TMI Blog2005 (10) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 ("the Act" for short), was admitted on January 7, 2002 on the following substantial question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the findings of the Commissioner (Appeals) in directing the Assessing Officer to allow deduction under section 32AB to the tune of Rs. 88,44,445 on the basis of profits earned by the assessee from its paper division alone, without considering the loss of the agro unit?" The assessment year relevant for the present appeal is the assessment year 1990-91. The respondent (hereinafter referred to as "the assessee") is a public limited company carrying on business in two separate units namely paper division and agro division. Both these units of the assessee are "eligible businesses" within the meaning of section 32AB of the Act. It is not in dispute that the assessee had maintained separate accounts for the above two units and a separate profit and loss account and balance sheet for each of the units were drawn up in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, based on the separate accounts maintained by the assessee. During the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn up by a company must necessarily reflect all the income and all the expenditure incurred by the company in that year. Accordingly, counsel for the Revenue submitted that where there are two eligible units and one unit makes profits and another unit makes loss, then the deduction under section 32AB of the Act has to be from the profits of the eligible business arrived at after setting off the loss suffered by the other eligible business viz., agro unit. Section 32AB of the Act relevant for the present appeal, as it stood at the relevant time reads as follows: "32AB.(1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head 'Profits and gains of business or profession', has, out of such income,- (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him With the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the amount of depreciation; (ii) the amount of income-tax paid or payable, and provision therefor; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964); (iv) the amounts carried to any reserves, by whatever name called; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; (vi) the amount by way of provision for losses of subsidiary companies; and (vii) the amount or amounts of dividends paid or proposed, if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee, the contention of the Revenue that the profits of an eligible business under section 32AB(3)(a) of the Act, have to be determined after setting off the loss suffered by the loss making eligible unit is erroneous, because, section 32AB(3)(a) of the Act specifically provides that in cases where separate accounts of the eligible business or profession are maintained, the profits of eligible business of the assessee for the purposes of section 32AB(1) shall be the amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of section 32(1) from the profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 and the resultant sum is to be further increased by the aggregate of the items (i) to (vii) specified in section 32AB(3)(a) and further reduced by the amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account. Unlike in section 32AB(3)(b) where the profits of the eligible business are required to be determined on pro rata basis, in section 32AB(3)(a) there is no provision for setting off the los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 32AB(1) of the Act, the profits of the eligible business alone would be considered without deducting therefrom the loss suffered in the non-eligible business. If the loss suffered in the non-eligible business is to be ignored for determining the profits of the eligible business, then, there is no reason as to why the loss suffered by one eligible business should not be ignored from the profits of the other eligible business under section 32AB(3)(a) of the Act. In other words, where the accounts of each of the eligible businesses are maintained separately, then the profits of each of the eligible businesses for the purpose of deduction under section 32AB(1) have to be determined separately under section 32AB(3)(a) of the Act and merely because there is loss suffered by one eligible business, it cannot be said that the said loss is to be set off from the profits of the other eligible business. It is pertinent to note that by the Finance Act, 1989 the concept of eligible business and determination of profits of eligible business whose accounts have been maintained separately have been done away with prospectively with effect from April 1, 1991. As a result from April 1, 1991, main ..... X X X X Extracts X X X X X X X X Extracts X X X X
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