TMI Blog2012 (7) TMI 775X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of the new industrial undertaking for the purpose of computing the relief under Section 80HH and 80I. Computation of Section 80AB - Held that:- Not all the profits and gains of the assessee's business forming part of Section 32AB, would be included under Section 80HH. For the purpose of deduction under Section 80HH and 80I, necessarily one has to undertake the exercise of identifying from the book profits, the income derived from the industrial undertaking qualifying for relief under Section 80HH, included in the working of Section 32AB so as to consider it for computation as per Section 80AB - remit the matter back to the Assessing Officer working out the relief under Section 32AB. - Tax Case (Appeal) No.993 of 2005 - - - Dated:- 4-6-2012 - MRS.JUSTICE CHITRA VENKATARAMAN, MR.JUSTICE K.RAVICHANDRA BAABU, JJ. For appellant : Mr.R.Vijayaraghavan For respondent : Mr.T.R.Senthil Kumar Standing Counsel for Income Tax JUDGMENT CHITRA VENKATARAMAN, J. The assessee is on appeal against the order of the Income Tax Appellate Tribunal relating to the assessment year 1989-90, raising the following substantial questions of law: 1. Whether on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Supreme Court reported in [1985] 155 ITR 120 (Distributors (Baroda) P. Ltd. Vs. Union of India). Aggrieved by this, the assessee went on appeal before the Tribunal, which confirmed the view of the authorities below. The Tribunal referred to the decision of this Court reported in [2000] 245 ITR 605 (CIT Vs. Sundaravel Match Industries (P) Ltd.) and held that special deduction has to be computed in respect of the total income calculated under the provisions of the Act. Aggrieved by this, the assessee is on appeal before this Court. 6. Learned counsel appearing for the assessee pointed out that while there is no dispute as regards the computation of the gross total income of the assessee in accordance with the provisions of the Act, the deduction, to be considered under Chapter VI-C, particularly with reference to Section 80HH, has to be with reference to the profits and gains 'derived' from the industrial undertaking. Thus the deduction granted under Section 80HH to the extent of 20% has to be computed on the profits and gains derived from the industrial undertaking. In other words, the computation has to be confined to those profits and gains which have a direct nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the materials placed on record. 9. In the decision reported in [2004] 266 ITR 521 (IPCA Laboratory Ltd. Vs. Deputy Commissioner of Income Tax) (S.C.), the Apex Court considered the provisions under Section 80AB on the issue relating to deduction under Section 80HHC. Pointing out that Section 80AB is given an overriding effect by the expression "notwithstanding anything contained in that Section", the Apex Court held: " Section 80AB is also in Chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any section of this Chapter". This would include section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that section". Thus section 80AB has been given an overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by section 80AB. " 10. In the decision reported in [2009] 317 ITR 218 (Liberty India Vs. CIT) (SC), the Apex Court pointed out that Section 80HH and 80IB restrict the relief of deduction to a specific percentage of the profits derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plea of the assessee that the relief under Section 32AB, relatable to plant and machinery installed in other units, could not be deducted from the profits of the new industrial undertaking for the purpose of computing the relief under Section 80HH and 80I. 15. Even though learned Standing Counsel appearing for the Revenue pointed out that the calculation has to follow the provisions of the Act, yet, as already pointed out, when what goes for deduction under Chapter VIA is the eligible profits and gains, it has to have relevance to the profits and gains derived from an industrial undertaking and it has to be essentially of those profits and gains, having direct nexus to the industrial undertaking, which alone are taken into a consideration for the purpose of working out the relief under Section 80HH. Thus, what is to be included for the purpose of working out the gross total income is not the same as what is to be computed as profits and gains derived by the eligible industrial undertaking. 16. On the clear-cut language of the Section thus looked at and guided by the decisions referred to above, we have no hesitation in holding that in computing the profits and gains de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PMENT LTD., (2007) 291 ITR 380, 5. M/S.ACG ASSOCIATED CAPSULES PVT. LTD v. THE COMMISSIONER OF INCOME-TAX, CENTRAL IV, MUMBAI 2012 (2) SCALE 374 and 6. DISTRIBUTORS (BARODA) P. LTD v. UNION OF INDIA AND OTHERS 155 ITR 120. This Court also referred to the decisions of other High Courts viz., 1. COMMISSIONER OF INCOME TAX v. ALBRIGHT MORARJI PANDIT LTD., 236 ITR 914 (BOMBAY) 2. VIJAY INDUSTRIES v. COMMISSIONER OF INCOME TAX (2004) 270 ITR 175 (RAJASTHAN) 3. COMMISIONER OF INCOME TAX v. MAHAVIR SPINNING MILLS LTD., (2007) 293 ITR 492 (P H) 4. MAHAVIR SPINNING MILLS LIMITED v. COMMISIONER OF INCOME TAX (2008) 304 ITR 371 (P H). 2. After referring to the above-cited decisions, this Court came to the conclusion that for the purpose of working out the deduction under Section 80 HH, Section 32AB had to be construed as part of the profits and gains of the industrial undertaking. In other words, the relief granted under Section 32AB would also form part of the profits and gains of the industrial undertaking and would not be deducted from the profits and gains of the industrial undertaking in computing the deduction under Section 80HH of the Income Tax Act. 3. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall 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. 80B(5) :- "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter." 7. Section 80AB deals essentially about how the income qualifying for deduction under a particular Section in Chapter VI A has to be reckoned. Section 80B(5) speaks about the gross total income of the assessee. In considering the question as to what would be the income which qualifies for deduction under various deduction provisions under Chapter VIA, one has to compute the same in accordance with the provisions of the particular deduction provision. Thus, 80AB states that the answer lies in the particular deduction provision under Chapter VI A itself, that the income which qualifies for deduction is the amount of income of that nature which is derived or received by the assessee and included in the gross total income. Once this is identified, then this income which qualifies for deduction has to be computed in accordance with the provisions of the Act. 8. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire profits of the automobile industry, included in the total income without deducting therefrom the losses of the alloy steel manufacture. 11. Thus, Section 80AB has relevance with reference to the third stage of computing the profits and gains of the industry which qualifies for deduction under particular deduction provision under Chapter VI A of the Act. Thus computing the income for deduction, "the amount of income of that nature" as given under the particular deduction provision is computed in accordance with the Act before making any deduction under this Chapter which is included in his gross total income and this alone is deemed to be the amount of income of that nature which is derived or received by the assessee. Applying the decision of the Apex Court reported in 317 ITR 218 LIBERTY INDIA v. CIT., we have no difficulty in holding that what has been considered under Section 32AB may get into reckoning of the income derived by the assessee under Section 80AB for the particular industrial undertaking, if and only the said income is out of the profits and gains of the eligible industrial undertaking as stated in the said deduction provision. 12. Thus, as pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Section 32AB, it is the profits and gains of business or profession which would include the profits and gains of the particular eligible industry qualifying for deduction and these incomes which may not come within the zone of consideration while computing the relief for the eligible industry under Chapter VIA. Thus, as far as Section 80HH is concerned, What is considered as income of the eligible industry under Section 80HH would be the profits and gains derived from the industrial undertaking, the income having a direct nexus to the activity of the undertaking. Income which do not fall within the first degree of source not being derived from the industrial activity are necessary excluded while computing the relief under Section 80HH. Thus, while working out the profits and gains which qualify for deduction under Section 80HH, one has to necessarily restrict the income which is derived from the industrial undertaking and nothing beyond. Thus, for the purpose of Section 80HH, the income of that industrial undertaking which got into the reckoning of the book profit for the purposes of Section 32AB has to be identified and that alone would be included in the profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, the entirety of the income included for the purpose of Section 32AB cannot be included in the "profits and gains by the industrial undertaking". 16. In the light of the above reasoning, we hold that not all the profits and gains of the assessee's business forming part of Section 32AB, would be included under Section 80HH. For the purpose of deduction under Section 80HH and 80I, necessarily one has to undertake the exercise of identifying from the book profits, the income derived from the industrial undertaking qualifying for relief under Section 80HH, included in the working of Section 32AB of the Income Tax Act so as to consider it for computation as per Section 80AB. 17. To find out the same, we remit the matter to the Assessing Officer with a direction that keeping in the background the decision of the Apex Court reported in 317 ITR 218 LIBERTY INDIA v. CIT. and the decision of this Court reported in 258 ITR 749 COMMISSIONER OF INCOME TAX v. NSC SHOES., the profits and gains derived by the assessee considered for working out the relief under Section 32AB of the Act shall be identified for the purpose of computing the relief under Sections 80HH and 80I. To this extent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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