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TMI Blog2000 (12) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer allowed the deduction claimed by the assessee under section 80-I at 20 per cent. of the total income and on the balance income, the Assessing Officer granted deduction under section 80HH at 20 per cent. Being aggrieved by the order of the Assessing Officer the matter was carried in appeal to the Commissioner by the assessee. The Commissioner rejected the appeal on the above point. The assessee carried the matter in appeal to the Tribunal. In view of the decision for the earlier assessment year 1987-88, the appeal was allowed. Hence, the Department has come in appeal against the said decision of the Tribunal. Mr. Desai, learned senior counsel appearing on behalf of the Department, contended that section 80HH provides for deductions to the assessees who set up industrial undertakings in backward areas. He contended that section 80-I which also falls under Chapter VI-A provides for (reductions in respect of profits from industrial undertakings set up after the certain date. He contends that both the above sections fall in Chapter VI-A. He submits that the unit in question, in the present case, attracts both the above sections. He contends that under section 80HH(9) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tum of deduction under section 80-I which was preceded by section 80J stood correspondingly reduced. He, therefore, submitted that the assessee was not entitled to claim 40 per cent. of the profit as deduction particularly in view of section 80HH(9). Per contra, Mr. Inamdar, learned counsel for the assessee, contended that section 80HH which gives deduction to the assessee for setting up industry in a backward area is on the statute from April 1, 1974. That the Legislature in its wisdom saw that the same unit may also satisfy the conditions of section 80J which dealt with deductions given to certain newly set up industries in certain places. He pointed out that at the relevant time between April 1, 1973, and April 1, 1981, section 80-I was a dead section. That, only two sections were in the field, viz., section 80HH and section 80J, and it is for this reason that the Legislature gave priority to the deduction under section 80HH in cases where the units set up by the assessee also attracted section 80J. It is for this reason that when section 80-I came to be reintroduced with effect from April 1, 1981, the Legislature introduced the bracketed portion in section 80HH(9) which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -I had come back on the statute book with effect from April 1, 1981. He submitted that section 80-I was brought back with an entirely different structure. Initially, before April 1, 1973, section 80-I deduction was based on stipulated percentage of the capital employed in the eligible industrial undertaking whereas after April 1, 1989, the deduction under section 80-I was based on stipulated percentage of profits derived from that undertaking. Similarly, he contended that under the new scheme of section 80-I, the provision for carry forward of deficiency which was there in section 80J(3), was given a go-by. In other words, there was a complete overhaul of the scheme under sections 80J and 80-I. It is for this reason that section 80-I ultimately stood omitted with effect from April 1, 1989. It is for this reason that the Legislature has continued the same phraseology in section 80HH(9) which only deals with the concept of priority and not with the quantum of deduction which was there in-built into section 80J till April 1, 1989, when it was omitted from the Income-tax Act. Mr. Inamdar further contended that the phraseology used in section 80J, as it then stood, provided that where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business before a prior stipulated cut-off date. All these above submissions are only to show the true meaning, scope and content of section 80HH(9) and the difference in the phraseology used in section 80HH(9) vis-a-vis section 80J(1) and section 80J(3) as it stood prior to April 1, 1989. He further pointed out that section 80HH falls in Chapter VI-A. That section 80B defines the expression "gross total income". This definition is relevant in the context of Chapter VI-A which covers section 80A to section 80U. He submitted that under section 80B(5), the word "gross total income" has been defined to mean an income arrived at before making any deduction under Chapter VI-A. He, therefore, contended that the Legislature has not intended to reduce the quantum of deductions falling under section 80HH or 80-I (after deletion of section 80J). He pointed out that if the Legislature intended to prescribe a ceiling on deduction under section 80HH, then the Legislature would have so stated in section 80HH, as they did, at the relevant time, under section 80J. On the contrary, in the structural change in section 80-I, no such limitation has been prescribed, particularly in view of the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manner specified in sub-section (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year) . . . (3) Where the amount of the profits and gains derived from the industrial undertaking or ship or business of the hotel, as the case may be, included in the total income (as computed without applying the provisions of section 64 and before making any deduction under Chapter VI-A) in respect of the previous year relevant to an assessment year commencing on or after the 1st day of April, 1967 (not being an assessment year prior to the initial assessment year or subsequent to the fourth assessment year as reckoned from, the end of the initial assessment year) falls short of the relevant amount of capital employed during the previous year, the amount of such shortfall, or, where there are no such profits and gains, an amount equal to the relevant amount of capital employed during the previous year (such amount, in either case, being hereafter, in this section, referred to as deficiency) shall be carried forward and set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the said. section applies, there shall be allowed, in computing the total income of the assessee, a deduction from such profits derived from such industrial undertaking equal to twenty per cent. thereof. Briefly, a special deduction is provided in cases where the assessee has established an industrial undertaking in a backward area. This section indicates that the deduction contemplated is based on profits derived from such industrial undertakings. Hence, the deduction is profit-based. As stated above, section 80HH was inserted by the Direct Taxes (Amendment) Act, 1974, with effect from April 1, 1974. It has continued to remain without any change on the statute book. Section 80J, prior to its omission with effect from April 1, 1989, also fell under Chapter VI-A. It dealt with deductions in respect of profits from newly established industrial undertakings in certain cases. The quantum of deduction under section 80J(1) was limited to six per cent. per annum of the capital employed in the new undertaking. Therefore, although the base for calculation of the quantum of deduction was supplied by the amount of capital employed, the deduction was made from the profits of the new uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the section applied, there shall be a deduction from such profits of an amount equal to twenty per cent. This section 80-I was in a way, a successor to section 80J. However, section 80J was founded on the concept of capital employed which has been done away with by the successor section 80-I which was now based on profits as is the case with deductions under section 80HH, Moreover, the concept of shortfall in section 80J(3) was also done away with by section 80-I. Section 80J, however, continued to remain on the statute book till April 1, 1989, so that the asses sees who had set up new industries before the specified date would get the tax holiday for the entire period as promised. However, after April 1, 1989, section 80J was deleted. It is for this reason that the same Finance (No. 2) Act, 1980, which reintroduced section 80-I, also brought into force, the bracketed portion in section 80HH(9). Reading the bracketed portion in section 80HH(9), it is clear that section 80-I is a successor to section 80J. Under section 80HH(9), it is provided that where the unit is entitled to relief under section 80HH and also under section 80J, then priority shall first be given to the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 14. However, according to the Department, in the above example, there is no dispute up to the first deduction under section 80HH calculated at Rs. 16. However, according to the Department, after deducting Rs. 16 from Rs. 80, the balance would be Rs. 64 and in view of section 80-I, twenty per cent. of Rs. 64 should be calculated for the purposes of calculating the deduction under section 80-I. Hence, according to the Department, the deduction under section 80-I should be Rs. 14 and not Rs. 16 (the department has applied twenty per cent. of Rs. 64 whereas the assessee claims full deduction of twenty per cent. under section 80-I of the profit of Rs. 80). As stated hereinabove, section 80HH(9) only refers to priority unlike section 80J(1) which also restricts the quantum of deduction. This was at the time when deductions were based under section 80J on the capital employed in the unit. At that time also, deduction under section 80HH was profit-based whereas deduction under section 80J was based on the capital employed in the unit. This difference has been done away with, Section 80J has been followed by section 80-I. Both section 80HH and section 80-I are based on profits. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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