2003 (1) TMI 23 - HC - Income Tax

Deduction under section 80P - Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the deduction under section 80P of the Income-tax Act should be allowed before set-off of unabsorbed losses of earlier year? - controversy involved in the instant reference stands concluded by the decision of the apex court in CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd., as such, the question deserves to be answered in negative and in favour of the Revenue and against the assessee.

Summary

Issues:
Interpretation of deduction under section 80P of the Income-tax Act before set-off of unabsorbed losses of earlier years.

Analysis:
The case involved a question referred by the Income-tax Appellate Tribunal regarding the deduction under section 80P of the Income-tax Act. The controversy was whether the deduction should be allowed before the set-off of unabsorbed losses of earlier years. The parties agreed that the issue was settled by the apex court's decision in CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. The respondent-assessee, a co-operative society, had initially declared a loss in its return but later revised it. The Assessing Officer disallowed the deduction claimed under section 80P(2)(d) due to the lack of positive gross total income. However, the Commissioner of Income-tax (Appeals) allowed the claim, emphasizing that each year is a separate accounting entity, and the gross total income of each year is relevant for deduction and allowance. The Tribunal upheld the Commissioner's finding that the assessment was made on positive income.

The key provisions in question were section 80P(2)(d) and the definition of "gross total income" under section 80B(5) for Chapter VI-A purposes. The apex court interpreted that, for the purpose of deduction under section 80P, it is essential to determine the gross total income by setting off business losses of earlier years as required under section 72 of the Act. The court emphasized that the definition of "gross total income" in section 80B(5) must be applied without deviation, rejecting alternative interpretations. Therefore, the court concluded that the deduction under section 80P should be allowed after setting off business losses of earlier years.

In conclusion, the High Court answered the referred question in favor of the Revenue and against the assessee, following the precedent set by the apex court's decision. The judgment clarified the proper interpretation of the deduction under section 80P of the Income-tax Act, emphasizing the significance of determining gross total income by considering the set-off of business losses of earlier years.