TMI Blog1989 (10) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... The first ground common for the both the years relates to the deduction claimed under section 80HH. The relevant details of the claims etc. are the following: --------------------------------------------------------------------------------------------------------------------------------------------------- Asst. Deduction claimed Net profits Total income Brought forward Year under sec. 80HH of the year of the year loss of the earlier years --------------------------------------------------------------------------------------------------------------------------------------------------- 1980-81 10,28,005 51,51,446 (-) 82,52 620 51,51,440 1981-82 14,17,779 72,09,236 (-) 42,47,444 46,80,109 --------------------------------------------------------------------------------------------------------------------------------------------------- The assessee claimed deduction u/s 80HH on the net profits before set off of brought forward loss. The Income-tax Officer took the view that the deduction @ 20% under section 80HH was to be allowed only after setting off of the brought forward losses of the earlier years from the net income. Since the net income for the assessment year 1980- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us, on behalf of the assessee the contentions put forward before the Income-tax authorities were reiterated by Shri C.S. Agarwal with great emphasis, Reliance was placed by him on the marginal heading of section 80HH as also on the following decisions :--- (i) in the case of Yenpeyees Rubber (P.) Ltd. (ii) CIT v. L.M. Van Moppes Diamond Tools (India) Ltd. [1977] 107 ITR 386 (Mad,); and (iii) CIT v. Canara Workshops (P.)Ltd. [1986] 161 ITR 320/27 Taxman 262(SC). His main submission was that the loss which was brought forward loses its character and identity and ceased to be of that nature as belonging to that particular industry from which it arose, and consequently the brought forward loss should not be considered for deduction. In this context he referred to the provisions of section 80-I(6). Finally he submitted that if two views are possible, the view in favour of the assessee has to prevail. On the other hand, Shri Amitabh Kumar, the learned Departmental Representative sought to rely strongly on the orders of the Income-tax authorities. He pointed out that the assessee was one unit, and the income has to be computed in accordance with the provisions of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was because, for the purposes of inclusion in the "gross total income" as defined in section 80B(5), such profits and gains would necessarily have to be computed in accordance with the provisions of sections 30 to 43A. In coming to this decision the Appellate Tribunal had followed the decision of the Gujarat High Court in the case of CIT v. Cambay Electric Supply Industrial Co. Ltd. [1976]104 ITR 744 which decision came to be affirmed by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. In the case of Distributors (Baroda) (P.) Ltd. , the Supreme Court had affirmed the decision in the case of Cambay Electric Supply Industrial Co. Ltd. and had overruled its earlier decision in the case of Cloth Traders (P.) Ltd. which had not considered the decision in the case of Cambay Electric Supply Industrial Co. Ltd. In this decision also, it was held that section 80AA (dealing with the computation of deduction under section 80M) in its retrospective operation, was merely declaratory of the law as it always was. The decision of the Bombay High Court in the case of Mercantile Bank Ltd. had held on the basis of the decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.)" Thus section 80AB provided in clear terms, that notwithstanding anything contained in those sections providing for the deductions, the amount of income for the purpose of computing the deduction, of that nature, meaning the income derived from the industrial undertaking as described u/s 80HH must be computed in accordance with the provisions of this Act before making any deduction under this Chapter, and that amount of income alone (i.e.) as computed in accordance with the provisions of this Act be deemed to be the "amount of income of that nature" derived or received by the assessee and is deemed to have been included in his gross total income. That amount of income alone is eligible for computing the deduction. Section 80AB has the specific object of defining what the "amount of income" that could be said to be derived or received by an assessee entitled to the deduction and which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was undisputably a loss of Rs. 51,51,446 for the assessment year 1980-81 and Rs. 46,80,109 for the assessment year 1981-82. These losses have to be set off against the incomes shown of the future years to arrive at the total income that is defined in section 80B(5). The argument advanced on behalf of the assessee that the loss loses its identity once it is computed and ordered to be set off and carried forward is an argument which we confess, we are unable to comprehend because the loss computed in a business continues to be the loss eligible for being set off against the business income of the future years and that loss cannot be ignored for the purpose of section 80HH read with section 80AB. Where the gross total income computed as stated in section 80B(5) is a 'Nil' figure or a loss, the question of deduction under any or all of the sections in Chapter VIA will not arise even though 20% of the profits and gains in respect of the specified industrial undertaking as contemplated in section 80HH may be a positive figure, however large it be. One of the reasons referred to in the decision of Madras Bench in Yenpeyees Rubber (P.) Ltd.'s case for holding that the deduction under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other ground of the assessee. For the assessment year 1981-82 the assessee did not press the following grounds which, therefore, do not survive for our consideration : (i) Ground No. 1 relating to the determination of the income at Rs. 13,86,005. (ii) Ground No. 15 relating to the charge of interest under sections 139(8) and 217. 10. The next ground i.e. ground No. 2 for assessment year 1981-82 related to the disallowance of Rs. 15,360 from the total "Mess/Guest house expenses" claimed at Rs. 30,720. This expenditure had been claimed in respect of a guest house maintained in the factory premises at Sherpur Road, Malarkotla in Punjab (a backward area). The contention of the assessee was that the provisions of section 37(4) were not attracted as the assessee was not maintaining any residential accommodation as such. The Income-tax Officer disallowed 50% of the expenses for non-business purposes on the ground that there was every possibility that the element of inadmissible expenses such as share in expenses by Directors and their relatives and other persons not connected with the business, was included therein. The details of the expenses appeared at pages 29 to 36 of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was quite justified. The same is upheld. 14. The next ground namely ground Nos. 3 to 5 relate to the non-allowance of rent expenses amounting to Rs. 59,400 claimed by the assessee in respect of the premises situated at B-9, Maharani Bagh, New Delhi which are said to have been taken on rent for the purposes of business of the assessee. The case of the assessee was that this was the registered office of the assessee. The Income-tax Officer made personal enquiries and found that this was being maintained as a guest house. He did not find any evidence for establishing that it had been taken on rent for holding meetings of the Board. He, therefore, disallowed Rs. 59,400. 15. In appeal, the learned Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer in terms of sub-sections (4) and (5) of section 37 particularly in the light of the extract of the Meeting of the Board of Directors, held on 12-6-1984 which read as follows: "Resolved that keeping of a Guest House of the company at B-9, Maharani Bagh, New Delhi on a monthly rent of Rs. 11,000 per month for a period of thirty months be and is hereby approved." 16. After hearing the learned representat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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