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TMI Blog1982 (11) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... but is faced with the decision of the Tribunal dated 12-2-1982 in the case of the same assessee for the earlier assessment years 1976-77 and 1977-78 in IT Appeal Nos. 530 and 531 (Mad.) of 1981, where it was held that such interest payments were only revenue expenditure and admissible deduction. The interest expenditure was incurred when the assessee took over the entire business of three concerns with all assets and liabilities and it was made on the unpaid purchase consideration. The Tribunal followed the decision of the Supreme Court in Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52 and held that it was an allowable expenditure. Since the interest accruing for this assessment year arose out of the same transaction considered in the earlier assessment years, we cannot but confirm the order of the Commissioner (Appeals) on this point. 3. The fresh point which comes for consideration in this assessment year is the claim of the assessee under section 80QQ. The assessee's business consists of two sections : one called Esvee Press which is engaged in the printing business and the other called Ananda Book Depot which is engaged in the publishing business. Admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in apportioning the common expenses between the two businesses and thereby further reducing the net profit on which the percentage of deduction could be calculated. 5. On the other hand, the assessee contends relying on the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 and on a proper construction of section 80QQ the deduction should be 20 per cent. of the gross profit and not the net profit after deduction of expenses. In the alternative it was submitted that even if the net profit is taken, it should be only the net profit as shown by the assessee in his accounts after deducting the expenditure relating to each section of the assessee's business and not on the basis of any arbitrary apportionment of certain expenses treating them as common expenditure. 6. On a consideration of the rival submissions we are of the opinion that the order of the Commissioner (Appeals) had to be affirmed even though no reasons have been given by the Commissioner (Appeals) for arriving at his conclusion. Section 80QQ was inserted in the Income-tax Act by the Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971 and was intended o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken before special deduction is allowed, namely : first, compute the total income in accordance with the provisions of the Act ; second, ascertain what part of the total income so computed represents profits attributable to the specified business ; and third, if there are such profits deduct a percentage thereof. On the same analogy in the present section also it would appear that only the net profit after deduction of expenditure and after adjustments required under the Income-tax Act would form part of the total income as computed under the Income-tax Act and, therefore, the deduction should be a percentage of that adjusted net profit. 8. But we find considerable difficulty in applying the formula of Cambay Electric Supply Industrial Company's case to section 80QQ. 1. The provision of section 80E, which was considered by the Supreme Court, was applicable annually and, therefore, in an year in which there was no profit from that business the assessee could neither get the deduction nor carry it forward. At the same time we must remember that in the converse case, where, though the profit from the particular business is a positive figure, the gross total income is a loss, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back Government appointed Shri S. Bhoothalingam, formerly Secretary, Ministry of Finance, as a one-man committee for recommending measures for simplifying and rationalising the existing structure of direct and indirect taxation. Shri Bhoothalingam recently submitted his first interim report, which relates exclusively to direct taxes, particularly income-tax. . ." ". . It is my intention, however, to introduce even in the present Budget some of the measures of rationalisation and simplification which have been recommended in the interim report." " (iii) Another measure recommended for simplifying tax calculations is the elimination of most of the areas in which calculations of rebates and reliefs have to be made at present by applying the average rate of tax on the total income. In these areas, I propose to make provisions for allowing a straight deduction of the whole or a specified proportion of the income qualifying for the rebate on relief in computing the taxable income.". The memo explaining the Finance (No. 2) Bill, 1967 also stated : " 45. New provisions for deduction, in the computation of the total income, of a specified percentage of the incomes or payments qualif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of those sections the deduction admissible is in respect of the whole of the income received by the assessee and not in respect of income computed after making the deductions provided under the Act. As observed by the Supreme Court, we derive considerable support for our view from the analogy of these sections. 4. As seen earlier, the Finance Minister had said that the intention was to give a deduction of a proportion of the income qualifying for the relief. This shows, as held by the Supreme Court, that the measure is the gross income from which the deduction is to be made and not the net income. If the revenue had understood otherwise, one would have expected reliance on Cambay Electric's case while the subsequent case of Cloth Traders was argued. We may note that the decision in Cloth Traders was given on 4-5-1979, subsequent to the decision in the case of Cambay Electric Supply Industrial Co. dated 11-4-1978. But there is no reference to the earlier case in the judgment. Hence it must be taken that even the revenue was aware of the qualitative difference in the scheme of the new Chapter VIA which has been adumbrated by the Supreme Court in Cloth Traders' case thus gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction under section 80QQ shall be allowed with reference to such profits and gains as reduced by the deductions given under those sections. This confirms the view that the profits and gains of the publishing business is taken as a measure for calculating the deduction and not the amount from which the deduction is to be given since the deduction is to be given only from the gross total income under the main provisions of this Chapter. Under section 80HH 20 per cent of the profits and gains of the undertaking established in a backward area, under section 80HHA 20 per cent of the profits of a newly established small-scale industrial undertaking in a rural area and under section 80P the whole of the amount of profits and gains of business attributable to certain activities of a co-operative society are to be allowed. Reference to section 80J shows that the tax holiday in respect of this set of sections was intended to be with reference to a percentage of capital employed without reference to the net profit or loss because the deduction is allowed to be carried forward. Hence, the scheme of the sections in Chapter VIA shows that the deductions are from the gross total income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent as each section 80QQ, 80HH, 80HHA and 80P refers to the same profit from business as the measure from which a proportion is given as a deduction. 9. From the speeches of the Finance Minister, the wording of section as well as the interpretation of similar sections in the same new Chapter VIA by the Supreme Court in Cloth Traders' case , it is apparent that the profits and gains derived from the business of publication is only the measure from which a proportion of 20 per cent is ascertained as the deduction available to the assessee. If the intention of Parliament were otherwise, namely, to deduct 20 per cent. of such profits and gains which form the component part of total income after all deductions, then the wording of the section would have been quite different to the effect that deduction shall be a proportion of the income from profits and gains of the business actually included in the total income of the assessee. In the absence of such a clear wording in the section, on the lines of the formula given in the decision of the Supreme Court in the case of Cambay Electric Supply and in view of the statement of the Finance Minister that the deduction is intended to be a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r VIA. The income by way of dividends computed in accordance with the provisions of the Income-tax Act, i.e., after allowing the necessary expenditure specified in the preceding paragraphs, forms part of the 'gross total income' of the taxpayer. It has accordingly all along been considered that any deduction in respect of inter-corporate dividends has necessarily to be calculated with reference to the amount of dividend which forms part of the 'gross total income'. In other words, it has always been the intention to grant the deduction at the specified percentage on the net amount of such dividends and not the gross amount thereof. 79. However, recently, the Supreme Court has held that the deduction admissible for the inter-corporate dividends has to be calculated with reference to the gross amount of dividends received by a domestic company from an Indian company and not with reference to the dividend income as computed in accordance with the provisions of the Income-tax Act, i.e., after making the deductions provided under the Act. The Supreme Court further held that if the gross total income of the taxpayer includes any particular category of income, whatever be the quantum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the aforesaid sections will be calculated with reference to the not income as computed in accordance with the provisions of the Act (before making any deduction under Chapter VIA) and not with reference to the gross amount of such income, subject, however, to the other requirements of the respective sections. The new section 80AB will take effect from 1st April, 1981 and will accordingly apply in relation to the assessment year 1981-82 and subsequent years. It should be carefully noted that the new section 80AB, unlike section 80AA, will not have any retrospective operation."--[1980] 4 Taxman 441-442. 12. Last but not least we must keep in mind the policy of the Act. The deductions under new Chapter VIA are no longer of the category of simple exemption from tax. They represent a new fiscal policy designed as a socioeconomic measure to regulate the economy. The real object is to encourage certain industries in certain areas, to encourage co-operative movement, etc. Such a policy cannot be thwarted by applying any principle of strict construction based on orthodox considerations of loss of revenue. The section has to be viewed as an economic tool and must be given life to achieve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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