1994 (2) TMI 304

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....t of business before setting off of the brought forward losses of the previous assessment years ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in arriving at the conclusion that the 'building' used as hotel in question was 'plant' for the purpose of allowing depreciation under section 32 of the Income-tax Act, 1961?" 2. The facts found by the Tribunal are as follows. The assessee is Sea Hawk (I) (P.) Ltd. The assessment year involved is 1983-84. 3. The assessee, a private limited company, carries on hotel business by letting out furnished rooms. The building is used for running the hotel business including air-conditioning and other amenities. A restaurant is also run in ....

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....e Calcutta High Court in the case of CIT v. Oriental Paper Mills Ltd. [1983] 139 ITR 763 and the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd v. Addl. CIT [1979] 118 ITR 243, directed the ITO to allow the relief on the gross total income before setting off brought forward losses. 7. In the appeal filed by the department, the Tribunal following the decision of the Tribunal, Madras Bench, in the case of Yenpeyees Rubber (P.) Ltd. v. First ITO [1983] 5 ITD 605, sustained the order of the Commissioner (Appeals) on the point. 8. We have heard the contentions of the learned counsels appearing for the parties who reiterated the argument urged before the Tribunal. Section 88HH falls under Chapter VIA of the Act containi....

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....ach such class of income. The aggregate of the incomes so arrived at under different heads shall be the gross total income. Again section 80AB of the Act inserted by the Finance Act, 1980 with effect from the assessment year 1981-82, clarifies that income in respect of which deduction is to be allowed has to be the amount of income of that particular nature eligible for deduction and shall have to be computed in accordance with the provisions of the Act and it is the product of such computation that shall alone be deemed to be the amount of income of that nature eligible for deduction. This means that in determining the amount of income of the nature that qualifies for deduction the gross amount has to be subjected to all the computation me....

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....vidend means gross dividend and not net dividend income. In Distributors (Baroda) (P.) Ltd.'s case (supra), this view was reversed and it was held that deduction is admissible only on net income and not on gross income by way of dividend. 12. In this connection reference is made to Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). In that case the assessee was carrying on the business of industry specified under section 80E as it stood prior to amendment by the Finance Act, 1967, for the purpose of the special deduction permissible thereunder. On sale of old machinery and buildings the balancing charge arose under section 41(2) of the Act and was included in the income of the business in terms of the provision....

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....Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) examined the view of the Kerala High Court in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 where the Kerala High Court regarded section 72 as a provision unconnected with the computation of the total income of the assessee and provision which comes into operation at a stage subsequent to the computation of the total income arising from business. The Supreme Court did not accept this view and observed : ". . . It is not possible to accept the view that section 72 has no bearing on, or is unconnected with, the computation of the total income of an assessee under the head 'Profits and gains of business or profession'. Actually, section 72(1) provides that wh....

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....e 8 per cent deduction contemplated by section 80E and, therefore, the contention that by parity of reasoning or on a priori reasoning unabsorbed development rebate and unabsorbed depreciation should be held to be non-deductible before working out the 8 per cent deduction under section 80E(1) cannot be accepted. As observed earlier, on a proper construction of the provision contained in sub-section (1) of section 80E, items like unabsorbed depreciation and unabsorbed development rebate will have to be deducted in arriving at the figure which would be exigible to deduction of 8 per cent under section 80E(1)." (p. 97) 13. It is also a point of interest to note that the larger Bench of the Supreme Court in Distributors (Baroda) (P.) Ltd.&#3....