2004 (11) TMI 46 - HC - Income Tax

Whether in view of the provisions of section 80HH(9) the Tribunal is right in holding that the deduction under sections 80HH and 80-I are independent deductions and are to be allowed with reference to the gross total income? - Held that the computation of gross total income of the industrial undertaking for the purpose of deduction under sections 80HH and 80-I operate independently. We further hold that the Assessing Officer committed a grave illegality in computing deduction under section 80-I after reducing the gross total income with reference to deduction admissible under section 80HH and the CIT (A) rightly directed the Assessing Officer to compute deduction under section 80-I on the total gross income without excluding the deduction admissible under section 80HH

Summary

Issues Involved:
Interpretation of sections 80HH, 80-I, and 80J of the Income-tax Act, 1961 regarding the independent deductions and computation of gross total income for the purpose of deduction.

Analysis:

1. Interpretation of Deductions under Sections 80HH, 80-I, and 80J:
The case involved a dispute regarding the independent nature of deductions under sections 80HH and 80-I of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) held that these deductions are independent of each other and should be calculated with reference to the gross total income as defined under section 80B of the Act. The Tribunal upheld this decision, emphasizing the need to compute deductions separately without reducing the gross total income by excluding deductions granted under other sections. Various High Court judgments were cited, including those from Rajasthan, Madhya Pradesh, and Bombay, supporting the independent nature of these deductions based on profits derived from industrial undertakings.

2. Priority and Interaction of Deductions:
The court analyzed the priority and interaction of deductions under sections 80HH, 80-I, and 80J. It was observed that the provisions of sub-section (9) of section 80HH establish that these deductions are simultaneously permissible and not mutually exclusive. The court clarified that the priority of deductions under each provision should be adjusted in the gross total income derived from the industrial undertaking. Specifically, if an industrial unit is eligible for deductions under multiple sections, the deduction under section 80HH should be made first to promote industrial establishment in backward areas before computing deductions under section 80-I or 80J.

3. Computation of Gross Total Income:
The court emphasized that the computation of gross total income for the purpose of deductions under sections 80HH and 80-I operates independently. It was held that the Assessing Officer erred in reducing the gross total income by excluding deductions under section 80HH while computing deductions under section 80-I. The court agreed with the judgments of other High Courts, including Bombay, Madhya Pradesh, and Rajasthan, that deductions under these sections should be calculated on the total gross income without excluding deductions granted under other sections.

Based on the detailed analysis and legal interpretations provided by various High Court judgments, the court concluded that no referable question of law arose in the petition. Consequently, the court dismissed the petition, affirming the independent nature of deductions under sections 80HH and 80-I and the need to compute gross total income for these deductions separately without reducing it by excluding deductions granted under other sections of the Income-tax Act, 1961.