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Issues:
- Availability of deduction under section 80J on gross total income before setting off deductions carried forward from earlier years - Priority of deductions under the Income-tax Act decided by the Appellate Tribunal Analysis: The High Court of MADRAS addressed the issue of whether the deduction under section 80J of the Income-tax Act can be allowed before setting off deductions of carried forward loss and depreciation from prior assessment years. The Appellate Tribunal had allowed the deduction under section 80J before deducting carried forward business loss or unabsorbed depreciation, based on the Finance Minister's speech. However, the Court emphasized that the total income should be computed before granting any deductions under Chapter VI-A. The Court referred to previous judgments, including CIT v. North Arcot District Co-operative Spinning Mills Ltd., which held that deductions should relate to both current year's depreciation and depreciation of earlier years. The Court also cited Rockweld Electrodes India Ltd.'s case, stating that the set off of deficiency under section 80J should be made after setting off business losses of earlier years. The Court disagreed with the Tribunal's view, stating that deductions under section 80J cannot be allowed before setting off earlier losses or unabsorbed depreciation, in line with previous decisions. The Court ruled in favor of the Department, answering the questions of law in the negative. No costs were awarded. This judgment clarifies the priority of deductions under the Income-tax Act and emphasizes that deductions under section 80J must be granted after setting off losses and depreciation from earlier years. The Court highlighted the importance of computing total income before allowing any deductions and relied on previous decisions to support its conclusion. The judgment provides a clear interpretation of the relevant provisions of the Act and ensures consistency in the application of tax laws.
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