TMI Blog1986 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 (" the Act"), and that the Income-tax Officer was not justified in disallowing the same. The Appellate Assistant Commissioner held that as the income computed resulted in a net loss, there was no question of allowing any deduction under section 80M. From the order of the Appellate Assistant Commissioner, there was further appeal by the assessee to the Tribunal. It was contended by the assessee in the appeal that the computation of its income was erroneous inasmuch as depreciation has been set off by the Income-tax Officer against the balance of all the heads of income. The income of the assessee from business being a loss, a negative income, there could be no further deduction of depreciation, which had to be carried forward to subsequent years under section 32(2) of the Act. It was contended further that the entire amount of Rs. 1, 12,000 being dividend income could not be set off against the business loss. Under section 80M, only 40 per cent. thereof was assessable and could be so set off. The balance 60 per cent. remained available for deduction under section 80M. The Tribunal rejected the contentions of the assessee holding, inter alia, that according to commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses.-(1) Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee . ...... and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off...... shall......... be carried forward to the following assessment year, and (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year : ...... (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on:... Section 80A.-Deductions to be made in computing total income.-(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U. (2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. Section 80B.-Definitions.-(5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head " Dividend income in the relevant year ". Therefore, the business loss could be set off only against 40 per cent. of such dividend income. In support of his contention, the learned advocate relied on the recent decision of the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, where the Supreme Court overruled its earlier decision in the case of Cloth Traders P. Ltd. v. Addl. CIT [1979] 118 ITR 243 and laid down that the deduction under section 80M was not from the gross total income but from income by way of dividends. The learned advocate for the Revenue contended to the contrary and submitted that the assessee's computation was erroneous inasmuch as the depreciation suffered by the assessee was not being added to the business loss to determine the net result of the business. It was submitted that the construction of section 72(1) as suggested on behalf of the assessee was not correct and there could not be a partial set off of the business loss from the other heads of income at the choice of the assessee. The learned advocate contended further that the contention of the assessee that 60 per cent. of dividend income of the assessee was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable in the taxable territory. As the profits or gains of the assessee outside the taxable territory in the earlier assessment years was not liable to be assessed, the loss incurred in the said years outside the taxable territory could not be also carried forward and set off as claimed. (d) Bank of India Ltd. v. CIT [1969] 72 ITR 157 (Bom) : This decision was cited for the following observations of the Bombay High Court (at page 161): " .. ...... when the question is of granting relief to the subject in the matter of taxation, there is no room for the application of the rule of strict construction, but, on the other hand, a liberal construction should be placed in favour of the subject on the relevant statutory provision ...... .." (e) CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236 (SC): This decision of the Supreme Court was cited for the following observations (at page 240): " ...If a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee, has got to be accepted. This is a well-accepted view of law. " (f) Mahalaxmi Sugar Mills Co. Ltd. v. CIT [1974] 94 ITR 592 (Delhi): In the relevant asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore making any deductions under Chapter VI-A or deductions in respect of annuity deposit paid under section 280-0. In the instant case, such gross total income is found to be a net loss in the year concerned, because of the losses suffered during the year. Therefore, there is no question of any further deduction of 60 per cent. of the dividend earned under section 80M. The said dividend is to be adjusted against the business loss and the net income of the assessee computed at a negative figure." (i) Dasaprakash Bottling Co. v. CIT [1980] 122 ITR 9 (Mad): In this case, it was held by the Division Bench of the Madras High Court that allowance of depreciation under sections 32 and 34 of the Act was available to an assessee in all cases and even if an assessee had not furnished the particulars of such depreciation, it would be open to the Income-tax Officer to allow such depreciation in computing the taxable income. (j) CIT v. Malwa Sugar Mills Co. Ltd. [1982] 134 ITR 56 (Cal): This decision of another Division Bench of this court was cited for the proposition that the losses carried forward from earlier years could not be set off before deducting the depreciation allowance for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 71, the assessee is entitled to have the entirety of its business loss from one head set off against his income under any other head. The section does not permit the assessee to have only a part of the loss to be so set off against income from other heads and carry forward the balance. Such computation would be wholly artificial, contrary to the accepted principles of accountancy and will not reflect the correct income of the assessee in any particular year computed in accordance with commercial principles. The words " is not wholly set off " in section 72 have to be understood in the context of the preceding words " cannot be ". In our view, the assessee is not entitled to resort to partial set off thereby converting his actual negative income, i.e., loss, in any particular year to a positive income, i.e., profits, so as to claim relief under section 80M. We are also unable to accept the contention of the assessee that the relief available under section 80M should be taken into account while computing the gross total income of the assessee and that in computing gross total income, only 40 per cent. of the dividend earned by the assessee should be taken into account. Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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