TMI Blog1983 (10) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... a balance of unabsorbed depreciation for 1977-78 amounting to Rs. 5,373 which could not be absorbed and it was carried forward to subsequent years along with other allowances or relief, such as investment allowance for 1977-78 to 1979-80, development rebate for 1976-77 and relief under section 80J of the Act for the assessment years 1976-77 to 1979-80 for want of sufficient profits to absorb them in the relevant year. The ITO in the circumstances held that there was no scope for deduction under section 80HH in view of the fact that the income from Chain Division was only a loss after carry forward and set off of loss of earlier years and unabsorbed depreciation having regard to the provisions of section 80B(5) of the Act. In the appeal preferred, the assessee objected to the disallowance of its claim for deduction under section 80HH of Rs. 31,747 on the ground that it is nowhere specified in the Act that section 80HH allowance will be allowed only after adjustment of all carried forward losses. The Commissioner (Appeals) upheld the action of the ITO stating that the impugned disallowance was quite unexceptionable as there was no gross total income as defined in section 80B(5) to ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Madras High Court in CIT v. Rane Brake Linings Ltd. [1979] 120 ITR 82 which was concerned with relief under section 80-I. In this decision it was held, following Cambay Electric Supply Industrial Co.'s case, that the relief under section 80-1 has to be computed or calculated after adjustment of earlier years losses carried forward. It is pointed out that the language of the provisions of section 80J is identical to the language of the provisions of section 80HH involved in this case and, therefore, the Madras High Court decision in Rane Brake Linings Ltd.'s case squarely applied. Reference was made and reliance also place on the decision of the Madras High Court in CIT v. English Electric Co. Ltd. [1981] 131 ITR 277 which was concerned with deduction under section 80E. Reference was also made and reliance placed on another decision of the Bombay High Court in Asian Cable Corpn. Ltd. v. CIT [1981] 132 ITR 34 wherein it was held that for the purpose of deduction under section 80J in respect of new industrial undertaking, the unabsorbed depreciation has to be set off before deduction under section 80J is allowed. Strong reliance was placed on another order of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection occurs in Chapter VIA of the Act, which is entitled ' Deductions to be made in computing the total income '. Section 80A states that in computing the total income of an assessee deductions specified in sections 80C to 80VV, which includes section 80HH also, will be allowed from his gross total income. Here also, the emphasis is on the deduction from gross total income and it is in computing the total income of the assessee. Now, gross total income is defined in section 80B(5) as the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VIA or under section 280-O of the Act. Sub-section (2) of section 80A puts a limit on the total of deduction allowable under Chapter VIA, i.e., deductions under sections 80C to 80VV including section 80HH. This provision of sub-section (2) of section 80A is a clear indication that there must be a positive figure of gross total income and where there is no such positive figure of income, i.e., whore the gross total income computed as stated in section 80B(5) is a nil figure or a loss, it would appear that the question of deduction under any or all of the sections in Chapter VI cannot or wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be computed only after such deduction. 4. As we have already noticed on a plain reading of the provisions of section 80HH and other relevant provisions of Chapter VIA, the deduction contemplated under section 80HH is from the gross total income as defined in section 80B(5), i.e., total income computed in accordance with the provisions of the Act before deduction under section 80HH in this case. Therefore, the first step to be taken in this connection is to determine the gross total income, i.e., the total income as computed under the Act without considering the deduction under Chapter VIA, in this case under section 80HH. The question then arises as to how the total income is to be computed. In this connection, the sections of the Act that come into play are section 4 of the Act, defining the scope of total income, section 14 of the Act, stating the heads of income for charge in computation of total income, section 29 of the Act providing for computation of income under the heads ' Profits and gains of business ' which must take in its fold sections 30 to 43A of the Act, which include section 32(2) providing for carry forward and set off of unabsorbed depreciation subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation under the head ' Profits and gains of business or profession. In other words, the correct figure of total income, which is otherwise taxable under other provisions of the Act, cannot be arrived at without working out the net result of computation under the head ' Profits and gains of business or profession '. Further, the question whether special benefit under section 80E as well as the normal or usual benefit of carry forward of losses of previous years should both be available to an assessee, without one impinging on the other, must depend upon the intention of the Legislature and such intention has to be gathered from the language employed. In this view of the matter it is extremely doubtful whether in spite of the legislative mandate contained in the three steps provided by sub-section (1) of section 80E, the carried forward losses would not be deductible before working out the 8 per cent deduction contemplated by section 80E and, therefore, the contention that by parity of reasoning or on a priori reasoning unabsorbed development rebate and unabsorbed depreciation should be held to be non-deductible before working out the 8 per cent deduction under section 80E(1) can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 80M and 85A of the Act in respect of dividend received by the assessee from an Indian company is to be on the amount of dividend so received from the Indian company or on the income in respect of such dividend computed under the provisions of the Act by deducting therefrom the deductions specified under section 57 of the Act. It is in that context it was held that the expression ' income by way of dividends ' referred to the entire dividend received without reducing it by the expenditure under section 57. That case obviously dealt with the quantum of the amount of income eligible for deduction under sections 80M and 85A, but it is pertinent to notice that in that decision their Lordships have also referred to the overall limit or ceiling of the deduction to be allowed under section 80B. The following observations bring out the position that the deduction is subject to the ceiling limit of the positive figure of total income : " . . . What section 80A, sub-section (1), requires is that, first, the total income of the assessee must be computed in accordance with the provisions of the Act without taking into account the deductions required to be made under Chapter VIA or un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the controversy as to what is the eligible quantum of amount for the purpose of deduction under section 80HH in respect of the income under the chain division and if such were the dispute, though we are not required to decide that issue and do not express our final view thereon, perhaps there might be some force in the assessee's contention that the determination of such quantum of income eligible for deduction under section 80HH has to be made with reference to the profits of the current year but the real dispute is as to whether the assessee is at all eligible for such deduction in view of the fact that there is no positive figure of gross total income, because, as we have already noticed, there is a ceiling on the amount and since the gross total income itself is nil, the assessee cannot get any allowance under section 80HH beyond this limit so as to arrive at a loss figure. The decision of the Madras High Court in Rane Brake Linings Ltd.'s case dealt with the question of relief under section 80-I and in that decision following the ratio of the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd.'s case, it was held that the relief available to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards the two orders of the Tribunal relied on by the assessee, we find that in one of them, namely, in Madras Yenpoyees Rubber (P.) Ltd.'s case reference has been made to two decisions of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case and in Cloth Traders (P.) Ltd.'s case and we have already considered the two decisions and their ratio to be applied in such cases. The other decision in Veeraraghava Textiles (P.) Ltd.'s case does not advert to any reported decision and it appears to us that the list of priority set down therein runs counter to the ratio of the decisions cited on behalf of the revenue, including the two Supreme Court decisions, the two Madras High Court decisions and the Bombay High Court decisions. There is no reference to the Madras and Bombay High Courts decisions in either of the two orders. One of the reasons referred to in one of the orders for holding that deduction under section 80HH will have to take precedent is that if the deduction under the various sections are intended to grant benefit of tax holiday, it will be defeated if the unabsorbed depreciation, which has no time-limit, is to be deducted first. We find that a more or less ..... X X X X Extracts X X X X X X X X Extracts X X X X
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