TMI Blog2003 (1) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year in question, the assessee claimed deduction under section 80HH as follows: Rs. Profits as per profit and loss account 77,96,076 Less: Development rebate 9,32,677 ------------ 68,63,399 ------------ On this amount of Rs. 68,63,399, the assessee claimed relief under section 80HH at the rate of 20 per cent., amounting to Rs. 13,72,680. The said computation of the assessee was made, by placing reliance on section 32(2) of the Income-tax Act. According to the assessee, in section 32(2) of the Act, the word "chargeable" should be interpreted to signify the amount of profits and gains computed, after deducting therefrom the deductions permissible under sections 80HH and 80J. That, the effect would be that to the extent of deduction, the profits and gains would not be chargeable. In this connection, the assessee relied upon the judgment of the Kerala High Court in the case of Indian Transformers Limited v. CIT [1972] 86 ITR 192. This argument was rejected by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, for the purposes of computation, be classified under stipulated heads of income. In this case, we are concerned with the head "Profits and gains of business or profession". Section 28 refers to computation of income under the head "Profits and gains of business". Section 29 states that the income under the head "Profits and gains of business" shall be computed in accordance with section 30 to section 43A. Section 32 refers to depreciation. Section 32(1) states that in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business, certain deductions shall be allowed. Section 32(2), which is heavily relied upon in this case by the assessee, inter alia, provides for carry forward of depreciation allowance in cases where it is not possible to set off such allowance against profits owing to absence of such profits or gains chargeable for the previous year or owing to such profits or gains chargeable, being less than the allowance. Section 70(1), inter alia, states that where the net result for any assessment year in respect of any source falling under any head of income other than "capital gains" is a loss, then th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, one has to compute such profits and gains derived from the newly established undertaking in backward area in accordance with the provisions of the Act so as to form part of the gross total income and after so computing, one must deduct 20 per cent. thereof from the gross total income to arrive at the total taxable income. This is the ratio of the judgment of the Supreme Court also in the case of Cambay Electric Supply Industrial Company Limited v. CIT [1978] 113 ITR 84. The conspectus of the above sections show that income-tax is a charge on an assessee in respect of his total income computed in accordance with the provisions of the Act. However, in cases where the total taxable income comprises profits derived from newly established undertaking under section 80HH, then such profits have got to be computed separately as laid down by the Supreme Court in the case of Cambay Electric Supply Co. [1978] 113 ITR 84 as if it concerns a separate assessee. While calculating such profits, we must bear in mind sections 29 to 43A of the Act. Hence, depreciation has got to be set off as an expense against gross income of the newly established undertaking in order to arrive at profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff Rs. 75 against the gross income of Rs. 100 derived from newly established undertaking, leaving a balance profit of Rs. 25. This sum of Rs. 25 is exigible to 20 per cent. deduction, under section 80HH. Consequently, the Assessing Officer has computed deduction under section 80HH, which is reduced from the gross total income leaving the taxable profit at Rs. 20. Computation of deduction under section 80HH by the assessee: The assessee sets off Rs. 20 (i.e., 20 per cent. deduction under section 80HH) against the gross income of Rs. 100, without depreciation. Hence, the assessee applies 20 per cent. benefit of Rs. 20 under section 80HH leaving the balance profits at Rs. 80 from which the assessee sets off Rs. 75 as depreciation and returns taxable profit of Rs. 5. This illustration shows that the assessee has not disclaimed depreciation. This illustration illustrates the basic controversy. Arguments: Mr. Mistry, learned counsel appearing on behalf of the assessee, firstly, contended that deduction under section 80HH should be calculated with reference to income net of depreciation. That, the said deduction should be with reference to the profits of the new established un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Mahendra Mills [2000] 243 ITR 56, it has been held by the apex court now that business profits can be computed, net of depreciation if the assessee disclaims such depreciation allowance. Mr. Mistry, therefore, contended that one has to read section 80HH in the light of the judgment of the Supreme Court in Mahendra Mills' case [2000] 243 ITR 56 and if so read, he contended that it is clear that deduction under section 80HH should be made from profits and gains of the concerned units computed in accordance with the provisions of the Act which covers section 29 to section 43A of the Income-tax Act as it stood at the relevant time and since section 32(2) is a part of those provisions, the computation of profits of newly established undertakings could be made, net of depreciation provided the assessee opts not to claim depreciation allowance. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, has relied upon the above judgments of the Bombay High Court and submitted that the arguments of the assessee had no merit. He contended that in view of the judgment of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HH. The point at issue is amply clear from the illustration given hereinabove under the caption "Point at issue". The illustration indicates that the assessee has not disclaimed depreciation. The point, therefore, to be noted is that the assessee has also claimed depreciation, but at a later stage and, therefore, the judgment of the Supreme Court in Mahendra Mills' case [2000] 243 ITR 56 has no application. According to the assessee the profits derived from the unit was Rs. 100 because under section 32(2) read with section 4 of the Income-tax Act, the chargeability was in respect of the total income and, therefore, the rate of 20 per cent. was applicable to the total income of Rs. 100 without deducting depreciation. Secondly, in any event, the controversy in Mahendra Mills' case [2000] 243 ITR 56 (SC) was not concerning deductions under Chapter VI-A of the Income-tax Act. Therefore, that judgment would not apply to this case. The important distinction, which is required to be noticed in this case, is that we are required to compute the total taxable income of the assessee who has claimed special deduction under Chapter VI-A. For that purpose, one has to keep in mind the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which one of us (Kapadia J.) was a party it has been held, inter alia, that Chapter VI-A of the Income-tax Act deals with special deductions. That, Chapter VI-A, for the purposes of computing such deductions, constituted a separate code by itself. In order to compute the total taxable income of the assessee, deductions computed under section 80HH have to be reduced from the gross total income of the assessee. The question basically in this matter is concerning computation of deduction under Chapter VI-A in which section 80HH falls. Profits and gains of a newly established undertaking, therefore, have got to be computed as per the provisions of section 29 to section 43A and if the assessee claims relief under Chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
