2016 (7) TMI 331 - HC - Income Tax

Interpreting Income-tax Act: Deductions for Industrial Units

PR. COMMISSIONER OF INCOME TAX-3, AHMEDABAD Versus NIRMA LTD

The case involved a dispute over deductions claimed under sections 80HH and 80I of the Income-tax Act, 1961. The Tribunal held that for computing ... Deduction u/s 80HHC and 80I allowed without adjusting loses of its other division - Held that:- Allahabad High Court in the case of Commissioner of Income-Tax and another vs. Modi Xerox Ltd. [2010 (4) TMI 858 - Allahabad High Court] wherein two principles of law emerge one for the purposes of computation of gross total income the losses of other units are to be taken into account but for the purposes of calculating the deduction of industrial undertaking, the loss sustained in another unit cannot be taken into account and only the profit shall be taken into account as if it was the only source of income of that unit. We respectfully agree with the view expressed by Allahabad High Court. This view is not in conflict with the decision of the Supreme Court in the case of Synco Industries Ltd. (2008 (3) TMI 13 - Supreme court ) wherein the Supreme Court observed that while computing quantum of deduction under section 80I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial unit as the only source of income in order to arrive at a deductions under chapter VI. It was further observed that section 80I(6)deals with actual computation of deduction whereas section 80I deals with treatment to be given to such deductions in order to arrive at total income of the assessee and therefore, while interpreting section 80I(1) as also the gross total income, one has to read expression “gross total income” as defined under section 80B(5). It was therefore,concluded that the loss from oil division was required to be adjusted before determining gross total income and as gross total income was nil, the assessee was not entitled to claim deduction under sections 80I(6) which includes section 80I also. This judgment nowhere provides that while computing the deduction under section 80HH or 80I or any other similar provision, loss of another unit is first to be set off. It only provides and in fact, reinforces that such deduction has to be computed as if the unit was an isolated industry. However, thereafter while computing gross total income, even the loss has to be accounted for and only if the income is positive, can the assessee claim deduction for its profit making eligible industry. - Decided against revenue Issues involved:1. Whether deduction under section 80HHC and 80I is to be allowed without adjusting losses of another divisionRs.2. Whether the ITAT erred in not applying the ratio laid down by the Supreme Court in Synco Industries vs. AORs.3. Whether the ITAT erred in not appreciating the direction given by the AO in the order passed under section 143(3) and section 254Rs.Issue 1: The case involved a dispute regarding the deduction claimed by the assessee under sections 80HH and 80I of the Income-tax Act, 1961. The Assessing Officer had adjusted losses from the toilet soap division against the deductions claimed by the assessee. The CIT(Appeals) upheld this approach, citing the decision of the Supreme Court in Synco Industries Ltd. vs. Assessing Officer. However, the Tribunal, following the decision of the Allahabad High Court in Commissioner of Income-Tax vs. Modi Xerox Ltd, allowed the appeal. The Tribunal held that while computing gross total income, losses of other units should be considered, but for computing deductions under sections 80HH and 80I, only profits of the eligible units should be considered. The Tribunal emphasized that profits of eligible units should be treated as the only source of income for the purpose of deductions.Issue 2: The revenue contended that the Tribunal's decision was erroneous and cited the judgment in the case of Synco Industries Ltd. and Sintex Industries Ltd. vs. Assistant Commissioner of Income Tax. However, the High Court referred to the Supreme Court's decision in Liberty India vs. Commissioner of Income-Tax, emphasizing that deductions under sections 80-IA and 80-IB are profit-linked incentives and should be based on the generation of profits, not ownership of the business. The High Court also referred to the Supreme Court's decision in Commissioner of Income-tax vs. Canara Workshops, highlighting that profits of one industry should not be reduced by losses of another industry when claiming deductions.Issue 3: The High Court agreed with the Allahabad High Court's view that deductions under sections 80HH and 80I should be computed based on the profits derived by each industrial unit independently, without considering losses from other units. The High Court clarified that while computing gross total income, losses of other units should be taken into account. The High Court emphasized that deductions under section 80I(6) should be based on profits derived from an industrial unit as the only source of income, and losses from other units should not be considered. The High Court dismissed the appeal, upholding the Tribunal's decision and the principles laid down by the Allahabad High Court.