2014 (10) TMI 708 - HC - Income Tax

High Court: Deductions under Sections 80HH & 80-I must be claimed per unit, not combined income.

The High Court ruled that deductions under Sections 80HH and 80-I should be claimed independently for each unit, not from the combined income of different ... Entitlement for claim of deduction u/s 80HH and 80I – Claim can be made independent of set off and carry forward provision or not – Whether the deductions under the respective provisions must be made from the respective incomes of the concerned sources or the aggregate of both - Held that:- The intention of Section 80AB is to maintain the distinction between the respective sources of income, referable to the sections contained in heading C of Chapter VI-A - The intention appears to be to discourage or to prevent an assessee from avoiding tax by posting the profits earned in one industry, against the losses incurred in the other - the hard work put by an entrepreneur resulting in profits in an industry cannot be wiped away if he suffered losses in another industry of the same category – following the decision in M/s Synco Industries Ltd Versus Assessing Officer [2008 (3) TMI 13 - Supreme court] - It is often encountered in High Courts that two or more mutually irreconcilable decisions of the Supreme Court are cited - the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam – the order of the Tribunal is upheld – Decided against revenue. Issues Involved:1. Entitlement to claim deductions under Sections 80HH and 80-I independent of set-off and carry-forward provisions.2. Claiming deductions under Sections 80HH and 80-I with respect to each unit separately.Issue-wise Detailed Analysis:1. Entitlement to claim deductions under Sections 80HH and 80-I independent of set-off and carry-forward provisions:The primary issue revolves around whether the deductions under Sections 80HH and 80-I should be made from the respective incomes of the concerned sources or from the aggregate of both. The assessing officer combined the incomes from different sources, which neutralized the profits from one source by the losses incurred in another, effectively eliminating the possibility of any deductions. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) allowed the deductions independently, relying on precedents such as CIT v. Canara Work Shops (Pvt.,) Ltd and H.H Sir Ramavarma v. CIT.The Tribunal's decision was influenced by the Supreme Court's judgment in Canara Workshops, where it was held that the profits of one industry should not be reduced by the losses of another when claiming deductions under Section 80E, emphasizing that each industry must be considered independently for deductions. The High Court upheld this view, stating that the concept and mechanism of Chapter VI-A of the Income Tax Act, which includes Sections 80HH and 80-I, are consistent with the principles laid down in the Canara Workshops case.2. Claiming deductions under Sections 80HH and 80-I with respect to each unit separately:The second issue concerns whether deductions under Sections 80HH and 80-I can be claimed separately for each unit. The assessing officer's approach was to club the incomes from different units and then apply the deductions, which was contested by the respondent. The High Court examined the relevant provisions, including Section 80AB and the definition of 'gross total income' under Section 80B(5), and concluded that the deductions should be made from the income of the respective units without clubbing.The High Court referred to the legislative intent and the specific wording of Sections 80HH and 80-I, which suggest that deductions should be allowed from the profits of the respective units. The Court also noted that the Parliament employed the terms 'gross total income' and 'total income' differently in various provisions, indicating that deductions should be made in computing the total income of the assessee, not the gross total income.The Court acknowledged conflicting judgments from the Supreme Court, particularly the Synco Industries case, which emphasized the definition of 'gross total income' and suggested a different approach. However, the High Court chose to follow the earlier Canara Workshops case, adhering to the principle of stare decisis, which mandates following the earliest view in case of conflicting judgments from Benches of the same strength.Conclusion:The High Court dismissed the appeal, affirming that deductions under Sections 80HH and 80-I should be made independently for each unit and not from the combined income of different sources. The decision was based on the principles laid down in the Canara Workshops case and the legislative intent behind the relevant provisions of the Income Tax Act. The Court also highlighted the importance of the principle of stare decisis in resolving conflicts between judgments.