1997 (3) TMI 1 - SC - Income Tax

Held that before considering the matter of deduction under section 80P(2), the Income-tax Officer had rightly set off the carried forward losses of the earlier years in accordance with section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under section 80P(2) - Tribunal was not right in law in holding that the deduction under section 80P should be allowed before set off of unabsorbed losses of earlier year

Summary

Issues:
Interpretation of section 80P of the Income-tax Act regarding deduction before set off of unabsorbed losses of earlier years.

Analysis:
The case involved the interpretation of section 80P of the Income-tax Act, specifically regarding the order in which deductions should be made before setting off unabsorbed losses of earlier years. The appellant, a co-operative society engaged in tea manufacturing and other activities, claimed a deduction under section 80P(2) from its total income. The Income-tax Officer initially set off the losses of previous years against the income, leading to the denial of the deduction under section 80P. However, the Appellate Assistant Commissioner and the Tribunal held that the deduction under section 80P should be allowed before setting off losses of previous years.

The High Court, relying on its earlier decisions and the decision in Cloth Traders (P) Ltd. v. Addl. CIT, held in favor of the assessee, stating that the deduction under section 80P should be allowed before considering the set off of carried forward losses. The Revenue argued that the deduction should be made after adjusting losses, citing relevant provisions and case laws, including Distributors (Baroda) Pvt. Ltd. v. Union of India and H. H. Sir Rama Varma v. CIT.

The Supreme Court analyzed the provisions of section 80P and the definition of "gross total income" in section 80B(5) to determine the order of deductions. Referring to Distributors (Baroda) Pvt. Ltd.'s case and H. H. Sir Rama Varma's case, the Court held that deductions under section 80P must be made after setting off carried forward losses as per section 72 of the Act. The Court emphasized that the express provision defining "gross total income" leaves no room for a different interpretation in section 80P.

In conclusion, the Supreme Court allowed the appeal, set aside the High Court's judgment, and answered the question in favor of the Revenue. The Court held that deductions under section 80P should be made after setting off carried forward losses, in line with the statutory provisions and established legal principles.