1975 (12) TMI 71 - HC - Income Tax

Court rules deduction under 80-I post set-off of losses & depreciation.

The court held that the 8% deduction u/s 80-I should be made after setting off carried forward losses, depreciation, and development rebate. The court ... Priority Industry Issues Involved:1. Whether the deduction of 8% u/s 80-I should be made before or after setting off carried forward losses, depreciation, and development rebate.Summary:Issue 1: Deduction of 8% u/s 80-I Before or After Setting Off Carried Forward ItemsThe primary question in this reference is whether the 8% deduction u/s 80-I of the Income-tax Act, 1961, should be made before setting off carried forward losses, depreciation, and development rebate or after setting off these items. The respondent-assessee, a private limited company engaged in a priority industry, contended that the 8% deduction should be made on the total income before deducting the carried forward amounts. The Income-tax Officer (ITO) and the Appellate Assistant Commissioner rejected this contention, but the Appellate Tribunal upheld it, relying on the Kerala High Court's decision in Indian Transformers Ltd. v. Commissioner of Income-tax.The court examined the statutory definitions and provisions of section 80-I and section 80B, particularly the definition of 'gross total income' and 'priority industry.' It noted that the new Chapter VI-A, which includes section 80-I, replaced the old Chapter VI-A and section 80E, with the Finance (No. 2) Act, 1967. The court found that the provisions of the new section 80-I are substantially the same as the old section 80E, and the interpretation of 'total income' in both sections requires computation in accordance with the other provisions of the Act.The court referred to its previous decision in I.T.R. No. 115/74 (Commissioner of Income-tax v. Cambay Electric Supply Industrial Co. Ltd.), where it held that carried forward development rebate and depreciation allowance should be deducted from the income before calculating the 8% deduction u/s 80-I. The court emphasized that the statutory definition of 'gross total income' and the amendments made by the Finance (No. 2) Act, 1967, clarified that the 8% deduction should be made after setting off carried forward items.The court also addressed the carried forward loss, stating that it stands on the same footing as carried forward development rebate and depreciation allowance. It rejected the assessee's reliance on the Kerala High Court's decision in Indian Transformers Ltd., which held that the 8% deduction should be made before setting off carried forward losses. The court found this reasoning contrary to the legislative mandate of section 80E and section 80-I, which require the deduction to be made after computing total income in accordance with the other provisions of the Act.In conclusion, the court held that the Tribunal was not justified in allowing the 8% deduction u/s 80-I without first setting off unabsorbed losses, depreciation, and development rebate carried forward from earlier years. The court answered the reference in the negative, in favor of the revenue and against the assessee, and disposed of the reference accordingly. The respondent-assessee was ordered to bear the costs of the revenue in this reference.