2010 (2) TMI 83 - HC - Income Tax

Industrial undertaking - The assessee has two units, namely, a steering unit and an axle unit. In all these years, the assessee was incurring losses in one of the two units and profits in the other unit. The assessee claimed deduction under section 80-I of the Income-tax Act, 1961 - The Assessing Officer, while computing the deduction allowable to the assessee, set off the losses of one unit against the profits of the other unit and, thereafter, sought to compute the deduction. Commissioner of Income-tax (Appeals) also took the same stand as the Assessing Officer. The plea of the assessee before the Income-tax Appellate Tribunal was that the two units are independent units and only the profit making unit should be considered eligible for the purposes of computing the deduction under section 80-I(6) read with the provisions of section 80-1(6). The Tribunal accepted the plea of the assessee - Held that undertaking entitled to special deduction to be treated as an independent unit

Issues Involved:
1. Computation of deduction under section 80-I of the Income-tax Act, 1961.
2. Set-off of losses of one unit against the profits of another unit.
3. Interpretation of section 80-I(6) and section 80B(5) of the Income-tax Act.
4. Applicability of Supreme Court's decision in Synco Industries Ltd. v. Assessing Officer.
5. Relevance of the Delhi High Court decision in CIT v. Dewan Kraft System P. Ltd.

Issue-Wise Detailed Analysis:

1. Computation of Deduction under Section 80-I of the Income-tax Act, 1961:
The assessee claimed deductions under section 80-I for different assessment years. The Assessing Officer and the Commissioner of Income-tax (Appeals) computed the deduction by setting off the losses of one unit against the profits of another. However, the Income-tax Appellate Tribunal (ITAT) accepted the assessee's plea that the two units (steering unit and axle unit) were independent and should be considered separately for computing deductions. The Tribunal held that "the profit of such industrial undertaking is to be computed as if it is a separate assessee by itself."

2. Set-off of Losses of One Unit Against the Profits of Another Unit:
The Tribunal concluded that the two units were distinct and separate, and hence, the loss of one unit should not be set off against the profit of another. The Tribunal stated, "The Assessing Officer shall grant deduction without set off of loss of one unit against the profit of another subject to the availability of gross profits as per section 80B(5) of the Act."

3. Interpretation of Section 80-I(6) and Section 80B(5) of the Income-tax Act:
Section 80-I(6) specifies that the profits of an industrial undertaking should be computed as if it were the only source of income. Section 80B(5) defines gross total income as the total income computed before making any deductions under Chapter VI-A. The court emphasized that "each industrial undertaking or unit is to be treated separately and independently," and "the loss of one such industrial undertaking cannot be set off against the profit of another such industrial undertaking."

4. Applicability of Supreme Court's Decision in Synco Industries Ltd. v. Assessing Officer:
The Revenue argued that the Supreme Court's decision in Synco Industries Ltd. supported their stance. However, the court clarified that the Supreme Court was concerned with whether any deduction could be allowed if the gross total income was "nil." The Supreme Court distinguished between the computation of gross total income and the quantum of deduction under section 80-I(6). The court noted, "the Supreme Court did not at all hold that while computing the deduction under section 80-I(6), the loss of one eligible industrial undertaking is to be set off against the profit of another eligible industrial undertaking."

5. Relevance of the Delhi High Court Decision in CIT v. Dewan Kraft System P. Ltd.:
The court referred to its earlier decision in CIT v. Dewan Kraft System P. Ltd., which dealt with similar provisions under section 80-IA(7). The court held that the profits of an eligible unit should be computed independently, and the loss of one unit should not affect the deduction computation of another unit. The court concluded, "there is nothing in the decision in the case of Synco Industries Ltd. which would enable us to detract from the position indicated by this court in Dewan Kraft System."

Conclusion:
The court decided the substantial question of law in favor of the assessee, stating that the loss of one unit cannot be set off against the profit of another unit for computing deductions under section 80-I. The appeals were dismissed, affirming the ITAT's decision. The judgment emphasized the independent treatment of each unit for deduction purposes and clarified the interpretation of relevant sections of the Income-tax Act.

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