2000 (4) TMI 28 - HC - Income Tax

New Industrial Undertaking In Backward Area, Special Deduction, Interpretation Of Taxing Statutes, Circular

Summary

Issues Involved:
1. Applicability of Section 80AB of the Income-tax Act, 1961, and its retrospective or prospective effect.
2. Computation of deduction under Section 80HH in relation to profits and gains derived from a new industrial undertaking before the introduction of Section 80AB.

Issue-wise Detailed Analysis:

1. Applicability of Section 80AB and its Retrospective or Prospective Effect:

The primary issue in this appeal was whether Section 80AB, introduced by the Finance (No. 2) Act of 1980, was to be applied retrospectively or prospectively. The assessee contended that Section 80AB, which came into effect from April 1, 1981, was intended to be prospective, unlike Section 80AA, which was explicitly made retrospective from April 1, 1968. The assessee relied on Circular No. 281, dated September 22, 1980, which indicated that Section 80AB was prospective. The Department, however, argued that the controversy was settled by the Supreme Court in the case of H. H. Sir Rama Varma v. CIT [1994] 205 ITR 433, which held Section 80AB to be declaratory and retrospective. The court agreed with the Department, stating that Section 80AB was enacted to declare the law as it always stood and was, therefore, retrospective in nature. The court also noted that the Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, had reversed its earlier judgment in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, thereby supporting the retrospective application of Section 80AB.

2. Computation of Deduction under Section 80HH:

The assessee claimed that prior to the introduction of Section 80AB, the deduction under Section 80HH should be computed without making deductions under Sections 30 to 43A, including the development rebate under Section 33. The Department, supported by the judgment in CIT v. Albright Morarji and Pandit Ltd. [1999] 236 ITR 914, argued that profits and gains derived from an industrial undertaking should be computed in accordance with the provisions of Sections 30 to 43A. The court emphasized that Section 80HH begins with the words "where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking." The expression "gross total income" is defined under Section 80B(5) to mean the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A. The court concluded that even before the Finance (No. 2) Act of 1980, the law required that the profits and gains derived from an industrial undertaking be computed in accordance with the provisions of Sections 30 to 43A. The court held that the Finance (No. 2) Act of 1980 merely made explicit what was already implicit in the law, and therefore, Section 80AB was declaratory in nature.

Conclusion:

The court rejected the appeal, affirming that the profits and gains derived from an industrial undertaking under Section 80HH must be computed in accordance with the provisions of Sections 30 to 43A, both before and after the introduction of Section 80AB. The court upheld the view that Section 80AB was declaratory and retrospective, aligning with the Supreme Court's interpretation in H. H. Sir Rama Varma's case and the Division Bench's ruling in Albright Morarji's case. The court found no merit in the assessee's reliance on the circular and previous High Court judgments that suggested a different interpretation.