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2019 (3) TMI 171

and ‘investment allowance’? - HELD THAT:- Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. Correctly pointed out by Division Bench in the reference order that in Motilal Pesticides case, the Court followed the judgment rendered in the M/s. Cloth Traders (P) Ltd. which was a case under Section 80M of the Act, on the premise that language of Section 80HH and Section 80M is the same. This basis is clearly incorrect as the language of two provisions is materially different. We are, therefore, of the considered opinion that judgment of Motilal Pesticides [2000 (2) TMI 9 - SUPREME COURT] is erroneous. We, therefore, overrule this judgment. - Unable to subscribe to Revenue that Section 80AB, which was inserted by Finance (No. 2) Act, 1980 with effect from 1st April, 1981 is clarificatory in nature. It is a provision made with prospective effect as the very Amendment Act says so. Therefore, it cannot apply to the Assessment Years 1979-80 and 1980-81, when Section 80AB was brought on the statute book after these assessment years .....

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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. 3) As can be seen from the above, this Section grants deduction from profits and gains to an undertaking engaged in manufacturing or in the business of the hotel. The deduction is admissible at the rate of 20% of the profits and gains of undertaking for 10 assessment years. Certain conditions are to be fulfilled in order to be eligible for such a deduction, about which there is no dispute insofar as these appeals are concerned. Conflict is confined to one aspect viz. 20% deduction of gross profits and gains or net income. Whereas assessees want deduction at the rate of 20% of profits and gains, i.e., gross profits, the stand of the Income Tax Department is that deduction at the rate of 20% is to be computed after taking into account depreciation, unabsorbed depreciation and investment allowance. To put it otherwise, a .....

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rate or rates fixed for the year by the Annual Finance Act. Also the levy is to be on the total income of the assessable entity, computed in accordance with the provisions of the Act. Section 5 lays down the scope of the total income. While computing the total income, certain incomes are exempted which are not to be included and these are mentioned in Section 10 of the Act. 8) Section 14 of the Act is the next provision which is relevant for these appeals. It is the first provision in Chapter IV which is titled computation of total income and, obviously, contains the provision for computation of total income. Section 14 enumerates different heads of income, namely, salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. Insofar as income under the head profits and gains of business or professions is concerned, provisions thereto are contained in Sections 28 to 44DB of the Act. Section 28 specifies various incomes which shall be chargeable to income tax under this head. Thereafter, Section 29 provides that income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections .....

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ign exchange etc. 10) It is in the aforesaid scheme, one has to consider whether deductions under Section 80HH, which falls under Chapter VIA, is to be given after applying the provisions for computation of income as mentioned in Chapter IV of the Act. Once, we examine the matter keeping in view the aforesaid nature of scheme, answer becomes obvious. Chapter VIA, is a stand alone chapter dehors Chapter IV. Therefore, provisions relating to various kinds of deductions mentioned therein have to be construed independent of Chapter IV of the Act. Another pertinent aspect which is to be borne in mind is that conceptually income or total income is different from profits and gains . There are various heads of income and if an assessee is earning income under more than one heads, all these are to be clubbed together to arrive at total income. Profits and gains from the business or profession is only one of the heads of income. 11) We are to examine and interpret the provisions of Section 80HH of the Act keeping in view the aforesaid parameters. As noted above, it mentions that in computing the total income of the assessee, a deduction from profits and gains of an amount equals to 20% there .....

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der the heading C - Deduction in respect of certain incomes . It also makes it clear that the amount of income of that nature is to be computed in accordance with the provisions of the Act (before making any deduction under this Chapter). That alone shall 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. 14) Her submission is that though Section 80AB came to be inserted by the Finance (No.2) Act, 1980 with effect from 01.04.1981, it is clarificatory in nature. To read the provision in this manner, she has relied upon the judgment in H.H. Sir Rama Varma (Dead) By LRs. v. Commissioner of Income Tax, Kerala 1994 Supp (1) SCC 473. She has also referred to the Constitution Bench judgment in Distributors (Baroda) Pvt. Ltd. v. Union of India & Ors. (1986) 1 SCC 43, which has overruled M/s. Cloth Traders (P) Ltd., and in particular paragraph 12 thereof which reads as under: "12. Soon after the enactment of Section 80-M a question arose before the Gujarat High Court in Addl. CIT v. Cloth Traders Pvt. Ltd. whether on a true construction of that section, the permissible deduction is to be .....

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be unexceptionable because the Legislature can always impose a new tax burden or enhance an existing tax liability with prospective effect. But the complaint of the assessee was against retrospective effect being given to Section 80-AA, because that would have the effect of enhancing the tax burden on the assessee by setting at naught the interpretation placed on Section 80-M by the decision in Clothe Traders case and reducing the amount of deduction required to be allowed under Section 80-M. However, as pointed out at the commencement of this judgment, it would become necessary to examine this complaint against the constitutional validity of retrospective operation of Section 80-AA only if we affirm the interpretation placed on Section 80-M by the decision of this Court in Cloth Traders case. If we do not agree with the decision of this Court in Cloth Traders case and take the view that the Gujarat High Court was right in the interpretation placed by it on Section 80-M in Addl. CIT v. Cloth Traders Pvt. Ltd., no question of constitutional validity of the retrospective operation of Section 80-AA would remain to be considered, because in that event Section 80-AA in its retrospective .....

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ad rightly set off the carried-forward losses of the earlier years in accordance with Section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under Section 80-P(2) and the Appellate Assistant Commissioner as well as the Tribunal and the High Court were in error in taking a contrary view. 13. The principle of statutory construction invoked by Ms Ramachandran has no application in construing the expression gross total income in sub-section (1) of Section 80-P. In view of the express provision defining the said expression in Section 80-B(5) for the purpose of Chapter VI-A, there is no scope for construing the said expression differently in Section 80-P. 16) We have considered the aforesaid submissions. 17) At the outset, it needs to be pointed out that in these cases, the Court is concerned with the provisions of Section 80HH of the Act and, therefore, the language used in that particular provision is to be kept in mind. As noted above, sub-section (1) of Section 80HH allows a deduction from such profits and gains of an amount equal to 20 per cent thereof , in computing the total income of the assessee. Thus, so far as dedu .....

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80-HH uses the expression any profits and gains derived from , Section 80-M uses the expression any income . Section 80-M was held, in the Cloth Traders (P) Ltd. Vs. CIT (1979) 3 SCC 538, to mean that for the purpose of that Section, deduction is to be allowed on the gross total income and not on net income. This was over-ruled in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (1986) 1 SCC 43. 5. Bhagwati,J. who was party to the earlier decision in the Cloth Traders' case delivered a judgment in the Distributors( Baroda) case holding that the Cloth traders' case was obviously incorrectly decided because the words any income cannot possibly refer to gross total income but referred only to net income . Further, Distributors (Baroda) case followed the judgment of this Court in Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad (1978) 2 SCC 644 which decision concerned itself with Section 80-E of the Income Tax Act. Section 80 E reads as follows:- 80E - Deduction in respect of profits and gains from specified industries in the case of certain companies- (1) In the case of a company to which this section applies, where the t .....

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HH of the Act. The Court in repelling this contention referred to another decision in H.H. Sir Rama Varma V.CIT (1994) Supp(1) SCC 473, which judgment dealt with the then newly enacted Section 80-AA and 80-AB. Both these sections again are relatable to deductions made under Section 80-M; and Section 80-T with which that judgment was concerned also uses the expression any income as opposed to profits and gains . It will be clear, therefore, that prima facie Varma's case again has very little to do with the concept of profits and gains with which we are concerned here. For these reasons, the matters be placed before the Hon'ble Chief Justice of India to constitute an appropriate Bench to consider the correctness of the judgment in Motilal Pesticides (supra). 18) We have already stated, in brief and broadly, the scheme of the Act insofar as assessment of income is concerned, particularly, with reference to computing the income as provided in Chapter IV of the Act and contrasted it with the deductions that are allowable under Chapter VI-A of the Act while computing total income. That scheme itself draws distinction between the the concept income on the one hand and profits and .....

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ctly pointed out by Division Bench in the reference order that in Motilal Pesticides case, the Court followed the judgment rendered in the M/s. Cloth Traders (P) Ltd. which was a case under Section 80M of the Act, on the premise that language of Section 80HH and Section 80M is the same. This basis is clearly incorrect as the language of two provisions is materially different. We are, therefore, of the considered opinion that judgment of Motilal Pesticides is erroneous. We, therefore, overrule this judgment. 20) We are unable to subscribe to the contention of the learned senior counsel for the Revenue that Section 80AB, which was inserted by Finance (No. 2) Act, 1980 with effect from 1st April, 1981 is clarificatory in nature. It is a provision made with prospective effect as the very Amendment Act says so. Therefore, it cannot apply to the Assessment Years 1979-80 and 1980-81, when Section 80AB was brought on the statute book after these assessment years. This position becomes clear from the reading of Circular No. 281 dated September 22, 1980 issued by the Central Board of Direct Taxes itself. This circular inter alia describes the reasons for adding new Sections 80AA and 80AB. It .....

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