1972 (5) TMI 17 - HC - Income Tax

When assessee had income from Tea Industry and had loss in another business whether deduction of 8% from profits under s. 80E is to be made from the profits of Tea or from Tea less other loss - Whether Tribunal was justified in holding that for the purpose of allowing a deduction under section 80E the words such profits occurring in that section mean the profits and gains attributable to an activity as specified in the 5th Schedule before deducting any loss incurred in any business activity ? The language of the provision is clear and the view taken by the Tribunal, in our opinion, is right. Accordingly, we answer the question referred in the affirmative and against the department.

Issues Involved:
1. Deduction under Section 80E of the Income-tax Act.
2. Computation of total income and the application of losses from other business activities.
3. Interpretation of the term "such profits" in Section 80E.
4. Relevance of the decision in Commissioner of Income-tax v. National Electrical Industries Ltd.
5. Applicability of the Central Board of Direct Taxes (CBDT) Circular.

Issue-wise Detailed Analysis:

1. Deduction under Section 80E of the Income-tax Act:
The assessee, a public limited company, claimed a deduction of 8% of the profits attributable to the tea plantation business under Section 80E of the Income-tax Act for the assessment year 1966-67. The profits from the tea plantation amounted to Rs. 1,18,214, and the claimed deduction was Rs. 9,457. The Income-tax Officer, however, allowed only Rs. 5,608 after deducting losses from other business activities.

2. Computation of Total Income and the Application of Losses from Other Business Activities:
The Income-tax Officer deducted Rs. 48,105, which was the loss incurred by the assessee in its plastic manufacturing business, from the tea business profit of Rs. 1,18,214. This resulted in a balance of Rs. 70,109, on which the 8% deduction was calculated, amounting to Rs. 5,608. The assessee contended that the deduction should be computed on the profits from the tea business alone, without setting off the losses from the plastic business.

3. Interpretation of the Term "Such Profits" in Section 80E:
The Appellate Tribunal examined the provisions of Section 80E, which allows a deduction of 8% from the profits and gains attributable to specified industries, including tea plantations. The Tribunal interpreted "such profits" to mean the profits and gains from the specified activities before deducting any losses from other business activities. The Tribunal held that the deduction should be made on the profits attributable to the tea business alone, resulting in a relief of Rs. 9,457.

4. Relevance of the Decision in Commissioner of Income-tax v. National Electrical Industries Ltd.:
The Appellate Assistant Commissioner initially relied on the decision in Commissioner of Income-tax v. National Electrical Industries Ltd., which dealt with Section 15C of the Indian Income-tax Act, 1922. However, the Tribunal distinguished this case, noting that Section 15C and Section 80E had different connotations. The Tribunal emphasized that Section 80E specifically provided for relief from the profits of the specified activities, without considering losses from other activities.

5. Applicability of the Central Board of Direct Taxes (CBDT) Circular:
The department's counsel referred to a CBDT circular which suggested that deductions under Section 80E should be computed after allowing all other deductions and set-offs. However, the court disagreed with this interpretation, stating that the language of Section 80E clearly allowed the deduction from the profits of the priority industry before considering other losses. The court concluded that the Tribunal's interpretation was correct and upheld the assessee's claim for a deduction of Rs. 9,457.

Conclusion:
The court answered the question in the affirmative, holding that the Tribunal was justified in interpreting "such profits" in Section 80E to mean the profits and gains attributable to the specified activity (tea plantation) before deducting any losses from other business activities. The assessee was entitled to the claimed deduction of Rs. 9,457, and the department's appeal was dismissed. The assessee was awarded costs of Rs. 250.

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