TMI Blog1994 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant accounting year is the financial year 1982-83. The facts as narrated by the Tribunal in the statement of the case are as under : The brief facts are that the assessee in this case is a Government of India enterprise. It filed a return declaring a total income of Rs. 74,99,630 and the assessment was completed on a total income of Rs. 1,10,61,470. While completing the assessment, the Assessing Officer worked out the allowable deduction under section 80HH at a sum of Rs. 2,86,562 as against the assessee's claim of Rs. 11,15,008. The reduction in the allowable deduction under section 80HH arose due to variation in the allocation of common expenses for deduction while working out the profit of the unit. The assessee filed an appeal against the said computation. In the meanwhile, the Assessing Officer by his order dated March 10, 1988, rectified the order and held that the assessee was not entitled to any deduction under section 80HH as there was no surplus in the said freight container unit, Cochin, after adjusting the past losses and, therefore, no relief under section 80HH of the Income-tax Act can be given to the assessee. The assessee thereupon filed another appeal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial undertaking has been set up in a backward area by the assessee which fulfils the requirement of section 80HH. This industrial undertaking had incurred losses in the earlier years, which had been set off entirely against the profits made by other units of the company in those years. In the relevant year of account, the industrial undertaking has made profits. The assessee is claiming relief given under section 80HH in respect of this profit made in the current year. Under section 80HH, the assessee is entitled to get a deduction of an amount equal to 20 per cent. of the profits made. It should be noted that the entire amount of the profit made by the industrial undertaking has been included in the gross total income without any set off. In computing the total income of the assessee, 20 per cent.of such profit made by the industrial undertaking and which was included in the gross total income will have to be deducted. This appears to be a simple proposition. Mr. Mitra, appearing for the Revenue, however, has contended that the past losses suffered by this industrial undertaking which had already been set off in the earlier years of the assessments against the profit made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely (i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area ; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward area : Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area ; (iv) it employs ten or more workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that where, in the opinion of the Income-tax Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel in the manner hereinbefore specified presents exceptional difficulties, the Income-tax Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation. -- In this sub-section, ' market value ' in relation to any goods means the price that such goods would ordinarily fetch on sale in the open market. . . . (9) In a case where the assessee is entitled also to the deduction under section 80-I or section 80J in relation to the profits and gains of an industrial undertaking or the business of a hotel to which this section applies, effect shall first be given to the provisions of this section. (9A) Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which section 80HHA applies is claimed and allowed under that section for any assessment year, deduction in relation to such profits and gains shall not be allowed under this section for the same or any other assessment year." " 80-I. Deduction in respect of profits and gains from industrial unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is to be made. " Section 80-I was introduced with effect from April 1, 1981, and replaced section 80J which ceased to apply from April 1, 1981. The material portion of section 80J was as under : " 80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases. -- (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship 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 (reduced by the deduction, if any, admissible to the assessee under section 80HH or section 80HHA) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the manner specified in sub-section (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out ? First, it must be a company to which section 80E applies, that is to say, a company which satisfies the requirements of sub-section (2) of section 80E. Second, the total income as computed in accordance with the Income-tax Act, 1961, without taking into regard the provisions of section 80E, should include profits and gains attributable to the business or the industry mentioned in the section. Third, from the profits and gains attributable to such business or industry, a deduction has to be allowed of an amount equal to eight per cent. of such profits and gains and effect must be given to this deduction when computing the total income of the company." In the instant case, if the principle laid down by the Supreme Court for calculation of the relief is followed, it will be seen that the entire profit from the priority industry was to be included in the gross total income. Therefore, the relief had to be calculated on the basis of the entire amount of profit of the priority industry, which was included in the gross total income without any set off. Moreover, the most important feature of this case is that past years' losses have already been set off against the profit made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysed the provisions of sub-section (1) of section 80E in the following words : " On reading sub-section (1), it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except section 80E ; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) ; and, thirdly, if there be profits and gains so attributable, deduct eight per cent. thereof from such profits and gains and then arrive at the net total income exigible to tax." In the instant case, there is no dispute that the entirety of the income of the priority industry has been included in the gross total income. Therefore, there is no reason why the entire amount should not form the basis for calculation of relief under section 80HH. In view of the clear principles laid down by the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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