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Issues: Interpretation of section 80E of the Income-tax Act, 1961 regarding deduction for a company engaged in priority industry specified in the Fifth Schedule.
Analysis: The case involved a company engaged in the manufacture of prodorite, a priority industry specified in the Fifth Schedule to the Income-tax Act, 1961. The company claimed a deduction under section 80E for the assessment year 1967-68. The dispute arose when the Income-tax Officer calculated the deduction based on the net total income, whereas the assessee claimed a deduction based on profits from the manufacturing business of prodorite alone. The Income-tax Officer allowed a lower deduction than claimed by the assessee, leading to an appeal by the company. The Appellate Assistant Commissioner ruled in favor of the assessee, emphasizing that section 80E allows a deduction on profits from specified industries included in the total income. The department then appealed to the Appellate Tribunal, which upheld the Appellate Assistant Commissioner's decision, stating that the deduction should be based on profits from the priority industry, not the total income. The Tribunal's decision was challenged in the present reference. The relevant provision, section 80E(1) in force at the time, allowed a deduction for companies where the total income includes profits and gains from specified industries. The section specified that a deduction equal to eight per cent of such profits and gains should be allowed in computing the total income of the company. The court referred to previous decisions, including Commissioner of Income-tax v. L. M. Van Moppes Diamond Tools (India) Ltd. and Commissioner of Income-tax v. Lucas-TVS Ltd. (No. 2), to support the interpretation that profits and gains from the particular industry specified in the Fifth Schedule are to be considered for calculating the deduction under section 80E. The court concluded that the language of the section indicates that the deduction should be based on profits and gains from the specified industry, as per the decisions cited. Consequently, the court answered the reference question in the affirmative and in favor of the assessee, emphasizing that the deduction should be calculated based on profits from the priority industry.
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