1985 (3) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of sections 80B(5), 80A(2), 71, and 72 of the Income-tax Act, 1961 regarding the computation of total income and deductions under sections 80L and 80M.
2. Validity of the rectification orders u/s 154 of the Income-tax Act, 1961.

Summary:

Issue 1: Interpretation of Sections 80B(5), 80A(2), 71, and 72

The Tribunal held that the set-off of current year's losses and carried forward losses against the current year's income u/s 71 and 72 is not part of the computation of total income. Therefore, deductions u/s 80L and 80M should be allowed even if the net result after such setting off is a negative figure. The Tribunal relied on decisions from the Kerala High Court and Mysore High Court, concluding that deductions under Chapter VI-A go into the computation of total income, and set-offs are made after this computation.

Issue 2: Validity of Rectification Orders u/s 154

The Tribunal annulled the ITO's orders u/s 154, stating there was no mistake apparent from the record in the earlier orders granting relief u/s 80L and 80M. The Tribunal's decision was based on the premise that the issue was debatable, and thus not rectifiable u/s 154.

Court's Analysis and Decision:

The court considered various precedents, including CIT v. Ellenbarrie Tea Company Ltd., Jiyajeerao Cotton Mills Ltd. v. ITO, and CIT v. Orient Paper Mills Ltd., which suggested that debatable questions cannot be rectified u/s 154. However, the court also reviewed CIT v. Mcleod & Co. Ltd., which held that deductions u/s 80M should be made after setting off losses u/s 71 and 72, and any mistake in this regard is rectifiable u/s 154.

The court concluded that the provisions of s. 80A are clear: no deduction can be allowed if the result after setting off losses is a negative figure. This view aligns with the Supreme Court decisions in Cambay Electric Supply Industrial Co. Ltd., Cloth Traders (P) Ltd., and Rajapalayam Mills Ltd. Consequently, the court held that the Tribunal erred in its interpretation and rectification orders u/s 154 were justified.

Conclusion:

The court answered both questions in the negative, favoring the Revenue, and held that the deductions u/s 80L and 80M are not allowable if the total income is negative after setting off losses. The rectification orders u/s 154 were valid as the mistake was apparent from the record. There was no order as to costs.