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TMI Blog2019 (3) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... as the 'Act'). Section 80HH and other related provisions, as it existed at the relevant time, are to be taken note of. since we are concerned with the Assessment Years 1979-80 and 1980-81. Section 80HH provides deduction from income at specified rates in respect of certain industrial undertakings which are covered by the said provision. Issue is limited, namely, while computing the deduction whether it is to be available out of 'income' as computed under the Act or out of 'profits and gains', without deducting therefrom 'depreciation' and 'investment allowance'. Language of sub-section (1) of Section 80HH will have to be seen, in order to comprehend the aforesaid issue. It reads: "80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case needs a re-look. 5) These appeals had come up for hearing before a Devision Bench of this Court. After hearing the arguments advanced by the counsel for the parties on the aforesaid lines, the Division Bench noted the conflict and passed orders dated 5th November, 2014, thereby referring the matter to a larger Bench. That is how the matters have come up before this Bench. 6) In order to appreciate the controversy, we would have to go through certain provisions of the Act in order to understand broadly the scheme of taxation on the income of assessees. 7) Section 4 of the Act is a charging Section which makes total income of the previous year of every person chargeable to tax at the rates which may be specified from time to time. The said Section, thus, imposes income tax upon a person in respect of his income. Of course, income is to be charged at the rate or rates fixed for the year by the Annual Finance Act. Also the levy is to be on the total income of the assessable entity, computed in accordance with the provisions of the Act. Section 5 lays down the scope of the total income. While computing the total income, certain incomes are exempted which are not to be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred on scientific research, various other kinds of expenditures etc. The purpose is to arrive at true income after making such expenditure admissible for deduction. Deductions provided under Chapter VIA, on the other hand, are largely in the nature of incentives. For example, under Section 80CCA deductions provided is in respect of deposits under National Savings Scheme or payment to a deferred annuity plan purpose is to encourage the assessees to make deposits under these Schemes. Likewise, under Section 80CCC, deduction is given in respect of contribution to certain Pension funds. The deductions are also given, inter alia, for donations for scientific research or rural development, to newly established industrial undertakings or hotel business in backward areas, small scale industrial undertakings, housing projects, export business, businesses earning convertible foreign exchange etc. 10) It is in the aforesaid scheme, one has to consider whether deductions under Section 80HH, which falls under Chapter VIA, is to be given after applying the provisions for computation of income as mentioned in Chapter IV of the Act. Once, we examine the matter keeping in view the aforesaid natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act, in that case, its meaning has to be understood as is being understood in commercial world. 13) The aforesaid arguments is countered by Ms. Vibha Datta Makhija, learned senior counsel who appeared for the Revenue. She argues that the judgment in Cambay Electric Supply Industrial Co. Ltd. vs. CIT (1978) 2 SCC 644, noted in the Reference Order, is on Section 80E of the Act which has no bearing in the instant case that pertains to Section 80HH. She also submits that legislative intent would be clear from the fact that decision in M/s. Cloth Traders (P) Ltd. v. Additional C.I.T., Gujarat-I (1979) 3 SCC 538 led to the insertion of Section 80AB in the Act. The purpose, therefore, was to take away the effect of the judgment in M/s. Cloth Traders (P) Ltd. According to her, Section 80AB makes it clear that deductions to be made is with reference to Income included in the Gross Total Income under the heading 'C - Deduction in respect of certain incomes'. It also makes it clear that the amount of income of that nature is to be computed in accordance with the provisions of the Act (before making any deduction under this Chapter). That alone shall be deemed to be the amount of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to it was an interpretation contrary to the legislative intent and with a view to setting at naught such interpretation. Parliament, by Section 12 of Finance (No.2) Act, 1980, introduced in the Income Tax Act, 1961, Section 80-AA with retrospective effect from April 1, 1968, that is, the date when Section 80-M was originally enacted, providing that the deduction required to be allowed under Section 80-M in respect of inter-corporate dividends "shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends". It is the validity of this new Section 80-AA which is challenged in the present writ petition. But we may make it clear that what is challenged is not the prospective operation of Section 80-AA. That would clearly be unexceptionable because the Legislature can always impose a new tax burden or enhance an existing tax liability with prospective effect. But the complaint of the assessee was against retrospective effect being given to Section 80-AA, because that would have the effect of enhancing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this Act, before making any deduction under this Chapter." 7. If Section 80-P(1) is read with the definition of the expression "gross total income" contained in Section 80- B(5), it has to be held that for the purpose of making deduction under Section 80-P it is necessary to first determine the gross total income in accordance with the other provisions of the Act. This means that for the purposes of the present case the gross total income must be determined by setting off against the income the business losses of the earlier years as required under Section 72 of the Act. xx xx xx 12. Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. [(1986) 1 SCC 43 : 1986 SCC (Tax) 159 : (1985) 155 ITR 120] and H.H. Sir Rama Varma [1994 Supp (1) SCC 473 : (1994) 205 ITR 433] , it must be held that before considering the matter of deduction under Section 80-P(2) the Income Tax Officer had rightly set off the carried-forward losses of the earlier years in accordance with Section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under Section 80-P(2) and the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm profits and gains are not synonymous with the term 'income'. However, the High Court correctly felt that it was bound by the judgment of this Court. 2. Motilal Pesticides(I) Pvt. Limited (Supra) is a Judgment of this Court which affirmed the Judgment of the Delhi High Court concerning the interpretation of the very same Section 80-HH of the Income Tax Act. The assessment years also happened to be the same assessment years as involved in these appeals. 3. The question of law set out by this Court is, whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction under Section 80-HH of the Income Tax Act, 1961 on the gross profit of Rs. 34,30,035 (Liquid Section) but on the net income 3 therefrom for Assessment Year 1979-80? 4. Thereafter, this Court set out Section 80-HH in para 2 and Section 80-M in para 3 of the Judgment. It will be noticed that whereas Section 80-HH uses the expression "any profits and gains derived from", Section 80-M uses the expression "any income". Section 80-M was held, in the Cloth Traders (P) Ltd. Vs. CIT (1979) 3 SCC 538, to mean that for the purpose of that Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid words are conspicuous by their absence in Section 80-HH even though the expression "profits and gains" is the same expression used in section 80-E. 7. The finding in paragraph 4 in Motilal Pesticides (supra) that the language of Section 80-HH and Section 80-M is the same is, with respect, prima facie, incorrect. Conceptually, "any income" and "profits and gains" are different under the Income Tax Act. (See Section 80-M read with Sections 80-AA & AB, Section 80-T which speak of "any income" and Section 28 which speaks of "income from profits and gains" showing thereby that conceptually the two expressions are understood as distinct in law). 8. In paragraph 5 of the judgment in Motilal Pesticides(Supra), Shri Ramamurthi, learned senior counsel appearing for the appellant submitted that both Cloth Traders and Distributors (Baroda) were cases which pertained to Section 80-M only and this Court had no occasion to consider the application of Section 80-AB with 6 reference to Section 80-HH of the Act. The Court in repelling this contention referred to another decision in H.H. Sir Rama Varma V.CIT (1994) Supp(1) SCC 473, which judgment dealt with the then newly enacted Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductions specified in Sections 80C to 80U. As mentioned above, Sections 80C to 80U contain different subject matters and also specify particular percentage of deductions for a particular period. Significantly, Section 80A itself uses the expression 'from his gross total income' as it states that deduction is to be allowed to an assessee 'from his gross total income'. Moreover, different provisions from Sections 80C to 80U, while mentioning the percentage at which and for which period a particular deduction is allowable, also specifies as to how such a deduction is to be worked out, namely, specific percentage of deduction of which component. These sections provide different parameters. Insofar as Section 80HH is concerned, it specifically mentions that deduction @ 20% of 'profits and gains'. 19) Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. It is correctly pointed out by Division Bench in the reference order that in Motilal Pesticides case, the Court followed the judgment rendered in the M/s. Cloth Traders (P) Ltd. wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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