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Issues Involved:
1. Deduction under Section 80P before setting off unabsorbed depreciation and development rebate. 2. Determination of capital employed for relief under Section 80J. Detailed Analysis: Issue 1: Deduction under Section 80P before setting off unabsorbed depreciation and development rebate The core issue was whether the relief under Section 80P should be allowed before setting off unabsorbed depreciation and development rebate from previous years. The Income Tax Officer (ITO) rejected the assessee's claim, arguing that deductions under Chapter VI-A, which includes Section 80P, come into play only after determining the total income. Since the net income was nil after accounting for unabsorbed depreciation, development rebate, and relief under Section 80J, the ITO held that the claim under Section 80P was not tenable. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the deductions under Section 80P should be subtracted from the gross total income before adjusting for unabsorbed depreciation and development rebate. The CIT(A) upheld the ITO's decision, stating that the gross total income must be determined by first considering the carried forward depreciation, development rebate, and business losses before applying Chapter VI-A provisions. Upon further appeal, the Tribunal considered the assessee's argument, supported by the Madras High Court's decision in CIT, Tamil Nadu-III vs. Katpadi Co-operative Timber Works Ltd. The Madras High Court had ruled that co-operative societies are entitled to deductions under Section 80P before setting off carried forward losses or depreciation. However, the Tribunal also considered the Gujarat High Court's binding decisions in CIT vs. Gautam Sarabhai and CIT vs. Cambay Electric Supply Industrial Co. Ltd., which mandated that deductions under Chapter VI-A should be made after accounting for unabsorbed losses and depreciation. The Tribunal concluded that the definition of "gross total income" necessitates the setting off of unabsorbed depreciation and development rebate before considering deductions under Chapter VI-A, including Section 80P. Thus, the authorities below were justified in rejecting the claim for relief under Section 80P before adjusting unabsorbed depreciation and development rebate. Issue 2: Determination of capital employed for relief under Section 80J The second issue involved the determination of capital employed for the purpose of relief under Section 80J. The assessee argued that the capital employed should be determined without deducting liabilities, citing the Calcutta High Court's decision in Century Enka Ltd. vs. ITO and the Special Bench's decision in Amar Dye Chem. Ltd. vs. ITO. The ITO, however, determined the capital employed after deducting liabilities. The CIT(A) upheld the ITO's decision, relying on the retrospective amendment of Section 80J by the Finance (No. 2) Act, 1980. The assessee appealed, pointing out that the retrospective amendment was under challenge before the Supreme Court, which had granted a stay on implementing the provisions of the amendment. The Tribunal remitted the matter back to the CIT(A), directing that the issue be re-decided in accordance with the Supreme Court's decision on the writ petitions challenging the retrospective amendment. This decision was supported by the Gujarat High Court's ruling in CIT vs. Surat District Co-op. Milk Producers' Ltd. Conclusion The appeal was treated as partly allowed, with the Tribunal upholding the lower authorities' decisions on the first issue and remitting the second issue back to the CIT(A) for re-evaluation based on the forthcoming Supreme Court decision.
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