1972 (5) TMI 17 - HC - Income Tax

Deduction for priority industry profits affirmed: 8% deduction on attributable profits allowed, losses may be set off first

Deduction under section 80E applies only to profits and gains attributable to an activity listed in the Fifth Schedule; the deduction equals 8% of those ... Deduction u/s 80E profit of the tea business - Entitlement to a deduction at the rate of 8% from the profits and gains of an activity specified in the list in the 5th Schedule - Whether, the Tribunal was justified in holding that for the purpose of allowing a deduction u/s 80E of the Income-tax Act, 1961, the words ' such profits ' occurring in that section mean ' the profits and gains attributable, to an activity as specified in the 5th Schedule ' before deducting any loss incurred in any business activity? - HELD THAT:- The first pre-requisite condition in order to entitle the assessee to the benefits of section 80E is that the total income as computed in accordance with the provisions of the Act should include any profits and gains attributable to the business of a priority industry. The quantum of deduction is 8 per cent. of the profits and gains attributable to the business of a priority industry and that deduction has to be made in the process of computing the total income of the company. It would be open to the assessing authority to deduct the whole of the loss from the profits and gains of the business from the specified priority industry and the assessee cannot insist that the loss should be set off in the first instance against its business profits other than the profits from specified priority industries. The language of the provision is clear and the view taken by the Tribunal, in our opinion, is right. Accordingly, we answer the question referred in the affirmative and against the department. The assessee is entitled to the costs of this reference. Issues: Whether, for the purpose of allowing a deduction under section 80E of the Income-tax Act, 1961, the phrase 'such profits' means the profits and gains attributable to an activity specified in the Fifth Schedule computed before deducting any loss incurred in other business activities.Analysis: Section 80E(1) provides for an allowance of an amount equal to eight per cent of 'such profits and gains attributable to' specified activities in computing the total income. The statutory text does not state that the deduction must be made after allowing all deductions or after carrying forward or setting off losses from other businesses; instead it identifies the quantum as eight per cent of the profits and gains attributable to the specified activity. Reliance on an administrative circular urging set-off rules was examined and held not to alter the clear wording of the subsection. The provision's placement in Chapter VI-A as an 'other deduction' and references to related provisions on computation and set-off do not require reading-in a proportionate or prior set-off of unrelated business losses against the specified activity's profits before applying the 8% deduction.Conclusion: The deduction under section 80E is to be computed at eight per cent of the profits and gains attributable to the specified activity as such, before deducting losses incurred in other business activities; the Tribunal's allowance of the full deduction in favour of the assessee is correct.