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TMI Blog2008 (3) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... tant income is "Nil", then the assessee cannot claim deduction under Chapter VI-A of the Income Tax Act, 1948 ('The Act' for short), is upheld. 2. Since all the appeals raise common questions of law and fact, this Court proposes to dispose them of by this common Judgment. 3. The facts emerging from the record of the case are as under:- The appellant-assessee is a Company incorporated under the provisions of the Indian Companies Act, 1956. It is engaged in the business of oil and chemicals. It has a unit for oil division at Sirohi District, Rajasthan. It has also a chemical division at Jodhpur. The appellant had earned profit in the assessment year 1990-91 and 1991-92 in both the units. However, the appellant had suffered losses in the oil division in earlier years. The appellant claimed deductions under Section 80HH and 80-I of the Act, claiming that each unit should be treated separately and the loss suffered by the oil division in earlier years is not adjustable against the profits of the chemical division while considering the question whether deductions under Sections 80HH and 80-I were allowable. The Assessing Officer noticed that the gross total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 80HH or Section 80HHA or Section 80HHB or Section 80HHC or Section 80HHD or Section 80-I or Section 80-IA [or Section 80-IB] [or Section 80-IC] [or Section 80-ID or Section 80-IE] or Section 80J or Section 80JJ, no deduction under the same section shall be made in computing the total income of a member or the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.] Section 80B. (5) "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. Section 80-I (6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel [or the business of repairs to ocean-going vessels or other powered craft] to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gross total income of the assessee. If the gross total income is found to be a net loss on account of the adjustment of losses of the earlier years or 'Nil', no deduction under this Chapter can be allowed. As noticed earlier Clause (5) of Section 80B defines the expression 'gross total income' to mean the total income computed in accordance with the provisions of the Act without making any deductions under Chapter VI-A. The effect of Clause (5) of Section 80B of the Act is that gross total income will be arrived at after making the computation as follows:- (i) making deductions under the appropriate computation provisions; (ii) including the incomes, if any, under Sections 60 to 64 in the total income of the individual; (iii) adjusting intra-head and/or inter-head losses; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc. 9. In C.I.T. v. Kotagiri Industrial Co-op. Tea Factory (1997) 224 I.T.R. 604 (S.C.) the respondent was a co-operative society. It carried on business in manufacture and sale of tea from bought tea leaves and the purchase and supply of agricultural manure to members. It was also receiving income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of 'gross total income' the Madras High Court has held that the intention of the Parliament, that the deduction under Chapter VI-A is contemplated only after the total income is computed after setting off of the unabsorbed depreciation as per Section 72 is evident and therefore Section 72 has to be applied before the total income of an assessee is determined i.e., before the deductions under Chapter VI-A are allowed. In Commissioner of Income-Tax v. Midda Ram (1984) Vol.19 Taxman Pg. 23 again the Madras High Court has taken the view that having regard to the provisions of Section 80A and 80B, before making any deduction under Chapter VI-A the total income of the assessee is to be computed in accordance with the provisions of the Act and such total income will have to be taken as gross total income from which the deduction under Chapter VI-A has to be allowed. In the said case the gross total income so computed after set off of unabsorbed depreciation was 'Nil'. It was, therefore, held that there was no positive figure from which the deduction under Chapter VI-A could be allowed. In Commissioner of Income-Tax, West Bengal-II, Calcutta v. Bengal Assam Steamship Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral principles for the purpose of deductions to be allowed in computing the total income under Section 80C to 80U and such deductions are to be allowed from the gross total income of the assessee in computing the total income. After noticing the definition of the term gross total income as given in Clause 5 of Section 80B it is held in the said decision that in the case of a company, total income computed is in accordance with the provisions of the Act before making any deduction under Chapter VI-A: what is laid down as principle is that Section 80A(2) limits the aggregate of the deductions allowable to the amount of the gross total income of the assessee and therefore deductions allowance cannot result in any negative figure or loss and therefore where the gross total income is 'Nil' or net loss in the relevant year the assessee will not be entitled to any relief under Section 80-I. In Commissioner of Income Tax v. Sundaravel Match Industries (P) Ltd. (2000) 245 ITR 605 the Madras High Court has held that losses should be set off against the profits of the industrial undertaking before granting the deduction under Section 80HH of the Income-Tax Act, 1961, in view of the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provisions of this Section the deductions specified in Section 80C to 80U whereas sub-section 2 of Section 80A says that the aggregate amount of the deductions under this Chapter shall not be in any case exceed the gross total income of the assessee and therefore the total deduction under Sections 80HH and 80I should not exceed the gross total income of the assessee. In Commissioner of Income Tax and Another v. R.P.G. Telecoms Ltd. (2007) 292 ITR 355 the Karnataka High Court has held that Section 80AB of the Income-Tax Act, 1961, would override all other Sections for the purpose of deduction under Chapter VI-A of the Act and while calculating the gross total income of the company, one has to adjust the losses from one priority unit against the profits of the other priority unit and if the resultant gross total income is 'Nil' then the assessee cannot claim deduction under Chapter VI-A. 11. The above discussion makes it very evident that predominant majority of the High Courts have taken the view that while working out gross total income of the assessee the losses suffered have to be adjusted and if the gross total income of the assessee is 'Nil' the assessee will not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the quantum of deduction, whereas, the gross total income under Section 80B(5) which is also referred to in Section 80I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of Section 80A(2) of the Act nugatory and therefore the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under Section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because Sub-Section 6 contemplates that only the profits shall be taken into account as if it was the only source of income. However, Section 80A(2) and Section 80B (5) are declaratory in nature. They apply to all the Sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non-obstante clause in Section 80-I(6) cannot restrict the operation of Sections 80A(2) and 80B(5) which operate in dif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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