TMI Blog2001 (8) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... Act"), on the net income from its asbestos division amounting to Rs. 27,64,350 and Rs. 34,55,437, respectively. Thus, the total deduction claimed amounts to Rs. 62,19,787. The assessee there after restricted the claim of deduction to Rs. 48,31,526, which was the net income that was available after computation from all the sources to the assessee and the balance of Rs. 13,86,461 was claimed to be carried forward as unabsorbed deduction under the above provisions. This claim of the assessee was, however, not accepted by the Assessing Officer, as according to the Assessing Officer the deductions under sections 80HH and 80-I of the Act have to be computed after setting off the loss of the spinning division against the profits of the asbestos division and, there fore, he had recomputed the deductions that are available. According to the Assessing Officer, the net income after setting off loss is at Rs. 31,91,108 and thereafter he computed the deductions under sections 80HH and 80-1 of the Act on that income at Rs. 6,38,222 and Rs. 7,07,777, respectively, both put together at Rs. 13,45,999 (wrongly shown for Rs. 14,38,999) as against the claim of Rs. 48,31,526. While doing so, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that the Appellate Tribunal erred in accepting the contention of the assessee-company. It is stated that deductions under the provisions of sections 80HH and 80-1 of the Act are to be allowed on the net total income of the assessee and not on the gross total income. In support of his contention, he relied upon the decisions that were referred to and relied upon by the Department before the Income-tax Appellate Tribunal. To make it clear, the contention of standing counsel was that the deductions contemplated under the above two provisions are to be computed only after setting off the loss in the spinning division against the profits of the asbestos division and not with reference to the profits of the asbestos division. Learned counsel for the assessee-company, on the other hand, supported the order of the Tribunal and referred to the decision of the apex court in Canara Workshops P. Ltd. [1986] 161 ITR 320 where there was a specific reference to its decision in the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 (SC) and held that the decision rendered in that case has no relevancy while considering the computation of deduction under sections 80HH and 80-I of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. 80B. (5) 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter ; 80HH. (1) Where the gross total income of an assessee includes any profit and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty, per cent. thereof ... 80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement to benefit would be reduced by the extent of losses suffered in the spinning division. To illustrate the fallacy of the contention, suppose the assessee derives profits from both the units, but the assessee is entitled for deduction only from the asbestos division, then the assessee would be entitled to higher deduction, though that was not the intention of the Legislature. The benefit of deduction is intended only to certain specified industrial undertakings, which fulfil the conditions specified in the respective provisions. Take another case where an assessee has establish-ed an industrial undertaking in respect of which it is entitled for deduction from the profits and gains of that unit. The said unit may not contribute any profits and gains but the assessee derives huge income from non-industrial activity. In such case, if the Department's contention is accepted the assessee is entitled for deduction even though there are no profits from the industrial undertakings. The intention of the Legislature is not to create such a situation, but to provide the benefit of deduction from the profits and gains of an industrial undertaking, which fulfils the conditions specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue, the Tribunal referred the question for the opinion of the High Court. The High Court answered the question in favour of the assessee and against the Revenue. Therefore, further appeal was carried to the apex court. The apex court while confirming the judgment of the High Court held: "In computing the profits for the purpose of deduction under section 80E of the Income-tax Act, 1961, the loss incurred by the assessee in the manufacture of alloy steels (a priority industry) could not be set off against the profits of the manufacture of automobile ancillaries (another priority industry). The assessee was entitled to a deduction at eight per cent. on the entire profits of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture." While negativing the contention of the Revenue, the apex court specifically considered its own judgment rendered in Distributors (Baroda) P. Ltd. [1985] 155 ITR 120, The observations of the apex court are as under : "That is a case in which the Constitution Bench of this court was called upon to consider the scope of section 80M of the Income-tax Act. We do not see how t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a [1994] 205 ITR 433 and upheld the view of the Delhi High Court ([1994] 205 ITR 636) in the above said decagon The other decision referred to and relied upon by learned standing counsel is in the case of H. H. Sir Rama Varma [1994] 205 ITR 433 (SC). In this case, the dispute relates to the computation of long-term capital gains under section 8OT of the Act, whether the deduction contemplated under the said provision is to be allowed before or after the capital losses brought forward from the earlier years, set off against the long-term capital gains of the current assessment year. In this case, the apex court, after referring to the provisions of sections 80A, 80AA, 80AB, 80B and 80T of the Act, referred to and relied upon the decision in the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 (SC), and held that the provisions of section 80AA were only declaratory and finally held the view of the High Court that the deduction under section 80T is to be allowed after setting off the capital gains carried forward in the. earlier years. Here also the issue was only whether the deduction is to be allowed from the gross profit or profits as computed under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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