TMI Blog2004 (7) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: (i) Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC), (ii) H.H. Sir Rama Varma vs. CIT (1994) 116 CTR (SC) 55 : (1994) 205 ITR 433 (SC), (iii) CIT vs. Rockweld Electrodes India Ltd. (1995) 128 CTR (Mad) 152 : (1995) 215 ITR 358 (Mad)." 3. The relevant facts of the case are that the assessee had claimed a sum of Rs. 47,59,806 being 30 per cent of Rs. 1,58,66,020 under s. 80-IA (mentioned as 80-I by the AO). It had been claimed by the assessee that Rs. 1,58,66,020 represent the income of the new unit called as CV Cable Unit. It was stated before the AO that Continuous Vulcanisation Process Unit became fully operative during the year under consideration. With respect to the same it was also stated that out of total sales of Rs. 10,76,06,000, sales from new unit were worth Rs. 5,31,78,000 and the sales from the old unit at Rs. 5,44,28,000. In this background it was contended that the income from the CV Unit had been computed separately by keeping separate records for consumption of raw material, production and sales. It was also admitted that no separate accounts have been maintained in the CV Unit. It was stated that the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled for deduction under s. 80-I has to be derived from the new industrial undertaking and has to be computed in accordance with the provisions of the IT Act, 1961 as an independent unit. Thereafter in order to get deduction, it has to be included in the gross total income which has again been defined as under: Gross Total Income: According to s. 80B(5), "gross total income" for the purposes of Chapter VI-A (ss. 80C to 80U) means the total income computed in accordance with the provisions of the Act without making any deduction under Chapter VI-A. "Computed in accordance with the provisions of the Act" implies: (1) that deductions under appropriate computation sections have already been given; (2) that income of other persons, if includible under ss. 60 to 64, has been included; (3) that intra-head and/or inter-head losses have been adjusted; and (4) that unabsorbed business losses etc., unabsorbed depreciation, unabsorbed investment allowance, etc., have been set off. What is arrived in this manner can, broadly be termed as "gross total income". This clearly indicates that whatever income has been derived has to be part of the gross total income. Now, in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-IA is concerned, there was no objection from the side of the AO. There was objection to the computation of deduction admissible under s. 80-IA (inadvertently taken as s. 80-I by the AO). The AO noticed that though there was a profit in the new unit, but there was a loss in the old unit and, therefore, the gross total income of the assessee would be much less than the income of the new unit and, therefore, the deduction under s. 80-IA has to be calculated on this gross total income as provided in s. 80AB and 80B(5) and 80A(2). The AO referred to the s. 80AB and stated that according to this section, the deduction under s. 80-IA is admissible only in respect of income of the new industrial undertaking which is included in the gross total income. The AO then referred to the s. 80B(5) whereby it was stated that the gross total income means the income of the assessee before allowing deduction under Chapter VI-A meaning thereby all brought forward losses, etc., has to be set off before allowing deduction under Chapter VI-A. The AO has then referred to s. 80A(2) that the aggregate amount of deduction under Chapter VI-A cannot exceed the gross total income. The AO, thus, held that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h industrial undertaking. It is, therefore, argued that the deduction is admissible on the profits and gains derived from such industrial undertaking. It is, therefore, argued that the deduction is admissible on the profits of the industrial undertaking only as provided under s. 80-IA. The learned counsel then referred to the decision of the Hon ble Calcutta High Court in CIT vs. Belliss Morcom (I) Ltd. (1982) 26 CTR (Cal) 76 : (1982) 136 ITR 481 (SC) and stated that this decision is directly applicable to the facts of the case whereby the Hon ble High Court held that deduction under s. 80-I should be given on the profits of the priority industry without deducting therefrom any loss arising in any other business activity. The learned counsel then referred to the decision of the Hon ble Supreme Court in CIT vs. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) where the Hon ble Court held that the deduction under s. 80E is intended for application of the provisions of that section to the profits and gains of that industrial undertaking on the ground that a priority industry has been set up and further that it was never intended that the money earned by suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed as per the provisions of the IT Act before allowing deduction under Chapter VI-A and after setting off all the brought forward losses and deficiencies. It is further clear that the deductions as admissible under Chapter VI-A cannot exceed the gross total income which is computed after adjusting all brought forward losses. But as far as the deduction under any particular section of Chapter VI-A is concerned, that deduction is to be computed as per the provisions of that section. Since the deduction under s. 80-IA is admissible @ 30 per cent of the profit of eligible industrial undertaking, this deduction is, therefore, to be computed on the profit of that industrial undertaking which, in the present case, is Rs. 1,58,66,020. Therefore, the deduction under s. 80-IA in respect of this industrial undertaking @ 30 per cent comes to Rs. 47,59,806. The computation of such deduction under a particular section of Chapter VI-A is further confirmed by a number of decisions of Hon ble High Courts and Supreme Court. As stated by the learned counsel, the decision of the Hon ble Supreme Court in the case of Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to this extent. This ground of appeal is, therefore, allowed." 6. Aggrieved by this the Revenue is in appeal before us. 7. The learned Departmental Representative placed heavy reliance upon the assessment order. Attention was invited to s. 80AB of the IT Act which had been invoked by the AO. Referring to s. 80A(2) which also had been invoked by the AO, learned Departmental Representative placed heavy reliance upon the same. The definition of gross total income as per s. 80B(5) which had also been taken into consideration by the AO was also relied upon. In the ultimate analysis, reliance was placed upon the assessment order. However, the decisions relied upon by the CIT(A) were not distinguished. 8. The learned Authorised Representative, on the other hand, apart from relying upon the impugned order addressed the background of the case, referred to his written submissions, Relying upon the same it was stated by him that the assessee-respondent is a private limited company, inter alia, engaged in the business of manufacturing and supplying different varieties of cables to Indian Railways. For this purpose the assessee has two units, one of which had commenced production only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial undertaking. 10. It was vehemently contended by him that there is no dispute about the fact that the profit derived from industrial undertaking which is eligible under s. 80-IA is Rs. 1,58,66,020. It was also contended that the fact that the second unit is eligible for deduction under s. 80-IA is also an admitted fact since deduction under the said section has been granted to the assessee by the AO. It was further contended by him that there is no quarrel with the issue that deduction admissible under Chapter VI-A cannot exceed the gross total income which has to be computed as per provision of the IT Act before allowing deduction under the said Chapter and after setting off all brought forward losses and deficiency. The fact that the deduction under s. 80-IA has to be calculated with reference to the profit of that industrial undertaking which is eligible is also not in dispute. It was further stated that it is also not in dispute that the deduction cannot exceed gross total income which is the profit under s. 80A(2) of the Act. Referring to s. 80AB and Circular No. 281 dt. 22nd Sept., 1980 as well as the judgment of the Orissa High Court in CIT vs. Agency Marketing Co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of the old unit. Further reliance was placed upon Union of India vs. Onkar S. Kanwar Ors. (2002) 177 CTR (SC) 281 : (2002) 258 ITR 761 (SC) 12. We have heard the rival submissions and perused the material available on record and have taken into consideration various decisions relied upon before the CIT(A) as well as before us by either side. 13. After a careful analysis of the entire conspectus of facts and circumstances and the provisions of law involved as well as the judgments brought to our notice, we would like to first refer to the undisputed facts. The undisputed facts, as per the assessment order are that the assessee has been held entitled to claim deduction under s. 80-IA in the new unit. The bone of contention between the assessee and the Revenue is that the assessee is claiming deduction on the profits of the new unit and the Revenue on an interpretation of various provisions and judgments is of the view that the quantum of deduction has to be reduced by the losses of the old unit. The fact that the old unit is not eligible for deduction under s. 80-IA, as its period for claiming deduction has been exhausted is not in dispute. The only eligible unit is the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the old unit suffered a loss of Rs. 84,83,363 is not material to decide the claim of deduction under s. 80-IA to the new unit as the unrebutted fact remains on record that it was only the new unit which was eligible for deduction and the fact also remains that the new unit had a profit of Rs. 1,58,66,020 which entitled it to claim deduction under s. 80-IA. This has been held to be so even by the AO himself. 17. The fact that assessee is entitled to claim deduction under s. 80-IA to the extent claimed is supported by sub-s. (7) of s. 80-IA of the Act which provides that for the purpose of determining the quantum of deduction under s. 80-IA(5), the profit and gains from an eligible business to which the provisions of sub-s. (1) apply, i.e. the business for which deduction is to be computed, shall be computed as if the eligible business were the only source of income of the assessee during the previous year relevant to the assessment year. This fact has been lost right of by the Revenue. 18. With respect to the decisions referred to by the Bench in the course of the hearing namely McMillan Co of India Ltd., on a careful appraisal of the same, it is seen that it is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been provided in s. 80-IA sub-s. (7). Accordingly, the judgment of the Madras High Court has been rendered in the context of provisions which are not pari materia to the provisions and the facts of the present case. 21. It would also be pertinent to discuss the other judgment referred to by the Bench, i.e., Synco Industries Ltd. at this juncture. On an appraisal of facts it is seen that the facts available on record therein were materially different from the facts as are undisputedly admitted in the present case. It is worth pointing out that there the deduction was claimed under s. 80-I by the assessee and it was denied specifically on the ground that the gross total income of the assessee prior to the claim of the deduction was nil. Thus, this significant and material distinctive fact is important as the claim was denied specifically on account of this fact and only on account of this fact the provision of s. 80A(2) came into play. However in the facts before us, the gross total income prior to the claim of deduction is a positive figure and not a nil figure. It is also seen that in the impugned order, which is a speaking order, which has taken into consideration various de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0B(5). In the present facts, the ceiling imposed by s. 80A and 80B(5) does not come in the way of the assessee, since the resultant figure was a positive figure and only one unit was eligible for deduction. 24. Thus, for the reasons given hereinabove wherein the said decisions are not applicable. 25. Reliance as we have observed has also been placed on the decision of Hon ble Supreme Court in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) and Bajaj Tempo Ltd. (1992) 104 CTR (SC) 116. 26. Since on behalf of the assessee it has been claimed that the issue is covered by the decision of CIT vs. Vishaka Industries, it may also be stated briefly therein their Lordships of the Andhra Pradesh High Court on the facts which are pari-materia with the present case relying upon the judgment of the apex Court in CIT vs. Canara Workshop (P) Ltd. held that: "The deduction is referable to "such profits and gains" included in the gross total income of the assessee. To be more explicit, the deduction is to be given only in respect of the profits and gains of an industrial undertaking included in the gross total income of the assessee and not from the gross total in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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