TMI Blog2008 (9) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacturing herbal products and cosmetics. On 30.11.2000 assessee filed its return for Assessment year 2000-01 wherein, it declared an income of Rs 12,15,25,093/-. On 10.5.2001 the return was processed under Section 143(1)(a) of the Act as the returned income. However, notices were issued under Section 143(2) of the Act. 2.2 In response to the aforesaid notices, hearing was attended by an authorized representative before the Assessing Officer. Details were sought and clarifications were supplied by the assessee. The net result was that with regard to issue, whether in calculating deduction under Section 80 IB and Section 80 HHC the assessee had deducted depreciation from profits and gains derived from such businesses - it was revealed that the assessee's six (6) industrial units at Baddi, which are eligible for deduction under Section 80 IB, no depreciation had been provided for in determining profits and gains eligible for deductions under Section 80 IB while, with regard to all other industrial units of the assessee depreciation had been charged. 2.3 It was also noticed that similarly, in the case of deduction under Section 80 HHC deduction had been claimed without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the earlier decision of the co-ordinate benches of ITAT, it was duty bound to refer the matter to a larger bench. Reliance in support of this submission was placed on a judgment of this Court in the case of DLF Universal Ltd. Vs. CIT (2008) 6 DTR 113. (ii) the judgment of the Special bench of the ITAT in case of Vahid Papers Converters (supra) was distinguishable and, (iii) on merits of the case, it was submitted, that the, Assessee had an option to claim depreciation under Section 32 of the Act, and that, it cannot be thrust on the Assessee while determining the eligible profits and gains for the purpose of ascertaining the amount deductible under Section 80 IB and 80 HHC. 1st contention 7. In so far as the first contention is concerned, according to us, the submission is thoroughly misconceived. The ITAT has, after considering the applicability of the decision of the special bench in the case of Vahid Paper Converters (supra), come to the conclusion that the ratio of the said decision is squarely applicable to the facts of the instant case. That being so, in our view, the ITAT had no choice but to pay obeisance at the altar of judicial discipline and abide b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ope of total income, provisions by which a person is held to be resident in India, and incomes which are deemed to accrue or arises in India. Reference in this regard may be had briefly to the following sections appearing in Chapter-II of the Act:- 9.2.1 Section 4 of the Act provides that income tax shall be charged for any assessment year in respect of the total income of the previous year of every person. 'Previous year' has been defined under Section 3 of the Act to mean any financial year which immediately precedes the assessment year. The expression 'total income' is in turn defined under Section 2(45) of the Act. The said section defines 'total income' to mean total amount of income referred to in Section 5, computed in the manner laid down in the Act. The scope of 'total income' is provided under Section 5 of the Act. Section 5, inter alia, provides that the total income of any previous year of a person who is a resident will include all income derived from any source which is, received or is deemed to have been received in India by or on behalf of such person ; or accrues or arises or is deemed to accrue or arise in India or, even that, which accrues or arise outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation in respect of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1.4.1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession. Sub-section (2) of Section 32 provides that where an assessee has not been able to give full effect to depreciation allowance as provided in sub-Section (1) in any previous year, owing to the fact that there are no profits or gains chargeable for that previous year, or owing to the fact that profit or gains chargeable being less than the depreciation allowance then, the Assessee can carry forward unabsorbed depreciation subject to the provisions of sub-Section (2) of Section 72 and sub-Section (3) of Section 73 of the Act. Sections 30, 31 and 32 (A) to 35(E) provide for rebates, allowances and deductions under various heads. Section 36 provides for certain 'other deductions' specified therein while, computing the income referred to in Section 28. Section 37 of the Act is a residuary head whereby, any expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Importantly, gross total income for the purposes of this chapter (i.e, Chapter VI-A) has been defined in Section 80B(5) in the following terms :- 'gross total income means total income computed in accordance with the provisions of this Act, before making any deduction under this chapter.' 9.8 The incomes in respect of which deductions is sought, in the instant case, are those which are referred to in Section 80-IB and 80HHC. Under Section 80 HHC a prescribed percentage of deduction is allowed while computing the total income of the assessee on the profits and gains derived by the assessee from the export of such goods or merchandise. Similarly, under Section 80 IB an Assessee is allowed a deduction in computation of his total income of a prescribed percentage of his profits and gains derived from industrial undertakings which are defined as eligible businesses under sub-Sections (3) to (11) and (11A) of Section 80-IB, for such assessment years as provided therein. 10. A conjoint reading of the provisions of the Act would show that Chapter VIA of the Act refers to special types of deductions available to the assessee while computing his total income. Section 80A(1), referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied under Section 80-IB and Section 80 HHC of the Act, and consequent thereto led to an enhancement of the quantum of deduction under the said provisions. Secondly, by this methodology the Assessee ensured that it could avail the benefit of depreciation allowance on a higher written value of the assets in the years subsequent to the period over which the deductions under Sections 80-IB and 80 HHC would be available. 13. It is, thus, according to us important to bear in mind the scheme of the Act which envisages that, while computing normal profits which does not involve relief by way of special deduction provided for under Chapter VI-A of the Act, an Assessee is entitled to opt out of a claim for depreciation allowance. In other words, the Assessee can choose to declare and pay tax on a greater amount of income. Where, however, the Assessee seeks to claim 'special deductions' under Chapter VI-A of the Act, there is no option available to the assessee, but to provide for depreciation allowance while calculating the eligible profits and gains on which deduction is permissible under the provisions specified in Chapter VI-A. In this context, as discussed also by the authorities be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one impinging on the other. It will thus appear that the Kerala High Court has regarded section 72 appearing in Chapter VI as a provision unconnected with the computation of the total income of an assessee and a provision which comes into operation at a stage subsequent to the computation of the total income arising from business done in accordance with Sections 30 to 43A occurring in Chapter IV of the Act and, therefore, the unabsorbed losses cannot be set off before calculating the deduction under Section 80E. It is not possible to accept the view that section 72 has no bearing on, or is unconnected with, the computation of the total income of an assessee under the head 'Profits and gains of business or profession'. Actually, section 72(1) provides that where the net result of computation under the head 'Profits and gains of business or profession' is a loss and such loss cannot be or is not wholly set off against the 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, subject to the other provisions of the Chapter, shall be carried forward to the following assessment year and shall be set off against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 80B(5) and 80AB. Consequently, section 80HH, inter alia, lays down that if the gross total income includes profits from a newly established undertaking then 20 per cent of such profits would be deductible from the gross total income in order to arrive at the total taxable income. That, in such a case, profits derived from a newly established undertaking shall be computed in accordance with the provisions of the Act, i.e., section 29 to section 43A. Therefore, net profit will have to be computed in accordance with the provisions of the Act. The argument of the assessee is that in view of the judgment of the Supreme Court in Mahendra Mills' case (2000) 243 ITR 56, it is open to the assessee not to claim depreciation allowance under section 32 and consequently it is argued that 20 per cent rate of deduction should be applied to Rs.100 in the above illustration, without taking into account the depreciation. We do not find any merit in this argument. The scheme of section 4 and section 5 of the Income-tax Act does indicate that income-tax is a tax in respect of income computed as per the provisions of the Act. There is a distinct dichotomy between cases of computation of normal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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