1998 (12) TMI 87 - HC - Income Tax

Deduction denial under sec 80HH & 80V for interest on public deposits - Assessee ruled against

Commissioner Of Income-Tax Versus Albright Morarji And Pandit Limited

The court held that the deduction under section 80HH must be calculated after considering the investment allowance under section 32A, denying relief to ... Method Of Computation, New Industrial Undertaking, Backward Area, Interest On Money Borrowed Issues Involved:1. Computation of 'profits and gains' derived from an industrial undertaking for the purposes of granting relief u/s 80HH of the Income-tax Act, 1961.2. Entitlement to a deduction u/s 80V of the Income-tax Act, 1961, in respect of interest paid on public deposits utilized for the payment of income-tax.Summary:Issue 1: Computation of 'profits and gains' u/s 80HHThe primary issue was whether, while computing 'profits and gains' derived from an industrial undertaking for the purposes of granting relief at 20% u/s 80HH, the provisions of section 32A (investment allowance) should be ignored. The assessee argued that the investment allowance should be adjusted against profits from other units, thus allowing the claim u/s 80HH without reducing the investment allowance. The Income-tax Officer, however, held that after accounting for the investment allowance, the profits were negative, and thus no relief was allowable.The Tribunal and the Commissioner (Appeals) sided with the assessee, but the Revenue appealed, citing several Supreme Court decisions, including Cambay Electric Supply Industrial Co. Ltd. v. CIT, which held that deductions must be computed in accordance with sections 30 to 43A, including section 32A. The High Court agreed with the Revenue, stating that the deduction u/s 80HH must be calculated with reference to the profits and gains derived from an industrial undertaking after making all deductions under sections 30 to 43A, including the investment allowance. Therefore, Question No. 1 was answered in the negative, in favor of the Revenue.Issue 2: Deduction u/s 80VThe second issue was whether the Tribunal erred in holding that the assessee was not entitled to a deduction u/s 80V for interest paid on public deposits used to pay income-tax. The court referred to its previous decision in Hindustan Cocoa Products Ltd. v. CIT, which was in favor of the Revenue. Following this precedent, Question No. 2 was answered in the affirmative, in favor of the Revenue and against the assessee.Conclusion:The court concluded that the deduction u/s 80HH must be computed after accounting for the investment allowance u/s 32A, and the assessee was not entitled to a deduction u/s 80V for interest paid on public deposits used for income-tax payments. The reference was disposed of with no order as to costs.