2000 (8) TMI 266 - AT - Income Tax

Computation - The assessee had claimed special deduction under ss. 80HHC and 80HHE of the IT Act 1961 - The AO allowed special deduction u/s 80HHC and 80HHE by computing the profits and gains of business only after deducting therefrom the amount of unabsorbed depreciation and investment allowances - The assessee has raised only one ground of appeal disputing the allowance of special deduction under ss. 80HHC and 80HHE of the IT Act 1961 after deducting the brought forward losses and applying the provisions of s. 80AB and s. 80B(5) In the decision of Hon ble Supreme Court in the case of Motilal Pesticides (Ind.) (P) Ltd vs. CIT (2000) 161 CTR (SC) 241 (2000) 243 ITR 2 (SC) and of Hon ble Rajasthan High Court in the case of Vishnu Oil & Dal Mills - The only issue which remains to be considered is as to whether the computation of deduction under s. 80HHC is also restricted by s.80AB - 80AB it is evident that the deduction mentioned in s. 80AB is to be allowed in respect of any income of the nature specified in that section which is included in the GTI of the assessee as mentioned in situation (a) above and if there is any controversy of conflict in the determination of such amount of income for computation of deduction like the one raised here in respect of deduction under s. 80HHC the amount of income mentioned in situation (c) above shall alone be deemed to be such income as mentioned in situation (d) above Accordingly held that the relief of special deduction under head C of Chapter VI-A of IT Act 1961 is to be allowed not on net income/profit and not on gross profit/income or in other words the carried forward business losses unabsorbed depreciation and investment allowances have to be considered/adjusted first and thereafter only the special deduction postulated in Chapter VI-A needs appropriately be allowed Appeal dismissed

Summary

Issues Involved:
1. Deduction under Sections 80HHC and 80HHE after considering brought forward losses, depreciation, and investment allowances.
2. Application of Section 80AB and Section 80B(5) in computing deductions.
3. Interpretation and comparison of Section 80HHC with Section 80HH.
4. Precedence of judgments from various High Courts and the Supreme Court.

Issue-wise Detailed Analysis:

1. Deduction under Sections 80HHC and 80HHE after considering brought forward losses, depreciation, and investment allowances:
The assessee contested the computation method used by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], which allowed deductions under Sections 80HHC and 80HHE only after deducting unabsorbed depreciation and investment allowances. This method reduced the claimed rebates under Sections 80HHC and 80HHE. The Tribunal examined the arguments and written submissions from both sides, including cited decisions.

2. Application of Section 80AB and Section 80B(5) in computing deductions:
The assessee argued that Section 80AB does not supersede the computation of deductions under Section 80HHC. The Departmental Representative countered that Section 80B(5) and Section 80AB have overriding effects and must be considered, citing relevant Supreme Court decisions. The Tribunal noted that Section 80AB contains a non obstante clause, giving it an overriding effect, and thus, deductions must be computed in accordance with the Act's provisions.

3. Interpretation and comparison of Section 80HHC with Section 80HH:
The assessee emphasized the difference in language between Sections 80HHC and 80HH, arguing that Section 80HHC should allow deductions before setting off brought forward losses. The Tribunal analyzed the language of both sections and found no material difference, noting that both sections ultimately require deductions to be made from profits. The Tribunal referenced the Andhra Pradesh High Court's decision, which supported the assessee's view, but found it not in conformity with Supreme Court and Rajasthan High Court judgments.

4. Precedence of judgments from various High Courts and the Supreme Court:
The Tribunal considered the Andhra Pradesh High Court's decision in CIT vs. Goginini Tobacco Ltd., which supported the assessee's view. However, it found the judgment inconsistent with the Supreme Court's decision in Motilal Pesticides (Ind.) (P) Ltd vs. CIT and the Rajasthan High Court's decision in Vishnu Oil & Dal Mills. The Tribunal emphasized that the Supreme Court's interpretation of Section 80AB, which mandates deductions on net income, applies to all sections under Chapter VI-A, including Section 80HHC.

Conclusion:
The Tribunal concluded that deductions under Chapter VI-A should be allowed on net income, not gross income. This means that brought forward business losses, unabsorbed depreciation, and investment allowances must be deducted first before computing the special deduction under Sections 80HHC and 80HHE. Consequently, the Tribunal upheld the CIT(A)'s order and dismissed the assessee's appeal.