TMI Blog2010 (5) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... tible under the aforesaid section. The claim was accepted by the Assessing Officer. However, he found that in respect of certain payments relating to the cost of construction, RCC consultancy, architect s fees, commission and professional charges aggregating to Rs. 4,50,12,485 the assessee had not deducted tax in time though it was required to do so and therefore, they cannot be allowed as a deduction as stipulated in section 40( a )( ia ). Therefore, while computing the income from the business he disallowed and added back the aforesaid amount to the net profit shown in the profit and loss account and arrived at the gross total income at Rs. 8,26,90,888. However, while allowing deduction under section 80-IB(10), he allowed deduction of only Rs. 3,76,78,403 and arrived at a total income of Rs. 4,50,12,485 on which tax was charged. 3. The assessee went in appeal to the CIT(A) against the assessment and claimed that the Assessing Officer ought to have allowed deduction of the entire profits of Rs. 8,26,90,888 arrived at after making the disallowance under section 40( a )( ia ) since he had computed the profits of the business (housing project) at the afore-mentioned figure. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed to discuss and decide the issue on merits. 5. Section 80-IB(1) says that the assessee would be allowed a deduction in respect of the profits and gains "derived" from any business mentioned in sub-section (10), which in turn refers to a housing project. Thus, the prescribed percentage of profits and gains derived from a housing project [subject to other conditions of sub-section (10) being satisfied] are deductible from the gross total income. The section falls under Chapter VI-A of the Act, under the sub-head "C-Deductions in respect of certain incomes". There is no indication in the section as to what would be considered as profits and gains "derived" from the eligible business. Section 80AB, introduced by the Finance (No. 2) Act, 1980 with effect from 1-4-1981 however states that where any deduction is required to be made under any section falling under Chapter VI-A under the heading "C - Deductions in respect of certain incomes" in respect of any income of the nature referred to in that section, then, "notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in accordance with the provisions of the Act, before making any deduction under Chapter VI-A or under section 280-O", the profits and gains "derived from an industrial undertaking included in the gross total income, would, therefore, obviously be the profits and gains computed in accordance with the provisions of the Act" (page 918). Thereafter, reference was made to section 29 of the Act, which we have noted earlier, and it was held that while computing the profits and gains of the business in the manner prescribed by section 29 the provisions of section 32A cannot be ignored and the profits have to be reduced by the investment allowance. 8. In the above case, the Hon ble High Court has noticed the provisions of section 80AB inserted by the Finance (No. 2) Act, 1980 with effect from 1-4-1981 and it has been held at page 919 that the section is merely declaratory and supports the decision taken. 9. In Grasim Industries Ltd. v. Asstt. CIT [2000] 245 ITR 677 ; another Division Bench of the Hon ble Bombay High Court took the same view. There the assessment year was 1974-75. The question again was the manner of computing the profits and gains derived from the industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, to which the ratio of the judgments cited above cannot apply. The ratio of the judgments cited above, in our humble opinion, is that the profits and gains of the eligible business, for the purpose of the sections falling under the heading "C - Deductions in respect of certain incomes", have to be computed in accordance with the computation provisions of sections 30 to 43D as mandated by section 29. Therefore, it hardly matters whether while computing the profits in accordance with the above sections, an amount is allowed as a deduction or is disallowed and added back to the profits since "computation" would include both allowing a deduction and disallowing or restricting a deduction in accordance with the statutory provisions. Section 40( a )( ia ) authorises the disallowance of the deduction if the tax has not been deducted and paid in time. It is part of the provisions for computation of the profits. We are unable to appreciate how, while "computing" the profits and gains in accordance with the mandate of section 29 a distinction can be made between a section which allows the deduction and a section which disallows or restricts the deduction for failure to fulfil cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act. It was also observed that it is only the net income by way of dividend which is calculated in accordance with the provisions of the Act that is included in the gross total income of the assessee and therefore, the deduction under section 80M has also to be given only with reference to such net amount of dividend income. The Supreme Court also approvingly cited its earlier judgment in Cambay Electric Supply Industrial Co. Ltd. s case ( supra ) where it was held, with reference to section 80E, that the computation of the profits of the eligible business for the purpose of that section has to be done in accordance with the provisions of the Act and in doing so the unabsorbed depreciation and unabsorbed development rebate brought forward from earlier years will have to be deducted from the profits. We do not see how the judgment in Distributors (Baroda) (P.) Ltd. s case ( supra ) can be understood to support the stand of the revenue in the case before us. The judgment, on the contrary, would support the assessee who is relying on section 80AB which says the very same thing which has been said in the judgment. 14. It was then submitted by the revenue, relying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment, section 80AB has been noticed at pages 226-227 as part of the relevant provisions of the Income-tax Act, 1961 but the ultimate decision did not turn on that section, obviously because that section dealt with how the profits eligible for the deduction have to be computed; the decision turned on the fundamental factual aspect whether the receipt in question can be referred in the first degree to the working of business/asset/undertaking and thus be considered to be part of the operational profits or it was referable to some other immediate source, such as the schemes framed by the Central Government or a statute such as the Customs Act or some other scheme for the provision of incentives to the businessman, in which case the receipt in question can only be considered as "ancillary profit" and not operational profit, and therefore, would not be entitled to the deduction. In our humble understanding of the judgment, the revenue cannot derive support from the same on the question arising in the case before us. 15. We may again refer to the judgment of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. s case ( supra ) in connection with the argument of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in the context suggesting to the contrary, be construed in accordance with such definition. Since the words in the parenthesis occurring in sub-section (1) lay down the manner in which the total income of the concerned assessee is to be computed there would be no scope for excluding items like unabsorbed depreciation and unabsorbed development rebate while computing the total income on the basis that the total income spoken of by sub-section (1) means commercial profits". (p. 95) The implication of the words "computed in the manner laid down in this Act" has been expounded and it has been opined that it must take precedence over such notions as "commercial profits". This decision supports the plea of the assessee before us that while giving effect to the computation provisions contained in sections 30 to 43D one should not be bogged down by the theory that the disallowed expenditure cannot be considered as profits "derived" from the housing project or as "operational profits". 16. In the same judgment, i.e., Cambay Electric Supply Industrial Co. Ltd. s case ( supra ) one more question that came up for decision was whether while computing the profits eligible for the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out as per section 41(2), irrespective of its real character, will have to be taken into account and included as income of the business" [Emphasis supplied]. Thirdly at page 92 of the report the Supreme Court, after noticing the divergence of views as to the real nature of the balancing charge expressed in two earlier judgments of their own, summarised the position thus : "It is unnecessary in this case to go into the question whether the divergence is real or merely apparent, for, as we have said above, the answer to the question raised before does not depend upon the real nature or true character of the balancing charge but upon proper construction of the sub-section (1) which contains the legislative mandate with regard to the manner in which three steps indicated therein are required to be taken for computing the deduction of 8 per cent contemplated by that provisions" [Emphasis supplied] 17. The last argument of the revenue put forth before us with considerable vehemence by the learned Senior DR, is that if the assessee s contention is accepted the result would be that there is an artificial inflation of the profits from the housing project which would be against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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