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TMI Blog2004 (2) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... should be set off against the profits of another industrial undertaking for the purposes of computing deduction under section 80HH. 5. It may be noted that this issue initially arose in assessment year 1994-95 only, and no such ground was taken in respect of assessment year 1995-96. However, the Department raised an additional ground in this regard for assessment year 1995-96, which was admitted. 6. Brief facts giving rise to these appeals are these: The assessee was engaged in the business of manufacture and sale of bulk drugs. It had two units for manufacturing the same which were eligible for deduction under section 80HH. Separate Profit Loss Accounts were prepared for both the units, which revealed that there was loss in Unit No. 1, while there was profit in Unit No. 2. The assessee claimed deduction under section 80HH in respect of profits of Unit No. 2. Such claim of the assessee was based on the judgment of the Hon'ble Supreme Court in the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320. However, the Assessing Officer was of the view that the assessee was entitled to deduction only on the net profits arrived at after setting off the losses of Unit No. 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the provisions of the Act that is embedded in the profits and gains of that industrial undertaking is included in the gross total income. In other words, it is the net income from that industrial undertaking that is included in the gross total income and that net income provides the basis for determining the quantum and deduction under section 80HH of Income-tax Act, 1961." (2) The expression 'profits derived from an industrial undertaking' in section 80HH suggests that one should confine to the profits of an undertaking only including the losses of the other unit. Otherwise, the purpose of enacting such provision would be lost. Reliance was placed on the judgment of Supreme Court in the case of Canara Workshops (P.) Ltd. (3) Even if two views are possible, the view, which is favourable to the assessee should be adopted. (4) That insertion of section 80AB did not make any difference, as section 80E, which was considered by the Hon'ble Supreme Court in the case of Canara Workshops (P.) Ltd. had an in-built provision to the effect that the deduction was permissible where the total income as computed in accordance with the provisions of the Act, includes profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presently refer. After giving the matter careful consideration, we do not find it possible to accept the contention. It seems to us that the object in enacting section 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry. The deduction of eight per cent, is intended to be an index of recognition that a priority industry has been set up and is functioning efficiently. It was never intended that the merit earned by such industry should be lost or diminished because of a loss suffered by some other industry. It makes no difference that the other industry is also a priority industry. The co-existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other. The legislative intention was to give to the meritorious its full reward. To construe section 80E to mean that you must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be, in our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'total income' while in section 80HH, it has used the expression 'gross total income'. In computing either the total income or gross total income, the profits from various sources are required to be pooled together. Therefore, the first reasoning given by the Assessing Officer cannot be accepted. If the reasoning given by the Assessing Officer is accepted, then even the trading losses incurred by the assessee would also be required to be set off and such procedure will defeat the intent and object of the Legislature enacting the incentive provisions, which is not permissible in the absence of any specific provision. 12. Similarly, there is no force in the second and third reasoning given by the Assessing Officer. As noted in the preceding para, under section 80E, the legislature provided that profits attributable to priority industry should be included in the total income of the assessee, while section 80HH provides that such profits should be included in the total income. Section 80AB only provides that income of any nature specified in any section under the heading C of Chapter VIA should be computed in accordance with the provisions of the Act (before making any deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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