1987 (12) TMI 65 - AT - Income Tax

Issues Involved:
1. Rectification of the appellate order under Section 154.
2. Allowance of dividend income exemption under Sections 85 and 80M.
3. Set-off of business loss against dividend income.
4. Carry forward of business loss and determination of loss for the assessment year.

Detailed Analysis:

1. Rectification of the Appellate Order under Section 154:
The Revenue appealed against the CIT(A)'s order disposing of an application for rectification of the appellate order dated 27th March 1980 for the assessment year 1967-68. The ITO originally passed an order under Section 44, which was reopened under Section 146 and a fresh order was passed. The CIT(A) directed the ITO to verify the appellant's claim for allowance under Section 85A for dividend income received from M/s Devidayal Tube Industries Ltd. The ITO later limited the deduction under Section 85 to Rs. 30,001. The CIT(A) vacated this order and directed the IAC to pass another order if deemed fit. The CIT(A) finally clarified that the relief under Section 85 should be allowed and the benefit of carry forward of business loss should be computed accordingly.

2. Allowance of Dividend Income Exemption under Sections 85 and 80M:
The assessee claimed that the entire dividend income was exempt under Section 85 and should not be adjusted against business loss. The CIT(A) initially directed the ITO to allow the deduction under Section 85. However, the ITO limited the deduction, leading to further appeals. The CIT(A) later substituted 'Section 85' for 'Section 85A' and directed the ITO to allow the relief under Section 85 and compute the business loss accordingly. The Departmental Representative argued that the Supreme Court's rationale in Seth Jamnadas Daga & Ors. vs. CIT was not applicable in this context, emphasizing that the scheme of the Act had changed. The Tribunal concluded that deductions under Chapter VIA, including Section 80K, could only be allowed if the total business income under Chapter IV-D resulted in a positive income.

3. Set-off of Business Loss against Dividend Income:
The CIT(A) and the Tribunal discussed whether the dividend income should be set off against business loss. The Tribunal noted that the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. vs. CIT held that the total income should be computed after setting off losses. The Tribunal emphasized that deductions under Chapter VIA could only be allowed if the computation of total income resulted in a positive figure. The CIT(A) erred in allowing a straight deduction of dividend income under Section 85 before computing losses, and the original order of the ITO was restored.

4. Carry Forward of Business Loss and Determination of Loss for the Assessment Year:
The Tribunal examined whether deductions under Sections 84 and 85 should be carried forward if they could not be absorbed against the current year's tax liability. The CIT(A) held that Sections 84 and 85 provided for tax rebates, not deductions from total income, and could only be applied if there was a positive income. The Tribunal agreed, stating that the rebate under Section 85 could not be carried forward as there was no provision for it in the Act. The Tribunal also clarified that Section 71(1) did not give the assessee an option to not adjust income under one head against loss under another. The Tribunal dismissed the assessee's appeal, affirming that the CIT(A) was justified in his directions and no enhancement in the figure of loss was warranted.

Conclusion:
The Departmental appeal was allowed, and the assessee's appeal was dismissed. The Tribunal restored the original order of the ITO, concluding that the CIT(A) erred in allowing a straight deduction of dividend income under Section 85 before computing losses. The Tribunal also clarified that the rebate under Section 85 could not be carried forward and that Section 71(1) did not provide an option to the assessee to not adjust income against loss.

← Previous Next →