Industrial undertaking tax deductions under s. 80HH and s. 80-I: profits computed independently; assessee's claim upheld.

The dominant issue was whether deduction under s. 80-I could be allowed without first reducing profits by deduction under s. 80HH, having regard to s. 80HH(9). The HC held that for quantifying deductions under ss. 80HH and 80-I, the "gross total income" of the eligible industrial undertaking must be computed independently without reducing it by any Chapter VI-A deduction, and s. 80HH(9) does not curtail the quantum of deduction otherwise admissible under s. 80-I. It further held that, absent statutory priority (beyond permitting s. 80HH before s. 80-I/80J), the assessee may opt adjustment where gross total income is insufficient. The reference was answered in favour of the assessee and against the Revenue.

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Issues Involved:
1. Whether the Income-tax Appellate Tribunal was legally justified in directing to allow deduction u/s 80-I without considering the deduction u/s 80HH, ignoring the provisions of section 80HH(9).

Summary:

Issue 1: Deduction u/s 80-I without considering deduction u/s 80HH
The assessee, a company manufacturing and selling electrical contacts, claimed relief u/s 80-I and u/s 80HH for deduction in respect of gross total income from the industrial undertaking. The Assessing Officer allowed the deduction first u/s 80HH and then u/s 80-I, computing the relief u/s 80-I after deducting the relief admissible u/s 80HH from the gross total income. The Commissioner of Income-tax and the Income-tax Appellate Tribunal upheld the assessee's appeal, stating that relief u/s 80-I should be computed without deducting the relief under section 80HH from the gross total income.

The court examined the provisions of sections 80B(5) and 80AB, which clarify that "gross total income" means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. Therefore, for computing deductions under sections 80HH and 80-I, the gross total income should be computed without making any deduction under Chapter VI-A.

Section 80HH(9) was interpreted to mean that while deductions under sections 80HH, 80-I, and 80J are permissible simultaneously, the deduction u/s 80HH should be adjusted first. However, this does not affect the computation of gross total income for the purpose of deductions under sections 80-I and 80J, which should be computed independently without reducing it by the deduction under section 80HH.

The court concluded that the Tribunal was justified in not permitting the deduction of allowance made u/s 80HH from the gross total income of the assessee for computing the deduction u/s 80-I. The decision in CIT v. Shree Engineers was found to be per incuriam as it did not consider the relevant provisions of sections 80A, 80AB, and 80B(5).

Conclusion:
The court answered the question in the affirmative, in favor of the assessee and against the Revenue, stating that the Tribunal was legally justified in directing to allow deduction u/s 80-I without considering the deduction u/s 80HH. There shall be no order as to costs.

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