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TMI Blog1986 (5) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, set off the unabsorbed depreciation and unabsorbed development rebate brought forward from the immediately preceding assessment year and also deducted the profit under section 41(2) from the income from priority industry and on the balance income, he allowed the deduction under section 80-I. The assessee-company was aggrieved and, therefore, went in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, however, agreed with the assessee-company that the deduction under section 80-I should be allowed on the income from the priority industry including profit under section 41(2) before allowing the set-off of unabsorbed depreciation or development rebate of the earlier years. The Department was aggrieved by the order of the Appellate Assistant Commissioner on this issue and, therefore, came up in appeal before the Appellate Tribunal. The Appellate Tribunal held that the Appellate Assistant Commissioner was correct in allowing relief under section 80-I oil the business profits before set-off of the losses of the earlier years or unabsorbed depreciation or development rebate. From the assessment year 1966-67, a new section, being section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on account of development rebate is limited to the assessee's total income without making the said deductions and also without making any deduction under Chapter VI-A or any deduction on account of annuity deposit under section 280-O. Section 32(2) makes provision for carry forward and set-off of unabsorbed depreciation of a particular year. According to that section, where, in the assessment of the assessee, full effect cannot be given to the depreciation allowance in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sections 72(2) and 73(3), the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year. The effect of these provisions is that the unabsorbed depreciation for a particular year becomes, by legal fiction, part of the depreciation allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration before the Supreme Court in several cases and the Supreme Court held that such income should be computed in accordance with the other provisions of the Act in the manner total income is computed and as such unabsorbed depreciation and development rebate have to be adjusted in arriving at such income. In the case of CIT v. S. S. Sivan Pillai [1970] 77 ITR 354, the Supreme Court held that even if an industrial undertaking has earned profits out of its commercial activity, if it has no taxable profits, it cannot claim exemption from payment of taxes under section 15C(1) of the old Act. The Supreme Court held that in computing the profits of any industrial undertaking for any year under section 15C(2) of the old Act, unabsorbed depreciation of earlier years cannot be ignored as the unabsorbed depreciation of the previous year is deemed depreciation of the subsequent year and there is, therefore, no room for making a distinction between the unabsorbed depreciation of the previous year and the depreciation of the current year. In the case of CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640, the Supreme Court held that (p. 646). " It is clear from the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were accepted, it would lead to the absurd result that there would be two species of profits or gains of the new industrial undertaking, one for inclusion in the total income chargeable to tax and the other for determining the availability of the deduction under sub-section (1) of section 80J. That would be plainly contrary to the express language of sub-section (1) of section 80J. The proper construction of sub-section (1) of section 80J must, therefore, be taken to be that the profits or gains of the new industrial undertaking must be computed in accordance with the provisions of the Act in the same manner as they would be in determining the total income chargeable to tax and it must follow a fortiorari that if the losses, depreciation allowance and development rebate in respect of the new industrial undertaking for the past assessment years have been fully set off against the profit of the assessee from other businesses or for the matter of that, against the income of the assessee under any other head by reason of sections 70 and 71 read with sub-section (2) of section 32 and sub-section (2) of section 32A, no part of such losses, depreciation allowance or development rebate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 94 and 95): " The assessee attempted to challenge the aforesaid view by raising couple of contentions. In the first place, before the High Court it was strenuously urged, though not seriously before us, that the expression I total income appearing in section 80E(1) has been used in its commercial sense and since neither the unabsorbed depreciation nor the unabsorbed development rebate has anything to do with commercial profits attributable to the business, the said two items would not be deductible before arriving at the figure that would be exigible to the 8% deduction. It is not possible to accept this contention for more than one reason. First, in sub-section (1) of section 80E, the expression 'total income' is followed by the words 'as computed in accordance with the other provisions of this Act' in parenthesis and the mandate of these words clearly negatives the argument that the expression 'total income' has been used in the sense of commercial profits. Secondly, the expression 'total income' has been defined in section 2(45) of the Act as meaning 'the total amount of income referred to in section 5, computed in the manner laid down in this Act' and when this defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act. The deemed income under section 41(2) of the Act was also regarded as part of the profits of the priority industry. This could not have been done if profits and gains are to be computed in a commercial sense. For, the development rebate allowance is a deductible item of expenditure or cost in the process of computation of commercial profits. The decision in the case of Cloth Traders [1979] 118 ITR 243 (SC) was concerned with the interpretation of section 80M whereas Cambay Electric's case [1978] 113 ITR 84 (SC) was concerned with section 80E. The language used in those two sections are different. Where the provisions of the Act are clear as regards the manner and method of computation of the profits, the concept of commercial profits cannot be incorporated in interpreting the provisions of the Act. The question of computation of income or profits and gains was not in any way involved in Cloth Traders's case [1979] 118 ITR 243 (SC). That was directly in issue in Cambay Electric's case [1978] 113 ITR 84 (SC). The expression " as computed in accordance with the other provisions of the Act " inserted within parenthesis in section 80E(1) is now found in section 80B(5). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in Cloth Traders' case [1979] 118 ITR 243. The section which came up for consideration before the court in Cambay Electric Supply Co.'s case [1978] 113 ITR 84 was undoubtedly different one, namely, section 80E, but the reasoning which prevailed with the court in placing a particular interpretation of sub-section (1) of section 80E would equally be applicable to the interpretation of sub-section (1) of section 80M ...... The question which arose in Cambay Electric Supply Co.'s case [1978] 113 ITR 84 (SC) was whether unabsorbed depreciation and unabsorbed development rebate were liable to be deducted in arriving at the figure of profits and gains exigible to deduction of 8% contemplated in subsection (1) of section 80E. The argument of the assessee was precisely the same as the one advanced in the present case, namely, that the words ' such profits and gains ' in the latter part of sub-section (1) of section 80E were intended to refer only to the category of profits and gains referred to in the earlier part of that provision, namely, 'profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first two steps read together contain the legislative mandate as to how the total income of which the profits and gains attributable to the business of the specified industry forms a part of the concerned assessee is to be computed and according to the parenthetical clause, which contains the key words, the same is to be computed in accordance with the provisions of the Act except section 80E and since in this case it is income from business, the same will have to be computed in accordance with sections 30 to 43A which would include section 32(2) (which provides for carry forward of depreciation) and section 33(2) (which provides for carry forward of development rebate for eight years). In other words, in computing the total income of the concerned assessee, items of unabsorbed depreciation and unabsorbed development rebate will have to be deducted before arriving at the figure that will become exigible to the deduction of 8% contemplated by section 80E(1).' It will thus be seen that, according to this decision, the words 'such profits and gains' in the latter part of sub-section (1) of section 80E were referable to the quantum of the profits and gains attributable to the specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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