1989 (2) TMI 34 - HC - Income Tax

Summary

Issues:
- Interpretation of section 80-I of the Income-tax Act, 1961
- Rectification under section 254(2) of the Act
- Deduction under section 80-1 before setting off carried forward losses

Analysis:
The case involved an assessee, a private limited company in the mining and quarrying equipment business, claiming relief under section 80-I of the Income-tax Act, 1961 for the assessment year 1972-73. The Income-tax Officer initially declined the relief by setting off unabsorbed depreciation and business losses from previous years to arrive at a "nil" taxable income. The Appellate Assistant Commissioner directed the Income-tax Officer to calculate the relief under section 80-I without considering the carried forward losses. The Tribunal, however, held that the carried forward loss should be set off before allowing the deduction under section 80-I. The Tribunal later rectified its order based on a decision by the Madras High Court regarding the rebate under section 80E, which corresponds to section 80-I.

The High Court was tasked with addressing two questions referred by the Revenue. The first question pertained to the correctness of the rectification proceedings under section 254(2) of the Act, while the second question focused on whether the deduction under section 80-I should be allowed before setting off carried forward losses. The High Court found that the rectification was based on a decision not approved by the Supreme Court, rendering the rectified order unsustainable. The Court then delved into the interpretation of section 80E, corresponding to section 80-I, emphasizing that unabsorbed depreciation and losses from earlier years must be deducted before arriving at the figure eligible for the deduction under section 80-I. Citing various precedents and the Supreme Court's rulings, the High Court concluded that the deduction under section 80-I should be allowed after setting off carried forward losses, in line with the legislative intent.

In light of the above analysis, the High Court answered the second question in the negative and in favor of the Revenue. Consequently, the Court deemed it unnecessary to address the first question, as it did not survive in view of the response to the second question. The Revenue was awarded costs for the reference, and the case was settled accordingly.