TMI Blog2012 (9) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... and “gross total income” has tried to differentiate between the two as Gross total income has been defined to mean the total income computed in accordance with the provisions of this Act. Therefore, it will include the profits and losses of all units of the assessee whether they be priority units or non-priority units. However, while computing the deductions specified under Section 80C to 80U only the income derived from the priority units has to be taken into consideration. The deductions shall be calculated only in respect of the income whether profit or loss of the priority unit(s) - If the gross total income is nil, then as laid down in Synco Industry [2008 (3) TMI 13 - SUPREME COURT] the assessee cannot get any benefit of such deductions. Section 80A(2) leaves no manner of doubt that the amount of deductions cannot exceed the gross total income of the assessee. - ITA No. 36 of 2008 a/w ITAs No. 37 and 38 of 2008 - - - Dated:- 28-8-2012 - Mr. Justice Deepak Gupta, Mr. Justice Rajiv Sharma, JJ. For the appellant(s): Mr. Vinay Kuthiala, Senior Advocate with Ms. Vandana Kuthiala, Advocate. For the respondent(s): Mr. K.D. Sood, Senior Advocate with Mr. Sanjeev Sood, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the condition was that the eligible profits must be included in the gross total income of the assessee and it is immaterial whether after the inclusion of those profits net result of clubbing of income was a gross loss or gross profit. In the present case since the assess claimed deduction u/s 80 HH/80 IA in respect of eligible profits of the units therefore claim of the assessee was in accordance with law and the LD CIT(A) rightly directed the Assessing Officer to allow claim of the assessee. We don not see any infirmity in the order of Ld. CIT(A). 3. Mr. Vinay Kuthiala learned Senior Advocate appearing for the Revenue has strenuously contended that entire total income of the assessee from all sources has to be taken into consideration and even the losses incurred from non-priority units will have to be adjusted against the profits earned in the priority units while working out the deductions/ incentives/benefits. 4. Before dealing with the issue it would be pertinent to make reference to certain provisions of the Income Tax Act. First of all reference may be made to Sections 80A(1) and 80A(2), 80AB, 80B(5) of the Income Tax Act (hereinafter referred to as the Act), which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nay Kutiala, learned Senior counsel urges that in terms of Section 80A(2) while calculating the aggregate amount of deductions the same cannot exceed the gross total income of the assessee. He submits that the gross total income in terms of Section 80B means the total income computed in accordance with the provisions of this Act which will include income from all units irrespective of the fact whether they are priority units or not. He, therefore, submits that while calculating the deductions/incentives which have to be granted, the gross total income will have to be calculated and this gross total income shall include the losses which may have been suffered by a non-priority Unit of the assessee. Mr. Vinay Kuthiala also submits that if the finding of the Tribunal is accepted then even where the gross total income of an assessee from all his units is nil he would be entitled to deduction and according to him this is not the intention of the Revenue. 7. On the other hand, Mr. K.D. Sood, learned Senior counsel for the assesses, submits that Chapter VIA is a code in itself and the deductions under Section 80AB of the Act have to be made from the income of the nature contemplated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object of the section. An example will illustrate this. An industry entitled to the benefit of section 80E could have its profits wholly wiped out on adjustment against a heavy loss suffered by another industry, and, thus, be totally denied the relief which should have been its due by virtue of its profits. In our opinion, each industry must be considered on its own working only when adjudging its title to the deduction under section 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. To determine the benefit under section 80E on the basis of the net result of all the industries owned by the assessee would be, moreover, to shift the focus from the industry to the assessee. We hold that in the application of section 8oE, the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. 9. In H. H. Sir Rama Varma v. Commissioner of Income Tax, (1994) 205 ITR, 433 the question before the Apex Court was whether long term capital losses brought forward from earlier assessment years have to be first set off against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits earned from export business. The Apex Court considering the import of Sections 80AB, 80B(5) and held that Section 80AB has been given an overriding effect over all other provisions of Chapter VI-A of the Act. The Apex Court held as follows:- We are unable to accept the submission of Mr. Dastur. Undoubtedly section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of this section. If the wordings of the section are clear then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, (2007) 291 ITR 380(SC) following the judgment in IPCA Laboratory s case held that Section 80AB is not subject to Section 80HHC but in fact is the overriding Section. In A.M. Moosa v. Commissioner of Income-Tax,(2007) 294 ITR 1(SC), the Apex Court was again dealing with the word profit in Section 80HHC and held that a plain reading of the Section showed that profit from such export has to be profits from exports of self-manufactured goods plus profits from exports of trading goods. It was held that if profits from exports of self-manufactured goods and profits from exports of trading goods have to be calculated by counting both the exports. Deduction under Section 80HHC can be granted if there is positive profit in the export of both selfmanufactured goods as well as trading goods. If there is a loss in either of the two then the loss has to be taken into account for the purpose of computing the profits. Again we may point out that in this case also both the units were priority units. 16. In Synco Industries Ltd. v. Assessing Officer (Income-Tax) and another, (2008) 299 ITR 444 (SC) the Apex Court dealt with a case where the assessee had two units one a Oil Division in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Chapter VI-A. The effect of clause (5) of section 80B of the Act is that gross total income will be arrived at after making the computation as follows: (i) making deductions under the appropriate computation provisions; (ii) including the incomes, if any, under sections 60 to 64 in the total income of the individual; (iii) adjusting intra-head and/or inter-head losses; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc. 17. Relying upon these observations Mr. Vinay Kuthiala, learned senior counsel contends that if the gross total income from all units is negative, the industrial units cannot claim deduction on the basis of the income of the priority units. 18. The Apex Court in Synco Industries case further went on to hold as follows:- 12. The above discussion makes it very evident that predominant majority of the High Courts have taken the view that while working out the gross total income of the assessee the losses suffered have to be adjusted and if the gross total income of the assessee is nil the assessee will not be entitled to deduction under Chapter VI-A of the Act. It is well settled that where the predominant majo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Advocate, that if profits which are not linked to Chapter VIA are not to be added and taken into consideration why should the losses of a non-priority Unit be taken into consideration while calculating the gross total income of the assessee. 20. The Delhi High Court in Commissioner of Income-tax v. Sona Koyo Steering Systems Ltd. (2010 321 ITR 463 (Delhi) was dealing with a case where the assessee had two units, namely, a steering unit and an axle unit. The assessee claimed deduction under Section 80-I of the Act for the profit making unit. The Assessing Officer, while computing the deduction set off the losses of one unit against the profits of other unit. The Delhi High Court held that each industrial undertaking has to be treated separately and independently and it was only those industrial undertakings which have profits or gains which would be considered for computing the deductions. The loss making industrial undertaking would not come into the picture at all. The loss of one such industrial undertaking could not be set off against the profit of another such industrial undertaking. The Delhi High Court distinguished the judgment of the Apex Court in Synco Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 80-I on two profit making units M/s Xerographic undertaking and M/s Toner, Developer, and Photo Receptor Unit, ignoring the third unit M/s Service Trading and other which though had suffered losses yet constituted a unit for the business of the assessee as a whole, in totality and without appreciating the provisions of sections 80AB and 80B(5) of the Income-tax Act? The Allahabad High held as follows:- 37 We have considered the facts and circumstances of the present case and the law laid down by the Apex Court and the decision of the Delhi High Court referred herein above. It is not the case of the assessing authority that the gross income of the Company was nil. From perusal of the income disclosed to all the three units it appears that the gross income was not nil and, therefore, the assessee was eligible to claim the deduction under Sections 80-HH and 80-I of the Act. After becoming eligible to claim the deduction, the question for consideration is that whether deduction is eligible to the income derived to each industrial undertaking independently or on a consideration of the losses suffered by the service unit. Sections 80-HH and 80-I of the Act contemplate the deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter VI-A. This also clearly indicates that only the income derived from a priority undertaking is to be taken into consideration while making deduction. Section 80B(5) indicates that gross total income means the total income computed in accordance with the provisions of this Act. Therefore, we are of the considered view that the phrase gross total income will include profits and losses from other units whether they be priority units or non-priority units. 23. In Canara Workshop s case (supra) the Apex Court clearly held that even if two units were priority units, the losses of one unit could not be set off against the profits of other units. The reasoning given by the Apex Court was that each industry must be considered on its own and the benefits which were available to one industry should not be denied to it because of the losses suffered by the other industry. With due respect we are of the opinion that this proposition of law stands diluted by the later judgments of the Apex Court in IPCA Laboratory Ltd, Induflex Products P. Ltd and Synco Industries Ltd. 24. The question, however, which remains to be answered is whether the losses incurred in a non-priority unit shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the income derived from the priority units has to be taken into consideration. The deductions shall be calculated only in respect of the income whether profit or loss of the priority unit(s). 27. Having calculated the deductions, the next question that would arise is what benefit has to be given to the assessee on account of such deductions. If the gross total income is nil, then as laid down in Synco Industry case the assessee cannot get any benefit of such deductions. Section 80A(2) leaves no manner of doubt that the amount of deductions cannot exceed the gross total income of the assessee. To give an example if the gross total income of the assessee after taking into account profits and losses of all its units whether priority or non priority is Rs.10 lacs and the deductions calculated are 15 lacs, the assessee can only get benefit of Rs.10 lacs. To give another example, supposing the income of the assessee from the priority unit is Rs.20 lacs and he is entitled to deduction of Rs.10 lacs but his gross total income after taking into consideration the losses of non priority unit is only Rs.5 lacs he would only be entitled to the benefit of deductions of Rs.5 lacs. This, how ..... X X X X Extracts X X X X X X X X Extracts X X X X
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