2004 (12) TMI 68 - HC - Income Tax

Deduction under section 80HH - claim was allowable only if after deduction of depreciation investment allowance and carry forward losses the resultant figure comes to profit - As section 80HH also falls under Chapter VI-A of the Act in view of the specific finding of gross total income given in section 80B(5) of the Act the set off of losses is to be first done before allowing deduction under section 80HH of the Act. As in the present case after the set off of losses of earlier years the gross total income resulted in loss no deduction under section 80HH was admissible.

Summary

Issues involved:
Interpretation of deduction under section 80HH of the Income-tax Act, 1961.

Analysis:
The High Court of ALLAHABAD was presented with a question regarding the allowance of a claim under section 80HH of the Income-tax Act, 1961. The case involved an assessment for the year 1982-83 where the respondent company had claimed a deduction of Rs. 5,20,402 under section 80HH. The Assessing Officer disallowed the claim as the resultant figure after deductions was a loss, not a profit. The Commissioner of Income-tax (Appeals) upheld this decision, leading to an appeal before the Tribunal. The Tribunal allowed the claim based on a decision of the Madras Tribunal, emphasizing the need to consider a proportion of profits from a new industrial undertaking in a backward area for the deduction under section 80HH.

The Revenue contended that for allowing the deduction under section 80HH, the gross total income computed in accordance with the provisions of the Act must be considered. Referring to the definition of gross total income in section 80B(5) of the Act, it was argued that set off losses as provided under section 72 of the Act should be taken into account. Citing the decision in CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd., it was highlighted that gross total income should be determined after setting off business losses of earlier years before allowing deductions under section 80HH.

The High Court, after considering the arguments presented, ruled in favor of the Revenue and against the assessee. It was held that as the gross total income resulted in a loss after setting off losses from earlier years, no deduction under section 80HH was admissible. The judgment emphasized the importance of interpreting the provisions of the Income-tax Act, specifically in relation to deductions under Chapter VI-A, and the necessity to consider the overall financial position before allowing such deductions.

In conclusion, the High Court's decision clarified the criteria for claiming deductions under section 80HH of the Income-tax Act, highlighting the significance of computing gross total income after considering set off losses from previous years. The judgment underscored the need for a comprehensive assessment of the financial situation to determine the eligibility for deductions under the Act.