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TMI Blog2002 (12) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... s Derived from Shipping Business (Rs. 20,00,020).-The learned CIT (Appeal) has erred in computing under section 80-I at nil by considering the deduction of allowance of 33AC on account of RESERVE created for utilisation for acquiring new ship within a period of eight years as expenditure out of Profit for ship Prabhu Das overlooking the following facts of the case and principles decided by the courts (page 5 of the assessment order and paras 4.1 to 4.7 of Appeal order of CIT). 3. Alternatively without prejudice to above the Learned CIT(A) has erred in not considering that let apart the income from other sources, the business income itself is ₹ 65,28,776 after deducting allowance under section 33AC as per assessment order and, therefore, the Appellant company is entitled to deduction under section 80-I from profit of the ship Prabhu Das to the extent of ₹ 20,00,020 as claimed by the appellant company. The assessee is a domestic company in which the public are not substantially interested. It is carrying on business in shipping. Besides, it also derived income by way of capital gains and dividends. 2. The first ground is that the departmental authorities are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed by the assessee in columnar form, the excess of receipts over direct expenses is shown at ₹ 1,38,06,689. This includes receipts of ₹ 4,79,904 relating to the earlier year. This was not provided for in the previous year, relevant to the assessment year 1991-92. Since deduction under section 80-I is allowed each year out of the profit of the year, this amount has to be excluded out of the receipts of this year. Thus, gross income of the year would come to ₹ 1,33,96,785. After deducting the HO expenses, depreciation and disallowance under Rule D as submitted by the assessee, net income from this Ship would work out to ₹ 75,20,175. It is claimed that while computing income from this ship, deduction allowed under section 33AC should not be taken into account for the purpose of deduction under section 80-I. It is argued that the deduction under section 32AC is allowable out of the total income (before allowing any deduction under chapter VIA). The assessee s contention is not acceptable for following reasons:- As per sub-section (6) of section 80-I, the profits and gains of the ship has to be computed as if such ship was the only source of income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the deduction (at a reduced 50%) would be available only against the income derived from the business of operation of ships. The amendment took effect from the assessment year 1996-97. The assessee s case relates to the assessment year 1992-93. It was therefore submitted that the deduction under section 33AC cannot be adjusted against the profits from the ship Prabhu Das only. It is accordingly contended that the Assessing Officer erred in holding that the deduction of ₹ 2,50,00,000 under section 33AC should be adjusted against the profits of ₹ 75,20,175 from Prabhu Das and thereafter there would be no profit left from which the deduction under section 80-I could be allowed. In the alternative, it is contended that the Assessing Officer himself has computed the income from shipping business at ₹ 65,28,776 which has also been included in the gross total income and therefore, 25% of this amount should be allowed as deduction under section 80-I. 6. In support of the above contentions, the ld. representative for the assessee drew our attention to the following orders and judgments :- (1)Tribunal s order in the assessee s own case for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt previous year. It has to be borne in mind that the sub-section starts with a non-obstante clause. Therefore, the effect of the other provisions of the Act has to be ignored while computing the profits of the ship concerned under the sub-section. This means that the effect of section 33AC, as it stood before the amendment, will also have to be ignored. This is what the Assessing Officer has done. For purposes of determining the quantum of deduction under sub-section (1) of section 80-I, he has proceeded to compute the profits of Prabhu Das in accordance with sub-section (6), by assuming that the only source of income of the assessee during the relevant previous year was the ship Prabhu Das . He has arrived at the gross income of Prabhu Das at ₹ 1,33,26,785 and after deducting the head office expenses, depreciation and making disallowance under rule 6D as submitted by the assessee, has arrived at the net profit from the ship at ₹ 75,20,175. The deduction allowable under section 33AC, about which there is no dispute, is ₹ 2,50,00,000. The Assessing Officer has adjusted this deduction against the income of ₹ 75,20,175. The entire profits from the ship woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge employed in the above section that the assessee s contention that the deduction is to be given against all sources of the assessee s income is not correct. Firstly, the section appears in Chapter IV-D - Profits and gains of business or profession, of the Act. It is thus clear that the section has relevance only to the profits and gains of the business. Under section 29, the profits and gains of the business shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 33AC falls within these sections. Thus, the section does not provide for a deduction against the total income of the assessee, but it allows deduction only against the business income, that too, the business of operation of ships. The reference in the section to the total income is only to place a cap on the quantum of deduction. The quantum of deduction cannot exceed the total income. This is all the language employed in the section, prior to the amendment means. After the amendment, the upper limit of the deduction was restricted to 50% of the profits derived from the business of operation of ships. The only effect of the amendment is to replace the upper limit by prescribing a less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum of deduction admissible under the new section 80-I even though they may actually have been set off against the profits of the assessee firm from other sources. (underlining ours). The underlined portion brings out the intention of the law clearly. 12. The judgment of the Bombay High Court in Synco Industries Ltd. (supra) does not assist the assessee s case. There, with reference to sub-section (6) of section 80-I, it was held that the loss in one division of the business cannot be taken into account because the sub-section contemplates that only the profits shall be taken into account as if it was the only source of income. In that case, the assessee had two divisions - oil division and chemical division. The assessee s contention was that the loss in the oil division cannot be taken into account because under sub-section (6), only the profits of the chemical division shall be taken into account. With reference to this contention, it was held by the High Court that the effect of section 80A(2) and section 80B(5) is not restricted by the non obstante clause in section 80-I(6). It was therefore held that under section 80-I(6), the profits of the chemical division are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 80HH was to be allowed on the profits of the industrial undertaking before deducting the investment allowance. It may be noted that section 80HH did not contain any provision similar to sub-section (6) of section 80-I. Therefore, this judgment is also of no help to the assessee. 14. We now turn to the order of the Tribunal for the assessment year 1991-92 in the assessee s own case (supra). The relevant portion of the Tribunal s order, which is undoubtedly in favour of the assessee, is reproduced below:- 3. Ground No. 2 reads as under:- 2. The learned CIT(A) has erred in confirming the reduction of company s claim from ₹ 29,56,0177 to ₹ 1,07,987 under section 80I by rejecting the contention of Appellant company that deduction under section 80-I should be allowed on the profit before deducting unabsorbed Invest Allowance of earlier year [page 6 of Assessment order and paras 18 to 20 of CIT(A) s order]. 4. After hearing both the parties, we hold that the issue stands covered in favour of the assessee and against the Revenue by the judgment of Orissa High Court in CIT v. Tarun Udyog ( 191 ITR 688 ) and the decision of the Indore Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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