TMI Blog1979 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... industry and that the relief should be given with reference to the profits attributable to the priority industry before adjustment of the other trading losses. The AAC agreed with this contention and directed computation of the 8% referred to under s. 80E on Rs. 41,15,301, which was the profit earned from the priority industry in the relevant year. The revenue appealed to the Tribunal contending that the deduction under Chap. VI-A could be given only after the computation of the total income under the provisions of the Act which means after setting off of business loss, unabsorbed depreciation and development rebate. The Tribunal did not agree with this contention and confirmed the order of the AAC. The Commissioner of Income-tax has brought this matter in dispute before this court on the question set out already. Section 80E was introduced in the statute by s. 14 of the Finance Act of 1966. Before the introduction of this provision, under the Finance Act of 1965, in the case of every company the total income was chargeable to tax at the rate of 80% and a rebate was allowed if the company fulfilled the different conditions set out in the Finance Act. With reference to so much of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the rate of 55% applicable in the case of other companies. The deduction under this section is in replacement of the rebate of tax allowed to such companies in respect of their profits and gains from the aforesaid activities under the provisions of the Finance Act, 1965." The Central Board of Direct Taxes issued a circular as guidance for applying this provision to its officers. The relevant portions of the circular dated 21st July, 1966 (See [1974] 93 ITR 115 at p. 121), runs as follows: " It will be observed that the deduction under section 80E referred to above is allowable in computing the profits and gains from the specified priority industries INCLUDED IN THE TOTAL INCOME 'AS COMPUTED IN ACCORDANCE WITH THE OTHER PROVISIONS' Of the Income-tax Act. The effect of this provision is that the deduction under section 80E will be allowed from the profits from the specified priority industries, as computed AFTER allowing all the deductions admissible in computing the business income under sections 30 to 43 of the Income-tax Act, and also after giving effect to the relevant provisions for set off or carry forward of loss, contained in Chapter VI of that Act. The business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific activities mentioned in s. 80E and that the figure arrived at after setting off the losses under s. 72 was certainly not the total income arising from the profits and gains attributable to the activities in that year. The result was that the assessee succeeded in the High Court. The Mysore High Court in CIT v. Balanoor Tea and Rubber Co. Ltd. [1974] 93 ITR 115 dealt with the application of s. 80E further on the following facts : The profits attributable to the business of tea plantation, which was a priority industry, amounted to Rs. 1,18,214. The assessee claimed deduction at 8% thereon. The ITO granted deduction only on Rs. 70,109 after adjustment of the losses in a business in plastics, which was not a priority industry. It may be seen that the loss that was adjusted was of the same year, and not a brought forward loss as in the Kerala decision. Before the Mysore High Court, the circular extracted earlier was relied on by the Commissioner in support of his submission that the computation as made by the ITO was not a correct computation. The Mysore High Court held that the first pre-requisite or condition in order to entitle the assessee to the benefits of s. 80E was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en actually computed in accordance with the provisions of ss. 30 to 43, and the amount so computed would have to be the basis for the application of 8%. In CIT v. Lucas-T.V.S. Ltd. (No. 2) [1977] 110 ITR 346 (Mad), the same problem came to be considered again. In that case, the profit in the priority industry was Rs. 71,43,105. The unabsorbed depreciation, unabsorbed development rebate and the earlier business losses after adjustment came to Rs. 31,81,202. The ITO gave the relief at 8% on the income after adjustment of the sum of Rs. 31,81,202. The correctness of this computation was not accepted in view of the earlier decision of this court in CIT v. L.M. Van Moppes Diamond Tools (India) Ltd. [1977] 107 ITR 386. In the meantime, the Gujarat High Court was seized of the same problem in CIT v. Cambay Electric Supply Industrial Co. Ltd. [1976] 104 ITR 744. In the case before the Gujarat High Court, the assessee earned Rs. 46,319 from its running business. There was a sum of Rs. 7,55,807 which was assessable to tax under s. 41(2). This sum was the difference between the cost of certain depreciable assets, which were sold, and their written down value. There were also unabsorbed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. The Supreme Court affirmed the judgment of the Gujarat High Court. Their Lordships held that the profit assessable under s. 41(2) was liable to be included as the income attributable to the priority industry. It was also held that, in computing the profits for the purpose of the special deduction provided under s. 80E, items of unabsorbed depreciation and unabsorbed development rebate carried forward from earlier years will have to be deducted before arriving at the figure from which the 8 per cent. contemplated by s. 80E is to be deducted. At p. 91, their Lordships enunciated the process of computation as follows: " 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, therefore, the High Court, in our view, was right in deducting unabsorbed depreciation and development rebate aggregating to Rs. 2,54,613 from Rs. 8,02,126 and holding the balance of Rs. 5,47,513 being exigible to 8% deduction. " The decision of the Kerala High Court in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 and of this court in CIT v. L. M. Van Moppes Diamond Tools (India) Ltd. [1977] 107 ITR 386 and CIT v. Lucas T.V.S. Ltd. (No. 2) [1977] 110 ITR 346, were then referred to and doubts were entertained about them. Though the question of "carried forward losses" being eligible for adjustment in the computation of the business income did not arise for consideration in that case, the Supreme Court expressed its opinion on the said point in the following words (pp. 97 98 of 113 ITR) : " In other words, the correct figure of total income, which is otherwise taxable under other provisions of the Act, cannot be arrived at without working out the net result of computation under the head 'Profits and gains of business or profession'. Further, the question whether special benefit under section 80E as well as the normal or usual benefit of carry forward of losses of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel, the case before us is similar to the decision of the Mysore High Court. The argument was that the decision of the Kerala High Court and this court had not to consider the problem of adjustment of the loss from non-priority industry and that as the only decision relating to that point was that of the Mysore High Court in CIT v. Balanoor Tea and Rubber Co. Ltd. [1974] 93 ITR 115, which was only distinguished, the Supreme Court had in a way approved the said decision and that we must apply that decision to the facts before us. The learned counsel for the Commissioner submitted that if the whole of the judgment of the Supreme Court is taken into account, it would be clear that the computation as contended for by the assessee herein runs counter to the Supreme Court decision. Their Lordships have required the computation being made with reference to the entire income in accordance with the other provisions of the Act except s. 80E. In his submission it would, therefore, be clear that the Supreme Court did not envisage the losses in non-priority industry being kept out separately. The matter cannot be said to be free from difficulty. The Supreme Court doubted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
