AI Drafter 
TaxTMI 
TaxTMI 
2004 (5) TMI 35
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....0-81: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that for the purposes of allowing deduction under section 80HH the profits and gains of an industrial undertaking should be computed by taking into consideration unabsorbed depreciation, current depreciation and investment allowance?" Learned counsel for the Revenue brought to our notice that now the issue has been covered by their Lordships' decision in the case of Motilal Pesticides (I.) (Pvt.) Ltd. v. CIT [2000] 243 ITR 26 (SC) and as per the decision of their Lordships, section 80HH is available only on the net income and not on gross income. Mr. Kasliwal, learned counsel for the assessee, has made the submissions and given his submissions in writing also. The submissions given in writing read as under: "80HH. Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20 per cent, thereof. Thus, deduction under section 80HH is available to an industrial undertaking, which fulfills the ....
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....ections 80HH and 80-I very categorically refer to and use the terminology 'profits and gains of industrial undertakings'. It may please be noted that 'profits and gains' and 'income' are not same but are different. The term 'profits and gains' has not been defined under the provisions of the Income-tax Act whereas the term 'income' has been defined in the Income-tax Act. It may also be noted that there are a number of provisions under Chapter VI-A, some of which refer to the term 'profits and gains' and some of them refer to the term 'income'. Thus, in some of the provisions of Chapter VI-A, the deduction is intended to be given out of profits and gains, whereas in some other sections, the deduction has been provided to be given out of 'income'. When the term 'profits and gains' has not been defined under the Act, in that case, its meaning has to be understood as is being understood in commercial world. Here it is relevant to draw your Lordships' kind attention to the provisions of sections 28 and 29 of the Income-tax Act. Section 29 provides for computation of income out of profits and gains. It says and provides that out of profits and gains, income will be computed by taking int....
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....rovisions contained in sections 30 to 43A, as is clear from the language of section 29 and its marginal note. Section 29 states thus: The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43A. The income referred to in section 28 is income chargeable to income-tax whereas section 28(i) specifically refers to 'profits and gains'. Section 29 also specifically brings home the conceptual distinction between 'income' and 'profits and gains' of business or profession. It specifically provides for the computation/calculation of 'income' from out of 'profits and gains'. Income from profits and gains is computed income or income chargeable under the head 'Profits and gains' of business or profession or simply business income. Some of the provisions from out of sections 30 to 43A are meant for computation of 'profits and gains' and some are meant for computation of 'business income' from 'profits and gains'. For instance, section 36 clearly states that the deductions specified therein are to be allowed for the purpose of determining the 'income' referred to in section 28, namely, 'profits and gains', being income chargea....
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....sent 'minus' income. In other words, loss is negative profit. Both positive and negative profits are of a revenue character." By taking into consideration the provisions of section 72(1) and section 32(2) both, carried forward business loss and current depreciation allowance, have to be adjusted against profits and gains. 6. Relevance of section 80AB for the purpose of sections 80HH and 80-I: 'Section 80AB reads as: Where any deduction is required to be made or allowed under any section ... in respect of any income of the nature specified in 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. The heading of section 80HH reads as: "Deduction in respect of profits and gains from newly established industrial undertakings or hotel busines....
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.... gains. The general arrangement of the deductions as obtained from the statute book and on the basis of the above discussions emerges as under: Profits and gains Less: Current year's depreciation: Unabsorbed depreciation: Unabsorbed investment allowance: Business income: 6.4 In this connection reliance is placed upon the following decisions: (a) CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC)-Held: Wherever two reasonable constructions of a provision of law upon its analysis, are available, a view which is favourable to the assessee should be adopted. (b) CIT v. Balanoor Tea and Rubber Co. Ltd. [1974] 93 ITR 115 (Mys)-Held: (proposition is exactly the same as above) (also a case of a priority industry where the deduction has been calculated at 8 per cent, of the profits and gains). (c) Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC)-Held: In computing the total income of the assessee carrying on the business of an industry as specified in section 80E of the Income-tax Act, 1961, for the purpose of the special deduction permissible thereunder, the balancing charge arising as a result of sale of the old machinery and buildi....
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.... allowable only on the net amount after deduction of interest. (g) CIT v. Tarun Udyog [1991] 191 ITR 688 (Orissa)-Held: Section 80HH of the Income-tax Act, 1961, requires granting of deduction from the profits and gains derived from new industrial undertakings established in backward areas. According to the provisions of the Income-tax Act, income is, different from profits though the former includes the latter. Though an industrial undertaking may earn profit, its gross total income may be substantially less than the profit, and the taxable income may in some cases, become nil. Hence, gross total income computed in accordance with the provisions contained in sections 30 to 43A, would not be relevant for the purpose of the deduction under section 80HH. (h) CIT v. Loonkar Tools (Pvt.) Ltd. [1995] 213 ITR 721-Held: Section 80HH is applicable where gross total income includes any profits and gains derived from an industrial undertaking-Section 80AB mentions that the amount of income of the nature for which deduction is to be given as computed in accordance with provisions of the Act shall alone be deemed to be the amount of income of that nature which is derived or received by t....
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....ve that the Legislature has used the word 'certain income' and not 'income', meaning thereby that there are different types of different income, comprised in the gross total income and not to the income computed in accordance with the provisions of the Act. To summarise, the applicant's case is that without doubt it is running an industrial activity in a backward area, which entitles it to a claim under sections 80HH and 80-I of the Income-tax Act, 1961. The provision contained in both these provisions provide for computation of the amount of deduction based on a percentage of the 'profits and gains' of the business as contra distinguished from its income. It may thus be relevant to identify the precise terms relevant for this claim, viz., income, total income, gross total income, profits and gains, etc. 'Income' is defined by section 2(24) of the Act by way of an inclusive definition and is to include, 'profits and gains'. 'Total income, is defined under section 2(45) as the total amount of income referred to in section 5, computed in the manner laid down under this Act. However for our purposes section 5 is not relevant as it deals with the 'scope of total income'. ....