1999 (7) TMI 681 - AT - Income Tax

Interaction of Deductions under Sections 32AB and 80-I: Investment Source Matters

The Tribunal held that deduction under section 32AB should not reduce the profits and gains of an industrial undertaking eligible for section 80-I ... - Issues:Computation of deduction under section 80-I in relation to deduction under section 32AB.Analysis:The primary issue in this appeal pertains to the computation of deduction under section 80-I concerning the treatment of deduction under section 32AB. The Assessing Officer initially allowed the deduction under section 32AB and then calculated the deduction under section 80-I on the reduced income. However, the Commissioner of Income-tax (Appeals) held that deduction under section 80-I should be based on the profits and gains of the assessee without reducing the deduction under section 32AB. The CIT (A) emphasized that deduction under section 32AB is not debited to the Profit & Loss Account and should not be subtracted from the profits of the new undertaking for computing deduction under section 80-I. Reference was made to precedents supporting this interpretation.The crux of the matter lies in whether deduction under section 32AB should be considered in the calculation of profits and gains of the business included in the gross total income for the purpose of section 80-I. The Tribunal analyzed the relevant provisions of the Income-tax Act, particularly sections 80-I, 80B, and 80AB. Section 80-I mandates that deduction is allowable from profits and gains derived from an industrial undertaking included in the gross total income. The Tribunal highlighted that the deduction under section 32AB should be accounted for based on the source of the specified investment, especially if claimed from the income of the industrial undertaking eligible for section 80-I deduction.The Tribunal emphasized that if the investment qualifying for deduction under section 32AB is made from business income other than the profits and gains derived from the industrial undertaking eligible for section 80-I deduction, then the deduction under section 32AB should not reduce the profits and gains of the industrial undertaking for computing section 80-I deduction. However, if the deduction under section 32AB is claimed from the income of the industrial undertaking eligible for section 80-I deduction, it should be subtracted from the profits and gains of that undertaking before computing the section 80-I deduction. The Tribunal referred to a decision by the Madhya Pradesh High Court and upheld this interpretation.In conclusion, the Tribunal allowed the appeal of the revenue for statistical purposes and remitted the issue back to the CIT(A) for a fresh decision in accordance with the Tribunal's interpretation. The Tribunal's decision clarifies the interplay between deductions under sections 32AB and 80-I, emphasizing the importance of considering the source of investment for section 32AB when computing deductions under section 80-I.