1994 (5) TMI 5 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction u/s 80HH without setting off past losses.
2. Determination of relief u/s 80HH with reference to the new unit's working only.

Summary:

Issue 1: Entitlement to Deduction u/s 80HH Without Setting Off Past Losses
The Tribunal was justified in holding that the assessee was entitled to deduction u/s 80HH for its new freight container unit without setting off past losses of the said unit. The assessee, a Government of India enterprise, had incurred losses in earlier years which were set off against profits from other units. In the relevant year, the unit made profits, and the assessee claimed relief u/s 80HH. The Assessing Officer initially allowed a deduction but later withdrew it, citing past losses. The Tribunal, however, concluded that the past losses, already set off in earlier years, should not be set off again against the current year's profits for the purpose of deduction u/s 80HH. The Court agreed, stating that there is nothing in the wording of section 80HH to support the Revenue's contention that past losses must be set off again.

Issue 2: Determination of Relief u/s 80HH with Reference to the New Unit's Working Only
The Tribunal was justified in not upholding the order of the Commissioner of Income-tax (Appeals) which suggested that relief u/s 80HH should be determined with reference to the working of the new unit only, without considering the profits of other units not eligible for deduction. The Court noted that the entire profit from the industrial undertaking in the backward area should be included in the gross total income without any set off. The relief should be calculated on the basis of 20% of such profit. The Court referenced the Supreme Court's decisions in CIT v. Canara Workshops P. Ltd. and CIT v. Patiala Flour Mills Co. P. Ltd., which supported the principle that past losses already set off in earlier years should not be set off again against the current year's profits for calculating relief u/s 80HH.

Conclusion:
Both questions were answered in the affirmative and in favor of the assessee. The Court held that the assessee is entitled to the deduction u/s 80HH without setting off past losses and that the relief should be determined based on the profits of the new unit only. There will be no order as to costs.