TMI Blog2004 (5) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 1979-80 and 1980-81. On an application under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions for the opinion of this court: For the assessment year 1979-80: "Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the deduction under section 80HH would be available out of income as computed under the Income-tax Act, and not out of the profits and gains of the industrial undertaking without deducting therefrom depreciation and investment allowance?" For the assessment year 1980-81: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the purposes of allowing deduction under section 80HH the profits and gains of an industrial undertaking should be computed by taking into consideration unabsorbed depreciation, current depreciation and investment allowance?" Learned counsel for the Revenue brought to our notice that now the issue has been covered by their Lordships' decision in the case of Motilal Pesticides (I.) (Pvt.) Ltd. v. CIT [2000] 243 ITR 26 (SC) and as per the decision of their Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under sections 80HH and 80-I but there may be a profit with an industrial undertaking not eligible for deduction under sections 80HH and 80-I and if both are taken together, the assessee may get the benefit of deduction under sections 80HH and 80-I, which was not intended to be given by the Legislature. It is, therefore, submitted that as per the legislative intention and keeping in view the language of sections 80HH and 80-I, the deduction ought to be made available to the industrial undertaking with reference to profits and gains of such industrial undertaking. 4. It is relevant to mention that sections 80HH and 80-I very categorically refer to and use the terminology 'profits and gains of industrial undertakings'. It may please be noted that 'profits and gains' and 'income' are not same but are different. The term 'profits and gains' has not been defined under the provisions of the Income-tax Act whereas the term 'income' has been defined in the Income-tax Act. It may also be noted that there are a number of provisions under Chapter VI-A, some of which refer to the term 'profits and gains' and some of them refer to the term 'income'. Thus, in some of the provisions of Chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains' of business or profession. Under this head, section 28 provides for income chargeable to income-tax in general and particularly 'profits and gains' in section 28(i) which is the gross amount from which statutory deductions have to be made to arrive at the computed income. Such computed income is called business income as is clear from the heading of sections 29 to 43A of Chapter IV, in respect of this head of income, i.e., computation of business income. It may be pointed out that both, 'profits and gains' and 'business income' are computed entities worked out in accordance with the provisions contained in sections 30 to 43A, as is clear from the language of section 29 and its marginal note. Section 29 states thus: The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43A. The income referred to in section 28 is income chargeable to income-tax whereas section 28(i) specifically refers to 'profits and gains'. Section 29 also specifically brings home the conceptual distinction between 'income' and 'profits and gains' of business or profession. It specifically provides for the computation/calculation of 'i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains as well as business loss are computed in the same manner. One is a positive computed entity whereas the other is a negative computed entity. As such an interpretation of these computed entities, is also in accordance with the judgment of the Supreme Court in CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118, 124 wherein it is stated: "From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense, profits and gains represent 'plus' income whereas, losses represent 'minus' income. In other words, loss is negative profit. Both positive and negative profits are of a revenue character." By taking into consideration the provisions of section 72(1) and section 32(2) both, carried forward business loss and current depreciation allowance, have to be adjusted against profits and gains. 6. Relevance of section 80AB for the purpose of sections 80HH and 80-I: 'Section 80AB reads as: Where any deduction is required to be made or allowed under any section ... in respect of any income of the nature specified in that section which is included in the gross tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with provisions of the Income-tax Act. For the purpose of section 80HH 'income of that nature' is 'profits and gains of business' and the Income-tax Act, 1961, does not provide how 'profits and gains of business' shall be calculated. 6.3 The Assessing Officer has erroneously relied on section 80AB of the Income-tax Act, 1961. He has allowed 'benefit or deduction on income from profit and gains' rather than on 'profits and gains', as he has deducted the amount of current year's depreciation, unabsorbed depreciation and brought forward investment allowance from profit and gains. The general arrangement of the deductions as obtained from the statute book and on the basis of the above discussions emerges as under: Profits and gains Less: Current year's depreciation: Unabsorbed depreciation: Unabsorbed investment allowance: Business income: 6.4 In this connection reliance is placed upon the following decisions: (a) CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC)-Held: Wherever two reasonable constructions of a provision of law upon its analysis, are available, a view which is favourable to the assessee should be adopted. (b) CIT v. Balanoor Tea and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e looked at is not income as computed under the Act but the profits and gains as ordinarily understood. (f) CIT v. P.K. Jhaveri [1990] 181 ITR 79 (SC)-Held: It is a case concerned with the grant of a deduction under section 80K to a share-holder-assessee from out of dividends received by it from a specified company and the issue was once again whether the deduction allowable was to be on the gross amount of dividend or on the net amount after reduction of interest on money borrowed specifically to earn such income and the hon'ble court ruled that the deduction would be allowable only on the net amount after deduction of interest. (g) CIT v. Tarun Udyog [1991] 191 ITR 688 (Orissa)-Held: Section 80HH of the Income-tax Act, 1961, requires granting of deduction from the profits and gains derived from new industrial undertakings established in backward areas. According to the provisions of the Income-tax Act, income is, different from profits though the former includes the latter. Though an industrial undertaking may earn profit, its gross total income may be substantially less than the profit, and the taxable income may in some cases, become nil. Hence, gross total income computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. Sections 80HH and 80-I are enacted for industrial development and economic growth of a particular region and area and should be used to advance the objective for which it was enacted. 6.8 It would be relevant to draw your Lordships' kind attention towards the sub-heading 'C' in Chapter VI-A of the Income-tax Act, as 'deduction in respect of certain income'. Your Lordships will observe that the Legislature has used the word 'certain income' and not 'income', meaning thereby that there are different types of different income, comprised in the gross total income and not to the income computed in accordance with the provisions of the Act. To summarise, the applicant's case is that without doubt it is running an industrial activity in a backward area, which entitles it to a claim under sections 80HH and 80-I of the Income-tax Act, 1961. The provision contained in both these provisions provide for computation of the amount of deduction based on a percentage of the 'profits and gains' of the business as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Mills Ltd. [1983] 139 ITR 763, at page 769, where it has been observed that the term 'profits' in the various sections of the Income-tax Act had not got the same meaning. In the context, sometimes it meant the assessable profits and sometimes it meant commercial profits. Further, at page 770 it has taken the view: 'Therefore, the language of the section makes it clear, in our opinion, the significant differences in the expressions 'gross total income', 'income' and 'profits and gains attributable to priority industry' that 'the profits and gains attributable to priority industry' must be computed in the commercial sense and not in accordance with the provisions of the Indian Income-tax Act, otherwise the Legislature would not have used the expression 'profits and gains attributable to priority industry' if not in contradistinction to, at least differently from the expression 'total income' in 'gross total income'." Considering the submissions and following the view taken by their Lordships in the case of Motilal Pesticides (I.) Pvt. Ltd. v. CIT [2000] 243 ITR 26 (SC), we answer the question referred in both the references in the affirmative, i.e., in favour of the Revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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