TMI Blog1998 (12) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... nal erred in holding that the applicant was not entitled to a deduction under section 80V of the Income-tax Act, 1961, in respect of interest paid by it on public deposits utilised for the payment of income-tax?" So far as question No. 2 is concerned, the controversy therein is covered in favour of the Revenue by the decision of this court dated November 24, 1998, in Income-tax Reference No. 8 of 1992, dated September 28, 1993 (Hindustan Cocoa Products Ltd. v. CIT [1999] 236 ITR 140). Following the same, question No. 2 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee. The only question that requires our consideration is question No. 1, which has been referred at the instance of the Revenue. The material facts giving rise to this question are as follows : The assessee is a company. In its assessment for the assessment year 1980-81, it claimed relief under section 80HH of the Income-tax Act, 1961, (the "Act"), in respect of the profit of a new industrial undertaking in backward areas. The Income-tax Officer held that profits and gains derived from the said industrial undertaking being negative after taking into account the investment allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT [1978] 113 ITR 84, it was held that unabsorbed losses and unabsorbed depreciation have to be deducted before arriving at a figure that would be eligible for the purpose of deduction under section 80HH of the Income-tax Act, 1961. We have carefully considered the above submissions. Sub-section (1) of section 80HH, so far as relevant, at the material time, read as under: "80HH. Deduction in respect of profits and gains from 'newly established industrial undertakings or hotel business in backward areas.---(1) Where the gross total income of an assessee includes any profits 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." It is clear from the above provision that deduction at the rate of twenty per cent. has to be calculated with reference to the amount of profits and gains derived from an industrial undertaking, forming part of the gross total income of the assessee. Section 80HH appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions contained in sections 30 to 43A of the Act, which obviously includes section 32A of the Act. It is, therefore, clear that for computing income from profits and gains derived by an assessee from an industrial undertaking, the provisions of section 32A have to be taken into account, and the investment allowance allowable thereunder has to be deducted from the profits and gains derived from such business. This is so, because what is included in the gross total income in such a case, is the particular quantum of income from the profits and gains of a new industrial undertaking. Therefore, such profits and gains must have reference to the income by way of profits and gains derived from an industrial undertaking, computed in accordance with the provisions of the Act, meaning thereby, computed under section 29 of the Act. It is, thus, clear that the deduction required to be allowed under the provisions of section 80HH(1) is to be calculated with reference to the amount of profits and gains derived from an industrial undertaking, computed in accordance with the provisions of the Act and forming part of the gross total income, and not with reference to the gross profits and gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to be allowed under section 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction will be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter), and not with reference to the gross amount of such dividends, and observed that the said provision was merely declaratory of the law, as it always was, since April 1, 1968. The ratio of the above two decisions squarely applies to the present case. The profits and gains derived from an industrial undertaking referred to in section 80HH has to be computed in accordance with the provisions contained in sections 30 to 43A of the Act. That being so, investment allowance allowable under section 32A has to be deducted from the profits and gains and only such profits would be included in the gross total income of the assessee. In other words, the quantum of the profits and gains derived from an industrial undertaking, from which deduction of an amount equal to twenty per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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