TaxTMI 
TaxTMI 
2012 (9) TMI 162
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.... being referred to as priority units. These units were either export orientated or set up in backward industrial area. The assessee at the same time was also running some non-priority units i.e. units which had no connection with the benefits granted under Sections 80HH and 80IA. In all cases the non-priority units were running in losses and the submission made on behalf of the Revenue is that the losses of the non-priority units have also to be taken into consideration while working out the income of the priority units and then the tax benefits under Sections 80HH and 80IA have to be calculated. The Assessing Authority in all these cases held that the income whether positive (profit) or negative (loss) of all the units i.e. priority and non-priority were to be clubbed together for working out the gross total income for purposes of grant of tax incentives/benefits. The Commissioner Income Tax held that the deduction is referable only to the profits and gains derived from the industrial undertaking to which Sections 80HH and 80IA is applicable and is not referable to the gross total income of the assessee but only to the gross income from that particular industrial undertaking alone....
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....n that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. 80B(5) "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter." 5. Section 80HH of the Act deals with deduction in respect of profits and gains from newly established industrial undertaking or hotel business in industrial area. Section 80IA of the Act deals with deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. Section 801A(5) of the Act reads as follows:- "801A(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1)....
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....ken into consideration. 8. A large number of judgments have been citied before us. In Commissioner of Income Tax, (Central ) Madras vs. Canara Workshops P. Ltd. (1986) 161 ITR 320, the Apex Court held as follows: "The assessee in this case carries on two industries, both of which find places in the list in the Fifth Schedule and can, therefore, be described as priority industries. It is urged by the learned Additional Solicitor General, appearing for the Revenue, that on a true application of section 80E, the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presently refer. After giving the matter careful consideration, we do not find it possible to accept the contention. It seems to us that the object in 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 percent is intended to be an index of recognition that a priority industry has been set up and is functioning efficiently. It was never intended that the merit ea....
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....ofits in the business of Printing and Publishing but had suffered a loss in its business of trading. It was held that the loss incurred in the latter business was required to be set off against the profits earned in the business of Printing and Publishing before arriving at the gross total income of the assessee under the head "Business". The Madras High Court followed the judgment in H. H. Sir Rama Varma's case (supra). Similar view was taken in Commissioner of Income-Tax vs. E.I. Forge Ltd. (2001) 247 ITR 488 by the Madras High Court. 11. The Andhra Pradesh High Court in Commissioner of Income-Tax v. Visakha Industries Ltd. (2001) 251 ITR 471, however, followed the view in CIT v Canara Workshops P. Ltd (supra) and distinguished H. H. Sir Rama Varma's case. The Andhra Pradesh High Court took note of Sections 80AB and 80B(5) and held that Section 80B refers to profits in respect of which deductions are available under various provisions of Chapter VI-A of the Act and not to other income. This is the judgment which has been followed by the Tribunal. 12. The Apex Court dealt with a similar issue in IPCA Laboratory Ltd. v. Deputy Commissioner of Income-Tax, (2004) 266 ITR....
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....t the profit of the other industry. The question whether the losses of a non-priority unit are taken into consideration while working out the profits of other priority units was not decided by the Apex Court. 14. In Income Tax Officer, Bangalore v. Induflex Products (P) Ltd. (2005) 1 SCC 458, the Apex Court dealt with Section 80HHC and held as follows:- "5. The aforementioned provision was brought in the statue book for the purpose of providing incentive to export houses but the same would not mean that even if the assessee incurs a loss instead of profit, he would be entitled to the benefit thereof. 6. From a perusal of the aforementioned provision, it is evident that the profits derived from the export of goods which would be the subject matter of exemption thereunder must be the profits out of the business carried on by the assessee. The expressing "profits" used in the aforementioned provision connotes positive profit. It is a profit earned from the said business alone which can be the subject matter of exemption. A fortiori if a profit is not earned, the question of claiming exemption would not arise. 8. IPCA Laboratory is an authority for the proposition th....
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....against the gross total income and as the gross total income was nil, the assessee was not entitled to claim deduction under Chapter VI-A which included Sections 80HH and 80IA. The Apex Court held as follows:- "8...........Clause (5) of section 80B defines the expression "gross total income" to mean the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A of the Act. It follows, therefore, that deductions under Chapter VI-A can be given only if the gross total income is positive and not negative. 9. If the gross total income of the assessee is determined as "nil" then there is no question of any deduction being allowed under Chapter VI-A in computing the total income. The Assessing Officer has to take into account the provisions of section 71 providing for set off of loss from one head against income from another and section 72 providing for carry forward and set off of business losses. Section 32(2) makes provisions for carry forward and set off of the unabsorbed depreciation of a particular year. The effect of the abovementioned provisions is that while computing the total income, the losses carried forward and d....
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....nder section 80- I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merit. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand, section 80-I(6) deals with determination of the quantum of deduction. Section 80-I(6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent.....
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....Court said was that in computing the gross total income of the assessee, the same has to be determined after adjusting the losses and that, if the gross total income of the assessee so determined turns out to be "nil‟ , then the assessee would not be entitled to deduction under Chapter VI-A of the said Act. 16. We agree with the submissions made by the learned counsel for the assessee that there is nothing in the decision in the case of Synco Industries Ltd (2008) 2999 ITR 444 (SC) which would enable us to detract from the position indicated by this court in Dewan Kraft Systems (2008) 297 ITR 305 and, as indicated by us above. In fact, the Supreme Court clearly held that while computing the quantum of deduction under Section 80-I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income of the assessee in order to arrive at a deduction under Chapter VI-A. The Supreme Court also held that under Section 80-I(6), for the purposes of calculating the deduction, the loss sustained in one of the units is not to be taken into account because sub-section (6) contemplates that only the profits shall be taken int....
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.... Industries Ltd. v. Assessing Officer (Income-tax) and another (Supra) has held that non obstante clause appearing in Section 80-I (6) of the Act is applicable only to the quantum of deduction, whereas, the gross total income under Section 80B (5) which is also referred to in section 80- I (1) of the Act is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. The Apex Court further held that under Section 80-I (6) of the Act for the purposes of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) of the Act contemplates that only the profits shall be taken into account as if it was the only source of income. Therefore from the decision of the Apex Court, two principle of laws emerges- 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....
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....of deduction when the gross total income was nil. In view of the provisions of Section 80A(2) which provides that the deduction under Chapter VI-A shall not in any way exceed the gross total income of the assessee, it is more than obvious that if the income is nil then the assessee is not entitled to any benefit of the deductions. 25. However, this does not mean that while calculating the total income of the assessee derived from the priority unit the losses of the non-priority unit have to be first adjusted. This does not appear to be the intention of the Legislature. In fact in Synco Industries Ltd case itself the Supreme Court held that for the purposes of calculating deduction under Section 80I(6) the loss sustained in one of the units is not be taken into account because sub section (6) contemplates that only profits shall be taken into account as if they were the only source of income. Therefore, we are of the considered view that while calculating the deductions under Section 80HH of 80IA of the Act, the profits of each unit will have to be calculated separately. However, in case if both of the units are priority units then in view of law laid down in IPCA Laboratory and ....