khare pointed out that there was only one decision of High Court, directly on the question which is involved in this appeal before us and that decision is against the assessee. He pointed out that the Gujarat High Court had to consider the identical question whether the unabsorbed depreciation and development rebate, carried forward from an earlier year, is to be set off against the profits and gains of a priority industry, for computing the relief under section 80-I, in CIT v. Cambay Electric Supply Industrial Co. Ltd. [1976] 104 ITR 744 . He pointed out that the High Court, after a detailed analysis of the statutory provisions as well as the principles involved, has held that such unabsorbed depreciation and development rebate should be deducted in computing the profits of the priority industry for the purpose of working out the relief under section 80E(1) which was later substituted by section 80-I. While this decision referred to the provisions of section 80E, the decision of the Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years was to be deducted in determining the income of a company to which section 15C of the 1922 Act, applied, Shri Khare pointed out that section 15C(1) also contained the expression, that the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking to which this section applies as do not exceed six per cent per annum on the capital employed, etc., etc. . The Supreme Court observed, interpreting that section, that the exemption under section 15C(1), from payment of income-tax, is not related to the business profits ; but that it related to the taxable profits. In the light of the above decision, also, the departmental representative argued that there was no justification for holding that the expression profits and gains referred to commercial profits. 14. In his reply Shri Ganesan pointed out that the decision of the Supreme Court in S.S. Sivan Pillai s case (supra) is clearly distinguishable in view of the language used in section 15C(3) which lays down that the profits or gains of an industrial undertaking, to which that section applies, shall be computed in accordance with the provisions of section 10 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Rowlatt, J. in Cape Brandy Syndicate v. IR [12 TC 385] : In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. As observed by the Supreme Court in CIT v. Shahzada Nand and Sons [1966] 60 ITR 392 : To this may be added a rider : in a case of reasonable doubt, the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes,whether fiscal or otherwise. The underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient. The expressed intention must guide the court... (p. 400) Another principle of interpretation which we would bear in mind, in this connection, is that where certain words used in the statute are not specifically defined, they should be taken in their legal sense or their dictionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness or profession , for the purposes of the Income-tax Act. Section 29 clearly lays down that such profits and gains shall be computed in accordance with the provisions contained in section 30 to 43A. Thus, the profits and gains of a business or profession for the purposes of the Income-tax Act, are such profits which are computed in accordance with the provisions contained in sections 30 to 43A. In other words, it is not a gross figure of income but a net figure of income emerging from the application of the provisions of sections 30 to 43A. The interpretation sought to be given by the learned representative of the assessee to the expression, namely, that it is a gross figure, is based on his contention that section 28 is the starting point of the computation of profits and gains and from such gross profits and gains the deductions mentioned in sections 30 to 43A have to be made in order to arrive at the net profit from the business or profession, for conclusion in the total income of the assessee. The Income-tax Act does not speak of the net income from business or profession for inclusion in the total income of an assessee. It only speaks of profits and gains of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul Transmission s case (supra) relied upon by the revenue. Thus, on a plain reading of the words used in the Act, we do not find any ambiguity or room for doubt with regard to the meaning of the expression profits and gains attributable to any priority industry used in section 80-I of the Income-tax Act. In our view, the clear meaning which emerges is that it represents the profits and gains of the priority industry, computed in accordance with the provisions of sections 30 to 43A of the Act. The two decisions of the Gujarat High Court, namely: Cambay Electric s case (supra) and Amul Transmission s case (supra) have also taken this view. Thus, there is no question of any ambiguity involved in the language of the section, which should lead us to take a view favourable to the assessee. 18. We have already referred, in the earlier part of this order, to the case law cited on behalf of the assessee, at the Bar. 19. One line of decisions, cited before us, deals with the provisions of section 80E as they stood at the material time. That section, insofar as it is material for the present discussion, was as follows: (1) In the case of a company to which this section applies, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much help to the assessee. 21. Another line of decisions, cited before us, deals with the interpretation of the expression, income by way of dividends , appearing in rule 1(viii) under the First Schedule to the Companies (Profit) Surtax Act, 1964. That rule is in the following terms: In computing the chargeable profits of a previous year, the total income computed for that year under the Income-tax Act shall be adjusted as follows:- 1. Income, profits and gains and other sums falling within the following clauses shall be excluded from such total income, namely:- (i)to (vii) ****** (viii)income by way of dividends from an India company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India; The question which arose for consideration, in these cases, was whether the expression, income by way of dividends , referred to the gross dividends received by the assessee or the net amount of dividends, as computed under the provisions of the Income-tax Act, after deducting expenses incurred in earning and collecting such dividends. The language used in the rule, it will be seen, is not in pari materia wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an s case (supra) and of the Supreme Court in P.K. Badiani s case (supra), relied upon by the learned counsel, deals with the question whether depreciation reserve or development rebate reserve formed part of the accumulated profits of a company within the meaning of section 2(22)( e). This line of decisions would be relevant only if the expression, profits and gains , used in section 80-I, referred to the commercial profits of the assessee, as contended by the learned counsel. As we have already came to the conclusion that, on the plain language used, there is no justification for assuming that the above expression means the commercial profits of the company , in these decisions, referred to by the learned counsel, also do not help the assessee. 23. On the other hand, the decisions of the Gujarat High Court in Cambay Electric s case (supra) and Amul Transmission s case (supra) deal directly with the issues involved in the appeals before us. The analysis of the statutory provisions by their Lordships of the Gujarat High Court and their conclusions, also directly support the view that we have taken. We would, therefore, respectfully follow the decisions of the Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the assessee that for the assessment year 1965-66, similar claims were allowed by the ITO. We have gone through the details of the expenditure incurred by the assessee and find that these include the cost of two sarees totalling ₹ 447. The learned counsel for the assessee has not been able to tell us how the expenditure on these two sarees is related to the business of the assessee-company. Accordingly, we would retain the disallowance to the extent of ₹ 447 and allow consequential relief to the assessee as the other items included in the list are, apparently, of the nature of expenditure incurred for the purposes of the assessee s business. 27. The next item, in respect of which a ground has been raised, is the disallowance of an amount of ₹ 1,815, being expenses incurred in connection with different patents for the manufacture of refractory bricks. We have gone through the details of the expenditure claimed by the assessee under this head and find that only one item of ₹ 710 relates to new patents. The other items are in respect of renewal of old patents and protecting the existing patents from infringement by third parties. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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