2004 (2) TMI 289 - AT - Income Tax

Summary

Issues Involved:
1. Computation of deduction under section 80-I of the Income Tax Act, 1961.
2. Set-off of losses from one unit against the profits of another unit for the purpose of deduction under section 80-I.
3. Inclusion of other income for the computation of deduction under section 80-I.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 80-I:
The primary issue revolves around the computation of deduction allowable to the assessee under section 80-I for the assessment year 1996-97. The Revenue contended that the deduction should be calculated only on the part of the profit included in the gross total income after setting off losses of earlier years, including the loss of unit-II and income from other sources. The CIT(A) directed the AO to allow a deduction of Rs. 21,28,859 under section 80-I, calculated at 25% on the amount of Rs. 85,15,435, which was contested by the Revenue.

2. Set-off of Losses from One Unit Against Profits of Another Unit:
The assessee had two units, with one unit showing a profit of Rs. 93,20,232 and the other unit showing a loss of Rs. 67,47,084. The AO computed the deduction under section 80-I after adjusting the loss of the second unit against the profit of the first unit. The CIT(A) upheld this adjustment, referring to earlier decisions and various judicial pronouncements. However, the Tribunal, after considering the Supreme Court decisions in Canara Workshops (P) Ltd. and English Electric Co. Ltd., held that the deduction under section 80-I should be computed without setting off the loss of unit No. 2 against the profits of unit No. 1. The Tribunal emphasized that the binding authority of the Supreme Court's decisions must be followed, which supported the assessee's contention.

3. Inclusion of Other Income for the Computation of Deduction under Section 80-I:
The AO excluded other income, including interest income amounting to Rs. 8,04,797, from the computation of deduction under section 80-I. The Tribunal upheld this exclusion, aligning with the Supreme Court's strict and narrow interpretation of 'derived from' in cases such as CIT vs. Sterling Food and Pandian Chemicals Ltd. vs. CIT. The Tribunal agreed that the interest income should not be included for the purposes of computing the deduction under section 80-I.

Conclusion:
The Tribunal decided in favor of the assessee, holding that the deduction under section 80-I should be computed on the profits of unit No. 1 without setting off the losses of unit No. 2. The Tribunal also upheld the exclusion of other income, including interest income, from the computation of the deduction under section 80-I. The appeals of both the assessee and the Revenue were disposed of accordingly.