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2012 (9) TMI 162 - HC - Income TaxDeductions under Section 80HH/80IA on the profits of each unit separately - Held that - On perusal of the bare provisions of the Act it is clear that while calculating deductions under Chapter VI-A only the profits derived from priority units are to be taken into consideration. Section 80A(2) specifically provides that the amount of deduction shall not in any case exceed the gross total income of the assessee. There can be no manner of doubt that Section 80AB has overriding effect and will govern the other provisions of Chapter VI-A. This also clearly indicates that only the income derived from a priority undertaking is to be taken into consideration while making deduction. Section 80B(5) indicates that gross total income means the total income computed in accordance with the provisions of this Act. Therefore, we are of the considered view that the phrase gross total income will include profits and losses from other units whether they be priority units or non-priority units. The Legislature by using the phrases total income and gross total income has tried to differentiate between the two as Gross total income has been defined to mean the total income computed in accordance with the provisions of this Act. Therefore, it will include the profits and losses of all units of the assessee whether they be priority units or non-priority units. However, while computing the deductions specified under Section 80C to 80U only the income derived from the priority units has to be taken into consideration. The deductions shall be calculated only in respect of the income whether profit or loss of the priority unit(s) - If the gross total income is nil, then as laid down in Synco Industry 2008 (3) TMI 13 - SUPREME COURT the assessee cannot get any benefit of such deductions. Section 80A(2) leaves no manner of doubt that the amount of deductions cannot exceed the gross total income of the assessee.
Issues Involved:
1. Whether deductions under Section 80HH/80IA of the Income Tax were allowable on the profits of each unit separately? Detailed Analysis: Issue 1: Whether deductions under Section 80HH/80IA of the Income Tax were allowable on the profits of each unit separately? 1. Common Question of Law: The primary issue revolves around whether deductions under Sections 80HH and 80IA of the Income Tax Act should be calculated on the profits of each unit separately or on the gross total income of the assessee, inclusive of losses from non-priority units. 2. Facts: The assesses have multiple units, some of which are entitled to tax benefits under Sections 80HH and 80IA (priority units), while others are not (non-priority units). The non-priority units were running at a loss, and the Revenue argued that these losses should be considered when calculating the income of priority units for tax benefits. 3. Assessing Authority's View: The Assessing Authority held that the income from all units, both priority and non-priority, should be clubbed together to determine the gross total income for the purpose of tax incentives. 4. Commissioner Income Tax's View: The Commissioner Income Tax contended that deductions should be based solely on the profits derived from the industrial undertaking to which Sections 80HH and 80IA apply, not on the gross total income of the assessee. 5. Income Tax Appellate Tribunal's View: The Tribunal upheld the assessee's claim, stating that deductions should be given only in respect of profits derived from the eligible industrial undertaking and not from the gross total income of the assessee. 6. Revenue's Argument: The Revenue argued that the entire total income from all sources should be considered, including losses from non-priority units, when calculating deductions under Sections 80HH and 80IA. 7. Assessee's Argument: The assessee argued that Chapter VIA is a code in itself, and deductions under Section 80AB should be made only from the income of the nature contemplated in the Chapter, considering only the income or losses of the priority units. 8. Judicial Precedents: - Canara Workshops P. Ltd.: The Supreme Court held that profits from one industry should not be reduced by losses from another, even if both are priority industries. - H. H. Sir Rama Varma: The Supreme Court held that long-term capital losses must be adjusted against long-term capital gains before deductions under Section 80T. - IPCA Laboratory Ltd.: The Supreme Court held that deductions under Section 80HHC require a positive profit, and losses must be considered when calculating profits. - Synco Industries Ltd.: The Supreme Court held that losses from one unit should be adjusted against the gross total income, and if the gross total income is nil, no deductions under Chapter VI-A can be allowed. 9. High Court's Analysis: - Gross Total Income: The High Court emphasized that "gross total income" as defined in Section 80B(5) includes profits and losses from all units, whether priority or non-priority. - Separate Calculation of Deductions: The High Court agreed that while calculating deductions under Sections 80HH and 80IA, only the profits and losses of priority units should be considered. - Limitation by Gross Total Income: The deductions cannot exceed the gross total income of the assessee. If the gross total income is nil, no deductions can be claimed. 10. Conclusion: - Calculation of Deductions: Deductions under Sections 80HH and 80IA should be calculated based on the profits of each priority unit separately. - Gross Total Income: While calculating the gross total income, profits and losses from all units, including non-priority units, must be considered. - Limitation on Deductions: Deductions cannot exceed the gross total income. If the gross total income is nil, no deductions are allowed. 11. Final Judgment: - The High Court concluded that deductions under Sections 80HH and 80IA should be calculated based on the profits of each priority unit separately, but the gross total income must include profits and losses from all units. The deductions cannot exceed the gross total income, and if the gross total income is nil, no deductions can be claimed. Disposition: The appeals were disposed of in the specified terms, with no order as to costs.
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