TMI Blog1994 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... r taxes, depreciation and investment allowance reserve to the net profit as per profit and loss account to arrive at commercial profits ? " The brief facts of the case are that the assessee is a manufacturer of cables and conductors and claimed deduction under section 80HH to the extent of Rs. 85,156. The Income-tax Officer passed an order under section 154 on January 23, 1985, and allowed the deduction to the extent of 20 per cent. on the net income of Rs. 1,25,236 and had given relief of Rs. 24,527. The assessee challenged this order of rectification before the Commissioner of Income-tax (Appeals) and contended that the net profit under the profit and loss account was Rs. 4,09,029, a sum of Rs, 16,682 in respect of inadmissible disallowance of investment allowance reserve, interest, donations and subscription is to be added and, therefore, the calculation should have been made at a figure of Rs. 4,25,711. It was found that the Income-tax Officer has reduced the brought forward business loss, unabsorbed depreciation, investment allowance reserve and the brought forward deduction under section 80J of the Act. The Commissioner of Income-tax (Appeals) had taken into consideration t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any section (except section 80M) included in this Chapter under the heading 'C.- Deductions in respect of certain incomes' in respect of any income of the nature specified in that section 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." In accordance with the scheme of the Act, the income has to be computed. Section 2(24) defines income which includes profits and gains. Under section 2(45), total income has been defined to mean the total amount of income referred to in section 5, computed in the manner laid down in this Act. Section 5 contains the scope of total income which includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person. Section 28 of the Act refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deduction is required to be made or allowed under any section (except section 80M) included under this Chapter under the heading "C.- Deductions in respect of certain incomes" in respect of any income of the nature specified in that section 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. This section makes it clear that in the gross total income, the amount of income of that nature for which the deduction is to be computed alone is to be considered. Section 80HH is one of the sections under the heading "C.-Deductions in respect of certain incomes". The provisions of section 80HH as reproduced above makes it clear that where the gross total income of the assessee includes any profits and gains derived from an industrial undertaking then this section is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. If a person is having five different sources of income, then the total of the income computed in accordance with the provisions of the Act from all the sources would be considered to be the gross total income and since the benefit is available only for the profits and gains derived from an industrial undertaking, that part of the profits and gains which is computed in accordance with the provisions of the Act alone has to be allowed for deduction. In Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) for the purpose of computation of deduction under section 80E, it was observed by the apex court as under : " 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 ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee must include income by way of dividends from a domestic company, 'Gross total income' is defined in section 80B, clause (5), to mean the 'total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 280-O'. Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or, in other words, forms part of the gross total income, the condition specified in the opening part of sub-section (1) of section 80M would be fulfilled and the provision enacted in that sub-section would be attracted." It was further observed as under : "As indicated earlier, sub-section (1) contemplates three steps being taken for computing the special deduction permissible thereunder and arriving at the net income exigible to tax and the first two steps read together contain the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. Rambal (P.) Ltd. [1988] 169 ITR 50, while considering the relief under section 80-I by taking into consideration the provisions of sections 80A and 80B(5) came to the conclusion that the assessee is not entitled to relief under section 80-I as the total income computed by the Income-tax Officer under section 80B(5) was nil. His total income was computed by the Income-tax Officer after setting off carried forward loss and unabsorbed depreciation of earlier assessment years, the net taxable income was determined at nil. It was considered that the restrictions as placed under section 80A have to be complied with before giving the deduction under the Chapter. The Bombay High Court in the case of Asian Cables Corporation Ltd. v. CIT [1981] 132 ITR 34 has also taken the definition as given under section 80B(5) and came to the conclusion that before making any deduction under Chapter VI-A, the unabsorbed depreciation has to be first taken into account before the gross total income for the purposes of Chapter VI-A is considered. The Karnataka High Court in the case of CIT v. HMT Ltd. (No. 1) [1993] 203 ITR 811 has also held that for the purpose of computation und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where it was held that profits and gains earned by one priority industry cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. While holding so the apex court has made a distinction which makes it clear that the loss or unabsorbed depreciation of the same industry which is entitled to the relief under section 80E can be deducted and not of other industries which are not so entitled. The word "such income" in section 80T was interpreted by the apex court in the case of CIT v. V. Venkatachalam [1993] 201 ITR 737 and it was held that the words "such income" in the main part of section 80T meant and referred to the capital gains and not to the total income of the assessee. It may be seen that the language which has been used cannot be widened by any interpretation. The interpretation should be a reasonable one which is on the plain language of the section. The submission that the words "profits and gains" should be considered to be without giving deductions in accordance with Chapter IV is contrary to the language used under sections 80AB and 80B(5) and, therefore, the interpretation which is not based on the plain grammatical languag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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