TaxTMI 
TaxTMI 
2010 (3) TMI 857
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....Income from construction division 3,76,939 Loss of cement division (21,63,703) Income from Nainital Hotel 35,01,828 Income from Lucknow Hotel 33,25,612 4. The aggregate income set off of all the units came to Rs. 35,43,845. After allowing the unabsorbed brought forward losses (depreciation) of earlier years, the aforesaid income/loss were set off to the extent of the aforesaid income/loss. As the gross total income, as defined under section 80B(5), was a loss, the assessee's claim for deductions under section 80HH (Rs.7,03,695) ; under section 80HHD (Rs. 8,318) and under section 80-I (Rs. 8,79,619) were not allowed by the Assessing Officer. 5. The assessee preferred an appeal before the Commissioner of Income- tax (Appeals). The appellate court, vide its order dated June 1, 2001, allowed the deduction under section 80-I to the extent of unabsorbed depreciation relating to hotel divisions at Lucknow and Nainital brought forward from the earlier years. However, the appellate court allowed full claim of deduction under section 80-IA upholding the order of the Assessing Officer disallowing the claim of deduction under sections 80HH and 80HHD. ....
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....e allowing full deduction, has relied on the order of the apex court in the case of Canara Workshops P. Ltd. [1986] 161 ITR 320 (SC) that the Income-tax Appellate Tribunal has held that deduction under sections 80-I and 80-IA is based on performance on year to year and the profit and losses of the earlier years and subsequent years has no bearing on it on quantum of allowance of deduction and the non obstante clauses 80-I(6) and 80-IA(7) make these deductions unique. 10. He also submits that the assessment year involved in the case before the hon'ble Supreme Court is the assessment year 1967-68 and the issue involved is with regard to deduction under section 80E prevailing during that period. Section 80E, as in force from April 1, 1966, to March 31, 1968, dealt with deduction in respects of profits and gains from priority industries and reads thus : "Deduction in respect of profits and gains from specified industries in the case of certain companies.-(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of gen....
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....ceed the gross total income. Gross total income, as defined in section 80B(5), would be computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A of the Act. The mandate contained in sections 80A and 80B(5) clearly requires that the gross total income is to be computed after setting off the brought forward deficiencies of business loss and unabsorbed depreciation, etc. This is the first step to be taken in order to compute the "total income" for the purpose of allowing deductions specified in sections 80C to 80U of Chapter VI-A. The step would be to allow deduction under Chapter VI-A from the resultant positive income of the previous year, if any, which is left after set off the aforesaid deficiencies of business loss and unabsorbed depreciation, etc. 14. He has placed reliance upon the following rulings in support of these contentions : (1) Monarch Foods P. Ltd. v. Asst. CIT [1995] 214 ITR (AT) 64 (Ahd) ; (2) CIT v. Madras Motors P. Ltd. [1984] 150 ITR 150 (Mad) ; (3) CIT v. Mercantile Bank Ltd. [1988] 169 ITR 44 (Bom) ; (4) CIT v. Rambal P. Ltd. [1988] 169 ITR 50 (Mad) ; (5) Mur....
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....essees. Referring to sections 80A(1), 80A(2) and 80B(5) he submits that since the two hotel units of the assessee, i.e., the hotel unit at Nainital was entitled to deduction under section 80HH and deduction under section 80-I and the hotel unit at Lucknow was entitled to deduction under section 80-IA, therefore, the respondent claimed the said deduction as under : Nainital Hotel Rs. Net profit as per the profit and loss account 25,51,341 Add : Depreciation debited in the profit and loss account 18,13,808 Less : Profit on sale of vehicle 19,520 43,45,637 Less : Depreciation as per the Income-tax Rules 8,18,893 35,26,744 Less : Deduction under section 80HHD 8,318 35,18,426 Less : Deduction under section 80HH 20 per cent. 7,03,695 Less : Deduction under section 80-I 25 per cent. 8,79,619 19,35,112 Lucknow Hotel Net loss as per the profit and loss account 47,54,437 Add : Depreciation debited in the profit and loss account 14,62,433 62,16,870 Less : Depreciation as per the Income-tax Rules 28,91,317 33,25,553 Less : Deduction und....
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....ibed under section 80A will come into play. 20. He submits that the respondents are entitled to the deduction under section 80-I(6) read with section 80HH of the Act and has relied upon the following observation of the apex court in case of CIT v. Canara Workshops P. Ltd. [1986] 161 ITR 320 (SC) ; [1986] 3 SCC 538 (pages 323 and 324) : "It is obvious from the object underlying the enactment of section 80E and the terms in which it provides relief that the intention of Parliament in enacting the provisions was to encourage the setting up of industries concerned with generation or distribution of electrical . . . By making a provision for a rebate year after year on industries making profits and gains during the year, the intention was to provide an incentive for promoting efficiency in the industry." "It seems to us that the object is enacting section 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry. The deduction of eight per cent. is intended to be an index of recognition, that a priority industry has been set up and is functioning efficiently. It was never intende....
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.... the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." 23. According to the counsel for the respondent, this provision clearly provides that, while calculating the deduction under section 80-I, it has to be assumed by the assessing authority that the unit entitled for deduction under this section was the only source of income of the assessee. Thus, the non obstante clause excluding the application of any other section and the artificial presumption created by section 80-I(6) precludes the assessing authority from taking into consideration of the losses incurred in the other units and the unabsorbed losses of the previous years. It is stated that even assuming, though without admitting that sections 80A and 80B(5) are to be read in a manner that the deductions under the Chapter are to be allowed from the gross total income, even then this interpretation would not govern the application of section 80-I in view of the language of section 80-I(1) and the non obstante clause of section 80-I(6). ....
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....in the case of Synco Industries [2008] 299 ITR 444 (SC) being relied upon by the Revenue. 29. In rebuttal the learned counsel for the Department submits that in the case of CIT v. Chhata Sugar Co. Ltd. [2005] 277 ITR 256 (All) the court held that in view of the specific definition of gross total income as given in section 80B(5) of the Act for computation of special deduction under section 80HH, set off of losses is to be done before allowing special deduction. It has further held that as after the set off of losses of earlier years the gross total income resulted in loss, no deduction under section 80HH was admissible ; that in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 (SC) the court, while considering the claim of deduction under section 80P of the Act which falls under Chapter VI-A of the Income-tax Act, 1961, that deals with special deduction, has held that the gross total income must be determined by setting off business losses of earlier years against the income before allowing the deduction under section 80P and that in the case of CIT v. Kedia Leather and Liquor Ltd. [2007] 293 ITR 95 (MP) the court has held that deduction un....
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....ly and the provisions of section 80E would not apply as is apparent from the judgment rendered by this court in CIT v. Chhata Sugar Co. Ltd. [2005] 277 ITR 256 (All) referred by the learned counsel for the appellant. In that case, the court held that specific definition of gross total income, as given in section 80B(5) of the Act, for computation of special deduction under section 80HH, set off of losses is to be made prior to allowing of special deduction, where after set off of losses of earlier years the gross total income resulted in loss, no deduction under section 80HH would be admissible. If the resultant figure is a loss deduction under section 80HH cannot be allowed. The non obstante clause in sub-section (6) of section 80-I refers to only the quantum of deduction, therefore, the gross total income referred to in section 80-I(1) is to be read with section 80B(5) and only then the computation is to be made in the manner provided under the Act. Since sections 80A(2) and 80B(5) are declaratory in nature, hence, they apply to all sections falling under Chapter VI-A of the Act. 33. For ready reference the relevant provisions are extracted below : "80A.(1) In comput....
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....tel as if for the words 'twenty-five per cent.', the words 'thirty per cent.' had been substituted. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence ; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose ; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of ten years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking ; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on w....
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....wholly used for the purposes of the business carried on by it ; (ii) it was not, previous to the date of its acquisition by the Indian company, owned or used in Indian territorial waters by a person resident in India ; and (iii) it is brought into use by the Indian company at any time within the period of ten years next following the 1st day of April, 1981. (4) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely :- (i) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose ; (ii) the business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees ; (iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government ; (iv) the business of the hotel starts functioning after the 31st day of March, 1981, but before the 1st day of April, 19....
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.... shall have effect as if for the words 'seven assessment years', the words 'nine assessment years' had been substituted : Provided also that in the case of an assessee, being a co-operative society, deriving profits and gains from an industrial undertaking or a ship or a hotel referred to in the third proviso, the provisions of that proviso, shall have effect as if for the words 'nine assessment years', the words 'eleven assessment years' had been substituted. (6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years relev....
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....uch profits and gains on such reasonable basis as he may deem fit. Explanation.-In this sub-section, market value, in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market. (9) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft, the Assessing Officer shall, in computing the profits and gains of the industrial undertaking or the hotel or the ship or the business of repairs to ocean-going vessels or other powered craft for the purposes of the deduction under this section, take the amount ....
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....enty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this subsection, the condition specified therein shall be deemed to have been fulfilled. (3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely :- (i) the business of the hotel has started or starts functioning after the 31st day of December, 1970, but before the 1st day of April, 1990, in any backward area ; (ii) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence ; (iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government. (4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning : Provided that, (i) in the case of an industrial undertaking which has begu....
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....ficer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial under- taking or the hotel, the Assessing Officer shall, in computing the profits and gains of the industrial undertaking or the hotel for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived there- from . . . (9) In a case where the assessee is entitled also to the deduction under section 80-I or section 80J in relation to the profits and gains of an industrial undertaking or the business of a hotel to which this section applies, effect shall first be given to the provisions of this section. (9A) Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which section 80HHA applies is claimed and allowed under that section for any asse....
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.... v. Mohd. Amin Tyamboo [1980] 125 ITR 375 (J&K) it has held that "total income" chargeable under section 5 of the Act is not the same as "gross total income" defined in section 80B(5). 40. A perusal of section 80B(5) of the Act shows that the total income of the assessee is to be computed after specified deductions in sections 80C to 80U is not to exceed the gross total income. The mandate contained in sections 80A and 80B(5) requires that gross total income should be computed after setting off the brought forward business loss and unabsorbed depreciation, etc., for allowing of the deductions specified under sections 80C to 80U. It is only then that from the resultant positive income of the previous year, if any, that deficiencies of business loss can be made. 41. The findings of the Income-tax Appellate Tribunal are, therefore, erroneous it has misdirected itself in placing reliance upon the case of Canara Workshop [1986] 161 ITR 320 (SC), which is not applicable to the facts of the instant case at all. Therein only the procedure as to how the eligible profits under section 80E will be computed has been considered. It may be noted here that the Finance (No. 2) ....
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....tries Ltd. [2001] 251 ITR 471 (AP) and CIT v. R. B. Jodha Mal/Bishan Lal [2006] 202 CTR (J&K) 289, cited by the respondent's counsel are not relevant for the purpose of manner of computation specifically provided in the section referred to above. These cases have been placed before us for taking a liberal interpretation in the matter. We do not consider it appropriate that any liberal consideration of the provisions should be taken where a specific manner is provided and strict interpretation is required. Sections 80A(1), 80A(2), 80B(5), 80-I and 80HH reflects the intention of Legislature and the assent of income by the Department according to it is correct. 45. The aim and object of the Income-tax Act 1961, is to consolidate and amend the law relating to the income-tax and super tax, further Chapter VI-A of the Act deals with the deduction to be made in computing total income. 46. Section 80A(1) which falls in Chapter VI-A of the Act provides in respect to computing the total income of the assessee, there shall be allowed from his gross total income, in accordance with and subject to the provision of this Chapter, the deductions specified in sections 80C to 80U.....