2001 (8) TMI 105 - HC - Income Tax

Industrial undertaking tax deductions under ss. 80HH/80-I: profits computed unit-wise, not after aggregating other division losses; appeal dismissed

Deduction under ss. 80HH and 80-I was held to be undertaking-specific and computable only with reference to the profits and gains of the eligible ... Deductions under sections 80HH and 80-I - New Industrial Undertaking In Backward Area - Special Deduction - Computation of Special Deduction - carried forward as unabsorbed deduction - HELD THAT:- In the present case, the assessee-company is having two divisions, viz., asbestos division and spinning division, which are separate and independent industrial undertakings. The assessee derived profits from the asbestos division, whereas it has suffered loss from the spinning division. Therefore, the Department is contending that the deduction contemplated under the above two provisions is to be allowed only after computing the income of the two industrial units together. If the said contention of the Department is accepted, the assessee's entitlement to benefit would be reduced by the extent of losses suffered in the spinning division. The benefit of deduction is intended only to certain specified industrial undertakings, which fulfil the conditions specified in the respective provisions. Take another case where an assessee has establish-ed an industrial undertaking in respect of which it is entitled for deduction from the profits and gains of that unit. The said unit may not contribute any profits and gains but the assessee derives huge income from non-industrial activity. In such case, if the Department's contention is accepted the assessee is entitled for deduction even though there are no profits from the industrial undertakings. The intention of the Legislature is not to create such a situation, but to provide the benefit of deduction from the profits and gains of an industrial undertaking, which fulfils the conditions specified in the respective provisions of the Act. The said benefit is an incentive intended to boost the industrial activity. Hence, the proper interpretation is that the deduction shall be in respect of the profits and gains of an industrial undertaking, specified in the provisions of the Act and not with reference to the total profits of the assessee. The ratio laid down by the apex court in the case of Canara Workshops P. Ltd.[1986 (7) TMI 5 - SUPREME COURT] would squarely apply to the present case. No substantial question of law arises out of the order of the Tribunal and accordingly the appeal is dismissed. Issues: Whether deductions under sections 80HH and 80-I of the Income-tax Act, 1961 are to be computed with reference to the profits of the specific industrial undertaking (asbestos division) before setting off losses of another separate undertaking (spinning division), or only after aggregating and setting off losses to arrive at the gross total income of the assessee.Analysis: The statutory scheme treats deductions under Chapter VI-A as referable to 'profits and gains' derived from the particular industrial undertaking and included in the gross total income as computed under the Act. Sections 80AB and the definition of gross total income indicate that for computing such deductions the amount of income of that nature as computed in accordance with the Act (before making deductions under the Chapter) is to be regarded. The question whether deduction is to be computed with reference to a distinct unit's profits or after inter-unit set-off was decided by precedents such as Canara Workshops P. Ltd., where the deduction was allowed with reference to the profits of the specific industry without setting off losses of another separate industry. Decisions relied upon by the Revenue addressed different issues (e.g., gross profit vs. net income or allowed set-off in different contexts) and do not displace the ratio applicable to deductions referable to specific industrial undertakings. Applying the statutory text and the controlling precedent, the deduction under sections 80HH and 80-I is to be computed in respect of the profits of the qualified industrial undertaking and not by aggregating and netting losses of separate and independent undertakings prior to computation.Conclusion: Deductions under sections 80HH and 80-I are to be computed with reference to the profits of the specific industrial undertaking (in this case the asbestos division) before setting off the losses of a separate undertaking (the spinning division); the Revenue's appeal is dismissed and no substantial question of law arises.Ratio Decidendi: For deductions under Chapter VI-A that are referable to profits of a specified industrial undertaking, the deduction must be computed with reference to the profits of that undertaking as computed under the Act and not by first aggregating and setting off losses of other separate undertakings of the assessee.