1986 (7) TMI 5 - SC - Income Tax

Priority Industry - whether in computing the profits for the purpose of deduction under section 80E of the Income-tax Act 1961 the loss incurred by the assessee in the manufacture of alloy steels could not be set off against the profits of the manufacture of automobile ancillaries - held that assessee is entitled to a deduction of 8% on the entire profits of one priority industry without deducting loss in the other priority industry.

Summary

Issues Involved:
1. Whether the loss incurred in the manufacture of alloy steels should be set off against the profits of the manufacture of automobile ancillaries when computing the profits for the purpose of deduction under section 80E of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Set-off of Losses in Alloy Steels Against Profits in Automobile Ancillaries

The primary question in the appeals was whether the loss incurred by the assessee in the manufacture of alloy steels could be set off against the profits of the manufacture of automobile ancillaries for the purpose of computing the deduction under section 80E of the Income-tax Act, 1961.

Facts and Background:
The assessee, a public limited company, engaged in the manufacture of automobile spares and alloy steels, claimed deductions under section 80E for the assessment years 1966-67 and 1967-68. The Income-tax Officer denied the full relief claimed, stating that the losses from the alloy steel industry should be set off against the profits from the automobile ancillaries industry before calculating the deduction.

High Court's Decision:
The Karnataka High Court ruled in favor of the assessee, stating that the loss from the alloy steel industry should not be set off against the profits from the automobile ancillaries industry for the purpose of section 80E deductions.

Supreme Court's Analysis:
The Supreme Court examined the object and provisions of section 80E, which provides a rebate for profits and gains from specified industries. The Court noted that the intention of Parliament was to encourage the setting up and efficient functioning of priority industries listed in the Fifth Schedule, which includes both alloy steels and automobile ancillaries.

Key Points from the Judgment:
- Separate Consideration of Industries: The Court emphasized that each priority industry should be considered on its own merits when adjudging its entitlement to the deduction under section 80E. The coexistence of multiple industries under common ownership should not result in the profits of one being diminished by the losses of another.
- Legislative Intent: The legislative intent was to reward the efficient functioning of priority industries without penalizing them for losses incurred in other industries, even if those other industries are also priority industries.
- Case References: The Court differentiated this case from others cited, such as CIT v. English Electric Co. Ltd. and Cambay Electric Supply Industrial Co. Ltd. v. CIT, clarifying that the losses or unabsorbed depreciation considered in those cases pertained to the same industry whose profits were being computed for relief under section 80E.
- Supportive Case Law: The Court agreed with the Mysore High Court's decision in CIT v. Balanoor Tea and Rubber Co. Ltd., which held that losses from a different industry (plastic business) should not be deducted from the profits of the tea industry for section 80E computations.

Conclusion:
The Supreme Court affirmed the High Court's decision, holding that for the purpose of section 80E, the profits and gains of a priority industry should not be reduced by the losses incurred in another priority industry. The appeals were dismissed with costs.

Final Judgment:
The appeals were dismissed, and the High Court's affirmative answer to the question raised in the income-tax references was upheld.

Appeals Dismissed.