2004 (10) TMI 267 - AT - Income Tax

Interpretation of statutes - Deduction u/s 80-IA before adjustment of brought forward loss - Overriding effect of section 80AB on section 80-IA - Two busiensses - HELD THAT - It is not in dispute that the assessee has two busiensses during the relevant year. One business in the nature of industrial undertaking, which fulfils all the conditions laid down in section 80-IA and is eligible for deduction in accordance with and subject to the provisions of section 80-IA in respect of any profits and gains derived from such industrial undertaking. Another business is admittedly not eligible for deduction u/s 80-IA, The business which is eligible for deduction under section 80-IA shall, in short, hereafter be referred to as the eligible business and another business which is not eligible for deduction u/s 80-IA shall, in short, hereinafter be referred to as the non-eligible business. The assessee had brought forward unabsorbed depreciation and business loss in its non-eligible business. The cardinal principle of interpretation emerged from the maxim generalia specialibus non derogant , the special provision of section 80-IA(7), which is overriding in nature, must prevail over general provisions to the extent of its scope and limit. It is not in dispute that the said maxim lays down a rule of interpretation that a special rule controls or cuts down the general provision. The gross total income within the meaning of sections 80A, 80AB and 80B(5) read with section 80-IA(7) is, therefore, to be computed, for the purpose of determining the amount of deduction allowable under section 80-IA of the Act, in accordance with the provisions of the Act with reference to the eligible business only to which section 80-IA apply. In other words, all losses or allowances or deductions relating to non-eligible business or any other sources of income except the losses or allowances or deductions relating to eligible business to which section 80-IA apply are to be ignored to determine the amount of deduction allowable under section 80-IA and which is included in the gross total income. In other words, for the purpose of determining the amount of deduction under section 80-IA, the taxable income of the eligible business is to be ascertained and computed as if such eligible business were an independent business owned by the assessee and the assessee had no other source of income. Thus, the gross total income referred to in sections 80A(1) and (2), 80AB and 80B(5), for the purpose of determining the quantum of deduction available under section 80-IA for the relevant assessment year, would mean the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A, with reference to the profits and gains of an eligible business only to which section 80-IA apply as if such eligible business were the only source of income of the assessee during that assessment year. This is what which can be reasonably and harmoniously emerged from and derived out on conjoint reading of sections 80-IA(7), 80A, 80AB and 80B(5) of the Act. Thus, we are of the opinion that the deduction under section 80-IA in respect of profits and gains derived by the assessee from the eligible business to which section 80-IA apply, shall be allowed with reference to the amount of income derived from said eligible business as computed in accordance with the provisions of the Act and which is included in the gross total income without the same being set-off or adjusted by the losses or deductions or expenses or allowances etc. or brought forward losses or unabsorbed depreciation, as the case may be, relating to non-eligible business or any other source of income except the same being set-off or adjusted by the losses or deductions or expenses or allowances etc. or any brought forward losses or unabsorbed depreciation allowance or other allowances, as the case may be, relating to the eligible business. The Assessing Officer shall reframe the assessment accordingly. The Tribunal concluded that the deduction u/s 80-IA should be computed based on the income from the eligible business alone, without adjusting losses from non-eligible businesses. The AO was directed to reframe the assessment accordingly, providing the assessee with an opportunity to be heard. The appeal by the Revenue was dismissed.

Summary

Issues Involved:
1. Whether the deduction u/s 80-IA should be allowed before adjustment of brought forward loss.
2. Whether the order of ld. CIT(A) should be set aside and that of the Assessing Officer be restored.

Summary:

Issue 1: Deduction u/s 80-IA Before Adjustment of Brought Forward Loss

The Revenue contested the order of the ld. CIT(A) directing the Assessing Officer to allow deduction u/s 80-IA before adjusting brought forward losses. The Assessing Officer had initially denied this claim, stating that gross total income should be computed first, including brought forward losses, before allowing any deduction u/s 80-IA, relying on section 80AB. The ld. CIT(A) later directed the Assessing Officer to allow the deduction from the whole profit of the new Vanaspati Unit without prior adjustment of brought forward losses from earlier years.

The Tribunal analyzed the provisions of sections 80A, 80AB, 80B(5), and 80-IA, emphasizing the overriding nature of section 80-IA(7). It was concluded that section 80-IA provides a special mode for computing profits and gains from eligible businesses, treating them as the only source of income. Thus, the deduction u/s 80-IA should be computed without adjusting losses or deductions from non-eligible businesses. The Tribunal held that the computation of gross total income for the purpose of section 80-IA should ignore losses or deductions from non-eligible businesses.

Issue 2: Order of ld. CIT(A) vs. Assessing Officer

The Tribunal upheld the order of the ld. CIT(A), directing the Assessing Officer to reframe the assessment in light of the decision that deduction u/s 80-IA should be allowed before adjusting brought forward losses. The matter was restored to the file of the Assessing Officer for re-assessment, ensuring adequate opportunity for the assessee to be heard.

Conclusion:

The appeal filed by the Revenue was dismissed, affirming the ld. CIT(A)'s direction to allow deduction u/s 80-IA before adjusting brought forward losses. The Assessing Officer was instructed to reframe the assessment accordingly.