TMI Blog2006 (8) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner has to be accepted - ITRC No.350/1998 - - - Dated:- 4-8-2006 - Judge(s) : R. GURURAJAN., JAWAD RAHIM. JUDGMENT The judgment of the court was delivered by R. Gururajan J.- The Revenue is before us seeking for an answer to the following question of law: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the assessment order passed by the Assessing Officer allowing the claim of the assessee for adjustment of the unabsorbed depreciation against the income from other sources was in order and hence cannot be considered to be erroneous or prejudicial to the interests of the Revenue and in cancelling the order under sections 263?" The facts are as under: The respondent-assessee is a 100 per cent, export-oriented industrial unit in terms of the provisions of section 10B. Any profits and gains derived by it from the said export-oriented undertaking are not liable to be included in the total income of the assessee. Although the industrial operations are stated to have been commenced in the assessment year 1988-89, the assessee, however, did not claim the benefits under section 10B in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion so made by him could also be on commercial basis. He would therefore say that the Tribunal was fully justified in holding in his favour. At the time of arguments, we directed the parties to place before us the computation of total income arrived at by the assessee. The assessee has placed before us a photocopy of the calculation. The said calculation is also taken into consideration for the purpose of finding in the case on hand. It is seen from the material on record that the assessee-respondent has chosen to file a nil return. Thereafter, the Commissioner has chosen to issue a show-cause notice for the assessment years 1992-93 and 1994-95 on the ground that exemption under section 10B for export profits was wrongly computed inasmuch as the unabsorbed depreciation brought forward from the earlier years was not set off against the business income but was set off against income from other sources, for the assessment year 1994-95. For the assessment year 1992-93, the brought forward balance representing unabsorbed depreciation relating to the assessment years 1988-89 to 1990-91 and unabsorbed investment allowance relating to the assessment years 1989-90 and 1990-91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10B was allowed on an inflated amount without deducting the unabsorbed depreciation and unabsorbed investment allowance in the case on hand. When the matter was taken to the Tribunal, the Tribunal in its order states that there is no force in the argument that while other income is available for subscription of earlier years' depreciation brought forward to this year, the said depreciation will have to be adjusted against the profits and gains of the export-oriented undertaking for allowing exemption in respect of such profits and gains. At this stage, we should notice the definition of total income in terms of section 2(45) of the Income-tax Act. Total income has been defined as the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 4 provides for charge of income-tax. Section 5 provides for scope of total income. Sub-section (1) of section 5 says that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter taking into consideration, the unabsorbed depreciation, the assessee may get exemption but none the less he cannot take only a portion of depreciation just to suit his income for the purpose of nil liability and adjust the balance of unabsorbed depreciation for other business income once again to show nil liability. When the unabsorbed depreciation could have been taken for arriving at an exempted income, the assessee cannot play with the figures for the purpose of showing nil liability as has been done in the case on hand. The intention of the Legislature is only to provide 100 per cent, exemption for export income and not for other income. The petitioner by dividing depreciation contrary to section 32 has virtually taken exemption from payment of tax even for other business income in the case on hand. That cannot be allowed as rightly ruled by the Commissioner. The allowance of the depreciation by the Tribunal, in our view, is prejudicial to the interests of the Revenue as argued by the Department. The Tribunal has taken a narrow view of the matter without taking into consideration, the laudable object of exemption and at the same time providing for tax liability towards oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable to be deducted from the profits and gains attributable to the specified business for arriving at the figure exigible to the deduction of 8%. This argument of the assessee was rejected by the court and the court held that the profits and gains exigible to the deduction of 8 per cent, were profits and gains computed in accordance with the provisions of the Act and forming part of the total income and hence unabsorbed depreciation and unabsorbed development rebate were liable to be excluded from the profits and gains attributable to the specified business in arriving at the figure exigible to 8% deduction." In the case of CIT v. Virmani Industries P. Ltd. [1995] 216 ITR 607 (SC), the court considered the issue of unabsorbed depreciation in terms of section 32(2) of the Income-tax Act. The Rajasthan High Court in the case of CIT v. Sun Stone Engineering Industries P. Ltd. [1996] 220 ITR 182, has ruled that: "... for the purpose of determination of the relief under section 80HH of the Act, the gross total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction under section 80HH wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This is because Chapter VI-A is an independent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, viz., section 29 to section 43A, which included section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VI-A. Therefore, the appellant's claim for allowance of deduction under section 80HH, without taking into consideration the current depreciation will have to be rejected." All these judgments would support the argument that calculation cannot be at the whims and fancies of an assessee for exemption of tax. It has to be in accordance with the provisions of the Act. CIT v. H.M.T. Ltd. [1993] 199 ITR 235 (Karn) is pressed into service by Sri Parthasarathi, learned counsel. We have carefully gone through the said judgment. In the said judgment, the Division Bench of the High Court has no doubt ruled that computation of p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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