2014 (7) TMI 136 - HC - Income Tax

Profits and gains u/s 80HH and 80IA of the Act Eligible industrial undertaking Reduction of depreciation u/s 32(1), unabsorbed depreciation u/s 32(2) and unabsorbed loss u/s 72 of the Act Held that - For claiming deduction under any provision of Chapter VIA, of which Section 80HH & 80I are also part, then it has to be after allowance of all deductions such as depreciation, unabsorbed depreciation & unabsorbed losses and therefore, in order to compute the profit and loss of income from an industrial undertaking, to which Section 80HH & 80I applies, the provisions of Part D of Chapter IV has to be taken into consideration and it is only after computing the income in accordance with the provisions contained in the Chapter that income from such industrial undertaking, included in the gross total income of an assessee, could be found out - deduction can only be calculated with reference to the profit and loss account of the assessee and after deductions on account of depreciation or additional depreciation unabsorbed depreciation, unabsorbed losses etc. and only if such income is positive would be eligible for deduction under Section 80HH & 80I of the IT Act. The gross total income of the assessee has to be worked out after deducting the aforesaid deductions only to arrive at the net income and in case, after deducting all these statutory deductions, some income remains, then obviously the assessee would be entitled to deduction under Section 80HH & 80I of the IT Act - when there is no taxable income, then no deduction under Chapter VIA could be allowed - after allowing depreciation, unabsorbed loss and unabsorbed depreciation, there was no positive income - the assessee was not entitled to any deduction u/s 80HH & 80I of the Act Decided against Assessee.

Summary

Issues Involved:
1. Interpretation of the term 'Profit and Gains' under sections 80HH and 80I of the Income Tax Act, 1961.
2. Relevance of 'Profits and Gains' of the current year versus income computed after reducing depreciation and unabsorbed losses for deductions under sections 80HH and 80I.
3. Justification of the Tribunal's decision on deductions under Chapter VIA from the Gross Total Income.

Issue-wise Detailed Analysis:

1. Interpretation of the term 'Profit and Gains' under sections 80HH and 80I of the Income Tax Act, 1961:
The court examined whether the terms 'Profit and Gains' and 'income' are synonymous in the context of sections 80HH and 80I. The appellant argued that these sections specifically refer to 'profit and gains' and not 'income,' suggesting that 'profit and gains' should be interpreted more broadly. However, the court, referencing the Supreme Court's decisions in Motilal Pesticides (I.) Pvt. Ltd. and SYNCO Industries Ltd., upheld that 'Profit and Gains' must be interpreted as net income after deducting depreciation, unabsorbed depreciation, and losses. The court emphasized that the predominant judicial view supports this interpretation, and thus, the terms are not interchangeable in this context.

2. Relevance of 'Profits and Gains' of the current year versus income computed after reducing depreciation and unabsorbed losses for deductions under sections 80HH and 80I:
The appellant contended that deductions under sections 80HH and 80I should be computed based on the current year's profits and gains without considering depreciation and past losses. The court rejected this argument, citing the Supreme Court's ruling in SYNCO Industries Ltd., which clarified that deductions under Chapter VI-A, including sections 80HH and 80I, must be based on the net income after adjusting for all deductions, including depreciation and unabsorbed losses. The court reiterated that the gross total income must be determined after such adjustments, and only a positive resultant income would qualify for deductions under these sections.

3. Justification of the Tribunal's decision on deductions under Chapter VIA from the Gross Total Income:
The Tribunal's decision to deny the deductions under sections 80HH and 80I was based on the fact that the appellant's resultant income, after accounting for depreciation and unabsorbed losses, was negative. The court upheld this decision, agreeing with the Tribunal and CIT(A) that deductions under these sections are allowable only when there is a positive net income. The court referenced multiple judgments, including Loonkar Tools (I) Ltd. and Vishnu Oil & Dal Mills, which consistently held that deductions under Chapter VI-A must be computed after all statutory deductions.

Conclusion:
The court concluded that for claiming deductions under sections 80HH and 80I, the income must be computed after allowing all deductions such as depreciation and unabsorbed losses. Since the appellant had no positive income after such deductions, they were not entitled to any deductions under these sections. The appeals were dismissed, and the substantial questions of law were answered in favor of the revenue and against the assessee.