1981 (9) TMI 95 - HC - Income Tax

Summary

Issues:
1. Whether the deduction under section 80P should be allowed before set off of unabsorbed loss and unabsorbed depreciation of the earlier years.

Analysis:
The judgment pertains to a reference under section 256(1) of the Income Tax Act, 1961, regarding the sequencing of deductions under section 80P for a cooperative society. The dispute arose from the assessment years 1969-70 and 1970-71, where the Income Tax Officer (ITO) set off the losses of earlier years before allowing the deduction under section 80P. The assessee contended that the relief under section 80P should precede the adjustment of carry forward losses. The matter progressed to the Appellate Assistant Commissioner (AAC) and eventually to the Tribunal, which ruled in favor of the assessee, stating that the deduction under section 80P should precede the adjustment of any unabsorbed loss or depreciation. The Tribunal's decision was challenged before the High Court, which analyzed various precedents and legal provisions to arrive at a decision.

The High Court examined the provisions of section 80P, which allows deductions for cooperative societies based on their gross total income. The court considered the Supreme Court's decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT, which emphasized the sequencing of deductions concerning unabsorbed depreciation and development rebate from earlier years. The court also referenced the decision in Cloth Traders (P.) Ltd. v. Addl. CIT and CIT v. Venkatachalam to illustrate similar issues in different contexts. Additionally, the court mentioned a dissenting opinion from the Gujarat High Court in CIT v. Gautam Sarabhai, which aligned with the Cambay Electric case.

Ultimately, the High Court held that the deduction under section 80P should be calculated before adjusting unabsorbed depreciation or development rebate. The court emphasized the unique position of cooperative societies under section 80P and upheld the Tribunal's decision in favor of the assessee. The court granted costs to the assessee and allowed the standing counsel to seek leave to appeal to the Supreme Court due to the complexity of the issue. Leave was granted to address the specific question of the sequencing of relief under section 80P in relation to unabsorbed depreciation or development rebate.