1994 (8) TMI 66 - AT - Income Tax

Assessment Year Backward Area Gross Total Income Industrial Undertaking Investment Allowance Profits And Gains

Issues Involved:
1. Computation of deduction under section 80HH of the Income-tax Act before deducting investment allowance.
2. Interpretation and application of section 80AB of the Income-tax Act.
3. Judicial precedents and their applicability to the case.

Detailed Analysis:

1. Computation of Deduction under Section 80HH Before Deducting Investment Allowance:

The primary issue in this case was whether the deduction under section 80HH should be computed before or after deducting the investment allowance from the profits and gains of the industrial undertaking. The assessee company declared a total income of Rs. 39,87,467, while the Assessing Officer computed the total income at Rs. 89,98,259 before allowing deductions for investment allowance, depreciation, and other deductions under sections 80G and 80HH. The Assessing Officer deducted the investment allowance and depreciation, totaling Rs. 27,39,928, from the income, resulting in Rs. 62,58,331. The deduction under section 80HH was then computed on this reduced amount.

The CIT (Appeals) directed the Assessing Officer to compute the deduction under section 80HH before deducting the investment allowance, which was contested by the revenue.

2. Interpretation and Application of Section 80AB:

The revenue argued that the computation made by the Assessing Officer was correct based on the provisions of section 80AB, which states that the amount of income for deductions under Chapter VIA should be computed in accordance with the provisions of the Income-tax Act before making any deductions under the said Chapter. This implies that deductions such as investment allowance should be considered before computing the deduction under section 80HH.

The assessee's counsel relied on various High Court decisions, including the Orissa High Court in CIT v. Tarun Udyog and the Karnataka High Court in CIT v. H. M. T. Ltd., which supported the view that deductions under section 80HH should be computed on the gross profits without deducting the investment allowance.

3. Judicial Precedents and Their Applicability:

The assessee's counsel cited several High Court decisions favoring their stance, including:
- Orissa High Court in CIT v. Tarun Udyog, which held that relief under section 80HH should be allowed on the profits before deducting the investment allowance.
- Karnataka High Court in CIT v. H. M. T. Ltd., which held that special deduction under section 80J should be computed without deducting depreciation and investment allowance.
- Karnataka High Court in CIT v. Siddaganga Oil Extractions (P.) Ltd., which held that losses from other units should not be set off against the profits of the industrial undertaking for section 80HH deductions.

However, the counsel also acknowledged contrary decisions:
- Gujarat High Court in Paushak Ltd v. CIT, which held that unabsorbed losses and depreciation must be deducted before computing special deductions under section 80HH.
- Delhi High Court in Gedore Tools (India) (P.) Ltd. v. CIT and Motilal Pesticides (India) P. Ltd. v. CIT, which supported the view that deductions should be computed on the net income.

The Tribunal noted that the decisions favoring the assessee did not consider section 80AB, while the contrary decisions did. The Tribunal emphasized the Supreme Court's decision in H.H. Sir Rama Varma v. CIT, which interpreted similar provisions and held that deductions should be computed on the net income as per the Act's provisions.

Conclusion:

The Tribunal concluded that the CIT (Appeals) was not justified in directing the Assessing Officer to compute the deduction under section 80HH without deducting the investment allowance. The decision was based on the Supreme Court's ruling in H.H. Sir Rama Varma's case, which clarified that deductions should be computed on the net income after considering all relevant deductions under the Act. The Tribunal allowed the revenue's ground, reversing the CIT (Appeals)'s direction.

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