2001 (8) TMI 105 - HC - Income Tax

New Industrial Undertaking, New Industrial Undertaking In Backward Area, Special Deduction, Computation of Special Deduction

Summary

Issues Involved:
1. Computation of deductions under sections 80HH and 80-I of the Income-tax Act, 1961.
2. Whether deductions should be computed before or after setting off losses from other divisions.

Detailed Analysis:

1. Computation of Deductions under Sections 80HH and 80-I:
The primary issue in this appeal was the method of computing deductions under sections 80HH and 80-I of the Income-tax Act, 1961. The assessee, a limited company, had two divisions: an asbestos cement division (profit-making) and a spinning division (loss-making). The assessee claimed deductions based on the profits of the asbestos division before setting off the losses from the spinning division. The Assessing Officer, however, recomputed the deductions after setting off the losses from the spinning division, resulting in a significantly lower deduction.

2. Setting Off Losses from Other Divisions:
The Assessing Officer contended that deductions should be computed after setting off the losses from the spinning division against the profits of the asbestos division. This view was supported by the decision of the Delhi High Court in Motilal Pesticides (India) Pvt. Ltd. v. CIT [1994] and the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985]. However, the Commissioner (Appeals) and the Income-tax Appellate Tribunal (ITAT) disagreed, citing the Supreme Court decision in CIT v. Canara Workshops P. Ltd. [1986] and the Calcutta High Court decision in Gouri Prasad Goenka v. CIT [1991].

Legal Provisions and Interpretation:
The court examined the relevant provisions of the Act, including sections 80AB, 80B(5), 80HH, and 80-I. Section 80AB specifies that deductions should be computed based on the income included in the gross total income before any deductions under Chapter VI-A. Section 80B(5) defines "gross total income" as the total income computed before any deductions under Chapter VI-A. Sections 80HH and 80-I provide for deductions from the profits and gains derived from specific industrial undertakings.

The court noted that the deductions under sections 80HH and 80-I are intended to incentivize specific industrial undertakings and should be computed based on the profits of the particular undertaking, not the total income of the assessee. This interpretation aligns with the Supreme Court's decision in Canara Workshops P. Ltd., where it was held that deductions should be computed based on the profits of the specific industrial undertaking without setting off losses from other undertakings.

Judgment:
The court upheld the ITAT's decision, affirming that deductions under sections 80HH and 80-I should be computed based on the profits of the asbestos division before setting off the losses from the spinning division. The court dismissed the appeal, stating that no substantial question of law arose from the Tribunal's order.

Conclusion:
The judgment clarifies that for computing deductions under sections 80HH and 80-I, the profits of the specific industrial undertaking should be considered independently, without setting off losses from other divisions. This interpretation is consistent with the legislative intent to provide incentives for specific industrial activities and is supported by the Supreme Court's decision in Canara Workshops P. Ltd.