TaxTMI 
TaxTMI 
2008 (9) TMI 400
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....he quantum of deduction under section 80-I, the industrial undertaking should be treated as the only source of income of the assessee. 1.3 The appellant prays that the past losses etc. should not be set off against the current profits of the unit for calculating deduction under section 80-I of the Act. Without Prejudice to Ground No. 1 II.1 The learned Commissioner of Income-tax (Appeals) erred in not considering the provisions of section 34A being restriction on unabsorbed depreciation and investment allowance for limited period in case of certain domestic companies. II.2 The appellant prays that the restrictive provisions of section 34A be considered while arriving at the profit of the unit. 3. The material facts are like this. In the previous year relevant to the assessment year 1988-89, the assessee had set up its new industrial undertaking in Kodinar. There is no dispute that this unit is eligible for deduction under section 80-I. All along in the past, and in the year in appeal before us, the said unit was the only unit belonging to the appellant and hence its only source of earning as the assessee did not have any other unit or any other source of income, othe....
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....reciation and unabsorbed depreciation of the earlier years in respect of the same unit, even though the same may have been set off against profits of the assessee from other sources. According to the revenue, and as upheld by the CIT(A), the deduction is to be allowed only in respect of the net profits and gains from such unit after making these adjustments. 6. The plea of the assessee appears to be well taken. The expression used in section 80-I(6) is "as if such industrial undertaking... were the only source of income of the assessee during the previous years" in question. In case there are more than one units owned by the assessee, it poses no difficulty because in such a case only the profits or losses of that unit are to be taken into account. The other incomes earned by the assessee do not come into play at all. However, when there is only one unit owned by the assessee, all incomes of the assessee are to be treated as income of that solitary unit - whether derived from the industrial undertaking or not. Therefore, when the unabsorbed depreciation and investment allowance of the unit is set off against the income from other sources, such depreciation or unabsorbed deprecia....
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....of appeal which becomes infructuous in the present context. 7. In the result, the appeal is allowed in the terms indicated above. Per I.P. Bansal, Judicial Member.-I have gone through the proposed draft order authored by my learned brother Shri Pramod Kumar. However, I am in respectful disagreement with the opinion expressed in the said order. Therefore, I proceed to pass a dissenting order as under:- 2. The original assessment in the present case was completed vide order dated 28-2-1995 passed under the provisions of section 143(3) of the Income-tax Act, 1961 at an income of Rs. 25,61,310, in which deduction under section 80-I was allowed at a sum of Rs. 8,70,90,300 being at the rate of 25 per cent of business profit of the eligible unit relating to the current year. The said assessment was reopened by issuing notice under section 148 dated 8-8-1996 for the reason that deduction under section 80-I was allowed excessively due to the fact that while computing section 80-I deduction, the brought forward losses, unabsorbed depreciation and Investment Allowances of the said unit were not reduced from the profits of the current year even though they were set off against the inc....
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....nbsp; Capital gain Rs. 32,28,000 1991-92 Interest Rs. 1,09,99,000 -do- Dividend Rs. 84,29,000 -do- Capital gain Rs. 1,43,34,000 Rs. 4,35,52,000 --------------- ---------------- Amount on which 80-I deduction to be Considered. Rs. 29,89,20,507 Less: Deduction under section 80HH allowed as per order dated 29-3-1996 Rs. 6,84,94,501 &nbs....
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.... ---------------- Rs. 48,79,80,725 Income from other sources: Dividend Income Rs. 3,39,15,516 ---------------- &nbs....
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....p; ---------------- Revised total income Rs. 25,29,22,531 ---------------- 6. It is relevant to mention here that in the impugned reassessment order the Assessing Officer has referred to the earlier order dated 29-3-1996, which is the appeal effect order, the computation of which has been reproduced above in para No. 5. These facts will be relevant for deciding the alternative contention of the assessee. 7. Under these facts the appeal filed by the assessee has to be considered. It is relevant to reproduce the relevant provisions of section 80-I as it existed at the relevant time for deciding the present controversy: "[Deduction in resp....
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....ed is "profit and gains derived from any business of industrial undertaking". As against that, under section 80-I which is relevant for the present case the deduction has to be allowed only on profit derived from eligible Industrial Undertaking. So only the profit and gains derived by the assessee from its eligible industrial undertaking are to be considered for the purpose of deduction excluding therefrom any income earned by the assessee as interest, dividend and capital gains which is assessable or assessed under the head "Income from other sources". 9. There is no dispute so as to the fact that the industrial Undertaking owned by the assessee is eligible for deduction under section 80-I. So it is not relevant to discuss the requirements of fulfilments of which the assessee becomes entitled to get deduction under section 80-I. 10. Section 80-I(6) enacts the provisions of overriding nature and lays down a special mode for computation of the profits and gains eligible for deduction under section 80-I. According to that section 80-I(6), the profits and gains of an eligible assessee are,- "for the purpose of determining the quantum of deduction under section 80-I(1) for the....
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.... of interest, capital gains and dividend. The details have already been given in para 3 above. Apparently the income earned by way of interest, capital gains and dividend cannot in any way be considered as income derived by the assessee from eligible industrial unit. This position of law is clear by the following decisions of the Hon'ble Supreme Court:- (A) CIT v. Sterling Foods [1999] 237 ITR 579 (SC), wherein it has been held that the sale consideration of import entitlements cannot be held to constitute profit and gains derived from the assessee's industrial undertaking for the purpose of computing deduction under section 80HH as the sales of import entitlements is the Export Promotion Scheme of the Central Government and not the industrial undertaking. (B) Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC), wherein it has been held by the Hon'ble Supreme Court that the words "derived from" in section 80HH must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the busine....
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....contended by the appellant. 8. The learned counsel for the appellant then contended that having regard to the object with which section 80HH was introduced in the statute book, this Court should give a liberal interpretation to the words in a manner so as to allow such object to be fulfilled. The rules of interpretation would, come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing any rule of interpretation as submitted by the appellant. In the circumstances of the case, we affirm the decision of the High Court and dismiss the appeal without any order as to costs." 12. Thus their Lordships have held that the words "derived from" must be understood as something which has direct or immediate nexus with the assessee's industrial undertaking and thus derivation of profits on deposit made with the Electricity Board cannot be said to flow directly from the industrial undertaking itself and this was not the income derived from the Industrial Undertaking to make it entitled for deduction under section 80HH. Similarly their Lordships have rejected the contention of the assessee that having re....
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....on that for the purpose of applying the provisions contained in that subsection, profit and gains of eligible business shall be computed as if eligible business were only the business of the assessee right from the initial year and the losses, depreciation and allowance or development rebate in respect of such eligible business for the past assessment years were not set off against the profits from other business. It was held that the language of section 80-I(7) is clear according to which taxable income of eligible business of the industrial undertaking was to be ascertained as if such industrial undertaking was an independent unit owned by the assessee and the assessee had no other source of income. It is only the consequential that the unabsorbed losses, unabsorbed depreciation, etc., relating to eligible business are to be taken into account in determining the quantum of deduction under section 80-IA, even though these may have actually been set off against the profits of the assessee from other sources. It was also held that even though liberal interpretation has to be given to such a provision, the interpretation has to be as per the wording of the section. The wording of sec....
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....ious year, be deemed to be the allowance for that previous year and so on for the succeeding previous years; (b) where it relates to investment allowance, be carried forward to the assessment year commencing on the 1st day of April, 1993 and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and where the period of eight years has expired before the portion of such balance is adjusted, the said period shall be extended beyond eight years till such time the portion of the said balance is absorbed in the profits and gains of the business of the domestic company. (2) For the assessment year commencing on the 1st day of April, 1992, the provisions of sub-section (2) of section 32 and sub-section (3) of section 32A shall apply to the extent such provisions are not inconsistent with the provisions of sub-section (1) of this section. (3) Nothing contained in sub-section (1) shall apply where the amount of unabsorbed depreciation allowance or of the unabsorbed investment allowance, as the case may be, or the aggregate amount of such allowances in the case of a domestic company is less than one lakh rupees. ....
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....ce of assessment years 1988-89, 1989-90 and 1990-91. Thus, effect has already been given by the Assessing Officer to the provisions of section 34A while computing gross total income of the assessee. 18. The provisions of section 34A are applicable only for the purpose of computing the profits and gains of the business of a domestic company, in relation to the previous year relevant to the assessment year 1992-93. Therefore, the Assessing Officer has rightly computed the profits and gains of the business of the assessee-company while computing the gross total income. As against that as pointed out earlier the provisions of section 80-I(6) are the overriding provisions and are relevant 'only for the purpose of computing deduction under section 80-I(1). Therefore, computation of profits and gains of the business of the assessee-company for the current year has nothing to do with the grant of deduction under section 80-I. Thus the assessee is not eligible to get any benefit for the purpose of deduction under section 80-I by referring to the provisions of section 34A of the Act and there is no force in the alternative contention of the assessee and the alternative ground is liable to....
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....l interpretation can be applied while interpreting the provisions of section 80-I(6)." 2. The Learned Accountant Member has expressed the view that the dispute is wholly covered by Point No. 1 above and as such there is no real dispute in identifying the point of difference. 3. I have heard the parties. The record, including the dissenting orders passed by the Learned Members of the Division Bench have also been perused. 4. Though the Learned Members of the Bench have described the facts of this case in their respective orders, yet for the sake of coherence and ready reference I would like to reiterate some of the facts relevant for the purposes of deciding the present controversy. 5. The appellant is a company, it has set up a new industrial undertaking in Kodinar, in the previous year relevant to assessment year 1988-89. Till assessment year 1992-93, i.e., the year under appeal, the assessee had not set up any other industrial undertaking. In other words, the assessee had only one industrial undertaking from assessment year 1988-89 till the end of the assessment year under appeal. The assessee had been claiming deduction under section 80-I of the Income-tax Act, 1961,....
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....ntravention of section 80-I(6) of the Act. 6.1 In response to the notice under section 148, the assessee filed a letter stating that the return already filed on 21-12-1992 may be taken as a return filed in response to notice under section 148. So however it was claimed that there was no mistake in the original assessment order warranting action under section 148 read with section 147 of the Act. 7. The Assessing Officer passed an order under section 147 read with section 143(3) on 4-10-1996 and after giving effect to section 80-I(6), the deduction under section 80-I was recomputed at Rs. 5,76,06,501 as against Rs. 8,70,90,300 (Rs. 8,56,18,127) allowed in the original assessment. The assessee had appealed to the CIT(A) and contested the adjustment made by the Assessing Officer under section 80-I(6) in computing the deduction under section 80-I. The assessee had also made an alternative claim to give the benefit of section 34A in arriving at the profits of the unit for determination of the quantum of deduction under section 80-I. The CIT(A) has upheld the action of the Assessing Officer under section 147 read with section 148 of the Act. In his order, the CIT(A) has pointed out....
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....rial undertaking being the only source of income of the assessee. The learned counsel for the assessee contended that since both the sections were co-existing in the year under appeal, the manifest distinction in the language of the two provisions of the Act has got to be kept in mind for interpreting section 80-I(6). The learned counsel for the assessee further contended that the decision of the Special Bench in the case of Goldmine Sharer & Finance (P.) Ltd. [IT Appeal Nos. 4044 to 4049 (Ahd.) of 2003], assessment years 1997-98 to 2002-03, order dated 30-4-2008, relates to section 80-IA and in the light of the distinction in the language of two provisions of the Act is inapplicable to the facts of this case. It was submitted that the learned Accountant Member, in Para 6 of his order, has pointed out that there is no decision directly on the issue involved in this appeal. It was further contended that the learned Judicial Member has proceeded on the assumption that under section 80-I(6), the Assessing Officer is required to consider the income derived from the industrial undertaking as the only source of income. The learned counsel contended that the Legislature in its wisdom has ....
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....ugh in this case the income was assessed under various heads of income, yet, the source of such income was the industrial undertaking and accordingly no adjustment was required under section 80-I(6) of the Act. Reliance was also placed on the decision of the Supreme Court in the case of Padmasundara Rao, to support the contention that the ratio of a decision cannot be applied de hors of facts of a particular case. 9.2 It has further been pointed by the learned counsel for the assessee that for the assessment year 1992-93, the Assessing Officer has assessed the interest income of Rs. 1.91 crores as part of the business income under the head "Profits and gains of business or profession". According to the learned counsel for the assessee, the Assessing Officer has assessed the dividend income and profits on sale of investment at Rs. 3.39 crores and Rs. 4.95 crores under the head 'Income from other sources' and 'Capital gains' respectively and that Assessing Officer has not assessed the interest income of Rs. 1.91 crores under the head "Income from other sources". It has also been pointed out that the Assessing Officer had rejected the claim of the assessee for exclusion of the admi....
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.... past years unabsorbed, depreciation, losses and investment allowance are to be set off against the income of the assessee from the income of the undertaking. It was accordingly pleaded that the view expressed by the learned Judicial Member may be followed in preference to the view expressed by the learned Accountant Member. 11. In counter reply, the learned counsel for the assessee contended that the decisions cited on behalf of the revenue are distinguishable on facts and accordingly inapplicable for the present controversy. It was accordingly pleaded that the view canvassed on behalf of the assessee be accepted. 12. I have given my careful consideration to the rival contentions. Since the issue involved in this case relates to section 80-I, it will be useful to reproduce these provisions as applicable for the year under appeal, as under:- "80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from 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 this section applies, there shall, in accordance with and subject to the provisions of this ....
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....gs, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power: Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section: Provided further that the condition in clause (iii) shall, in relation to a small-scale industrial undertaking, apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. Explanation 1.-For the purposes of clause (ii) of this sub-section, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in....
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.... craft which fulfils all the following conditions, namely:- (i) the business 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 is carried on by an Indian company and the work by way of repairs to ocean-going vessels or other powered craft has been commenced by such company after 31-3-1983, but before 1-4-1988; and (iv) it is for the time being approved for the purposes of this subsection by the Central Government. (5) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning or the company commences work by way of repairs to ocean-going vessels or other powered craft (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the seven assessmen....
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....l income includes any profits and gains derived from:- (i) an industrial undertaking, which fulfils all the conditions laid down in that behalf in section 80-I(2); (ii) a ship, which fulfils all the conditions laid down in that behalf in section 80-I(3); (iii) the business of a hotel, which fulfils all the conditions laid down in that behalf in section 80-I(4), and (iv) the business of repairs to ocean-going vessels or other powered craft, which fulfils all the conditions laid down in that behalf in section 80-I(4A). 12.2 It is not disputed that the assessee owns an industrial undertaking, which fulfils all the conditions laid down in section 80-I(2) and is eligible for deduction in respect of the profits and gains derived from such industrial undertaking. Sub-section (6) of section 80-I is of overriding nature and it lays down a special mode for computation of the profits and gains eligible for deduction under section 80-I. According to section 80-I(6), the profits and gains of an eligible assessee are:- for the purposes of determining the quantum of deduction under section 80-I(1) for the assessment year immediately succeeding the initial assessment year or any subsequent a....
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....have been carried forward and set off against the income of any subsequent year(s). So however, the assessee had income, which was taxable in the respective assessment years. The assessee has set off losses against the taxable income and therefore derived the benefit in such years. In the year under appeal, the benefit derived by the assessee by setting off the losses of the industrial undertaking against the taxable income is adjusted against the benefit sought in respect of the income derived from the industrial undertaking. 12.4 It has got to be borne in mind that sub-section (6) limits the deduction to be computed under sub-section (1) of section 80-I. 12.5 Section 80-I refers to the profits and gains derived from an eligible industrial undertaking and permits a deduction to the extent of 25 per cent of such profits and gains, i.e., the profits and gains derived from the industrial undertaking. 12.6 Sub-section (6) of section 80-I refers to the profits and gains of industrial undertaking to which provisions of sub-section (1) of section 80-I apply. The profits and gains to which provisions of sub-section (1) of section 80-I apply are profits and gains derived from the ....
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....rs in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-I even though they may actually have been set off against the profits of the assessee from other sources". 12.7 The view canvassed by the revenue is supported by some of the decisions of the Tribunal. I am avoiding the reference to the decisions, which are in respect of section 80-IA. Reference hereunder is made only of such decisions as are relevant to section 80-I. In the case of Prasad Productions (P.) Ltd. v. Dy. CIT [2006] 98 ITD 212 (Chennai), the Tribunal held that by virtue of sub-section (6) of section 80-I, the new industrial undertaking is isolated from other income-producing activity of the assessee for determining its profits and gains for the purpose of deduction under section 80-I. In Para 8 of the order, the Tribunal has held as under:- "... However, under section 80-I(6), a legal fiction has been provided for the computation of profits and gains of new industrial undertaking according to which profits and gains shall be computed as if the new industrial undertaking were the only business....
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....ut by the Assessing Officer no profits would be left, against which the Assessing Officer could allow deduction under section 80-I. He has therefore, rightly determined the amount deductible under section 80-I to be nil His working of the deduction is incomplete accord with the provisions of sub-section (6) of section 80-I." In Para 11, the Tribunal has also referred to the CBDT Circular No. 281, dated 22-9-1980. The relevant portion of the Circular has been reproduced as under:- "In computing the quantum of "tax holiday" profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such unit were an independent unit owned by an assessee who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, shop or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-I even though they may actually have been set off against the profits of the assessee-firm from other sources." In the case of Sri Ramakrishna Mills (CBE) Ltd., the Tribunal held that section 80-I(6) ....
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....t as well as any income, which is attributable to the industrial unit, is to be taken as the income of the industrial undertaking for purposes of sub-section (6) of section 80-I. Second limb of the contention, which has been accepted by the learned Accountant Member in the proposed order, is that when the assessee owns only one industrial unit, the income from all sources of income of the assessee is to be considered as the income of the industrial unit for the purposes of sub-section (6) of section 80-I. As far as the first part of the contention advanced on behalf of the assessee is concerned, there is a scope for acceptance of such a contention, if the language of section 80-I(6) is considered in isolation from the scheme of deduction under section 80-I and the spirit with which the Legislature has incorporated sub-section (6). So however, in the present case the controversy in regard to the first limb of the contention, in my view, is unnecessary. I will proceed with the assumption that the first limb of the contention advanced on behalf of the assessee that the entire income of the industrial undertaking, i.e., the income derived from the industrial undertaking and the income ....
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....arly, insurance claim of Rs. 16,60,227 received by the assessee is on the insurance of the various plant and machinery and other fixed assets of the industrial undertaking. The profit on disposal of assets is Rs. 14,021. Besides the assessee had following income in assessment year 1992-93:- (a) Dividend : Rs. 3,39,15,516 (b) Profit on sale of investments : Rs. 4,54,24,307 (c) Interest : Rs. 1,91,38,345 ---------------- Rs. 9,84,78,168 &nb....
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....sp; Rs. in Rs. in lakhs lakhs ------------------------------------------------------------ SCHEDULE 'F' - INVESTMENTS (at cost) Other than Trade In Govt. Securities Investments in 6 year National 0.02 - Savings Certificates Quoted: 150000 11.5 per cent Government of - 153.85 India Securities 2008 (Market value Rs. 150.75 lakhs) Unquoted: 500000 ....
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....as itself segregated the investments, which are not related to its trade. The trade of the assessee in the year under appeal as well as in earlier years, admittedly, was the production of cement, which was being carried on by means of the industrial undertaking. Interest has been earned by the assessee on Government Securities, investments in 6 year National Savings Certificates, Bonds etc. Such income has no nexus with the activities of the industrial undertaking. Similarly, dividend has been earned on the investment made by the assessee-company in the purchase of Equity Shares of GACL Finance Ltd., and Concrete Investments Ltd., both the subsidiary companies of the assessee-company. The dividend income has also no nexus with the business of the industrial undertaking. Therefore, neither the interest income nor the dividend income can be said to be the income attributable to the industrial undertaking. The capital gain has been derived by the assessee on the purchase and sale of Hudco Bonds and Units of Unit Trust of India. Again, the activity of buying and selling of Bonds and other investments is not connected with the business of the industrial undertaking. Therefore, the incom....
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....at year in accordance with, and [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act." Section 2(7) defines an "assessee" to mean a person by whom any tax or any other sum of money is payable under this Act and includes.... Section 2(31) defines a "person" to include '(iii) a company'. When the language of section 80-I reproduced elsewhere in this order is also kept in mind, there does not remain any scope for doubt that an assessee and an industrial undertaking are recognised distinctly under the statute. Section 80-I provides that where the gross total of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel.... ....