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TMI Blog1984 (9) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... m capital gains in the amount of Rs. 40,750. The ITO set off the assessee's income from business in the sum of Rs. 2,34,992 against the development rebate of Rs. 3,54,802 and reduced the income from business to nil. He set off the unabsorbed development rebate of Rs. 1,19,810 against the income from property and dividends aggregating to Rs. 1,03,093. The yet unabsorbed development rebate of Rs. 16,717 was then set off by the ITO against the long-term capital gains of Rs. 40,750, reducing the long-term capital gains to Rs. 24,033. These were determined to be taxable. The assessee appealed. It contended before the AAC, as it had contended before the ITO, that the unabsorbed development rebate of Rs. 16,717 should not be set off against its long-term capital gains but should be carried forward to be set off during the subsequent years against its income for those years. Both the ITO and the AAC rejected this contention. The assessee appealed to the Income-tax Appellate Tribunal. It appeared to the Tribunal that the controversy depended upon the connotation of the expression " total income " in s. 33(2) of the I.T. Act, 1961. The controversy arose from the fact that (long-term) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rebate for that assessment year under sub-section (1) or sub-section (1A) shall be only such amount as is sufficient to reduce the said total income to nil ; and (ii) the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be.' ' 71. (1) Where in respect of any assessment year the net result of the computation under any head of income other than 'Capital gains', is a loss and the assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him in the previous year relevant for that assessment year ; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on : Provided that where the whole or any part of such loss is sustained in any such business as is referred to in s. 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any subsequent assessment year as follows: (i) in so far as it relates to short-term capital assets, it shall be carried forward and set off in accordance with the provisions of subclause (i) of clause (a) and sub-section (2); and (ii) in so far as it relates to capital assets, other than short-term capital assets, it shall be carried forward and set off in accordance with the provisions of sub-clause (ii) of clause (a) and sub-section (2). (2) (a) No loss referred to in sub-clause (i) of clause (a) of sub-section (1) or sub-clause (i) or sub-clause (ii) of clause (b) of that sub-section shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed under this Act or, as the case may be, the Indian Income-tax Act, 1922 (11 of 1922). (b) No loss referred to in sub-clause (ii) of clause (a) of sub-section (1) shall be carried forward under this section, for more than four assessment years immediately succeeding the assessment year for which the loss was first computed under this Act. " As a matter of convenience, during the discussion, the figure of the assessee's busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pointed out, however, that s. 72 permitted set off of business loss carried forward only against the business profits of succeeding years, whereas s. 33(2) permitted set off of unabsorbed development rebate carried forward against the total income of succeeding years. Mr. Dastur argued, and this was his main argument, that the phrase total income " in s. 33(2) had to be construed to mean such income as was available for set off against development rebate. The option under s. 71(2)(ii) having been exercised by the assessee, its long-term capital gains of Rs. 40 were not available for set off against the development rebate and its total income was only Rs. 337. The phrase " total income of the assessee assessable for the assessment year " in s. 33(2) was the assessee's total income computed under the provisions of the Act except for specific deductions excluded by the sub-section. Mr. Dastur argued that if the expression " total income " in s. 33(2) was construed to mean, as the Revenue suggested, as assessee's income from all sources, anomalies and absurdities would result. Mr. Dastur urged that it was an anomaly that though the assessee had exercised the option of not se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also in such a case read into a statutory provision a condition which, though not expressed, was implicit as constituting the basic assumption underlying the statutory provision. The judgments of this court in Petlad Bulakhidas Mills Co. Ltd. v. Raj Singh [1959] 37 ITR 264 (Bom), and in Ajit Investment Co. Private Ltd. v. K.G. Malvandkar, Sub-Registrar, Bombay Suburban Division [1974] 95 ITR 546 (Bom), make the same point. From the latter case, a sentence or two may be quoted (p. 559): " In determining either the general object of the legislature, or the meaning of its language in any particular passage, it is obvious that the intention which appears to be most in accord with convenience, reason, justice and legal principles should, in all cases of doubtful significance, be presumed to be the true one. An intention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available. Where to apply words literally would 'defeat the obvious intention of the legislation and produce a wholly unreasonable result', we must 'do some violence to the words' and so achieve that obvious intention and produce a rational construction. " Mr. Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32. The judgment considered the argument that unabsorbed development rebate should be treated as part of business loss which is allowed to be carried forward and is given priority, by reason of s. 72(2), over unabsorbed depreciation allowance. The court was unable to accept the argument. It observed that s. 33 did not deal with any trading loss as ordinarily understood. The Madras High Court in CIT v. Coromandel Steels Ltd. [1981] 130 ITR 856, was concerned with the order of priority in the adjustment of unabsorbed development rebate, unabsorbed depreciation and unabsorbed business loss. The court noted that the allowance of development rebate, as shown by s. 33, was so limited as to reduce the total income to nil. In other words, it was not treated as a kind with the other deductions contemplated by ss. 30 to 43. It stood in a class by itself. In Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777, the Supreme Court considered s. 10(2)(vi-b) of the Indian I. T. Act, 1922, which dealt with development rebate. The provisions thereof are much the same as those of s. 33 of the I. T. Act, 1961, except that the relevant phrase there used is " the total income of the assessee for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year to nil, and so on for a period of eight years. The sub-section of a section must be construed as a whole, " each portion throwing light, if need be, on the rest " (see Madanlal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd. [1962] AIR 1962 SC 1543). So read, it is implicit in sub-s (2) of s. 33 that the development rebate which is unabsorbed by the business income must be set off against the balance of the total income. What remains yet unabsorbed is to be carried forward. This is what the Supreme Court held in the case of Rajapalayam Mills Ltd. [1978] 115 ITR 777 in regard to the similar provisions of s. 10(2)(vi-b) of the Indian 1. T. Act, 1922. Section 33, therefore, provides for the giving of a deduction by way of development rebate. It sets out how the development rebate is to be calculated. It provides that for the relevant assessment year only so much of the development rebate is to be allowed as is sufficient to reduce the Assessee's total income to nil. It provides for the carrying forward of the excess for adjustment against the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits or gains arising from the transfer of a capital asset effected in the previous year shall ... be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place ". Section 66 provides that " in computing the total income of an assessee there shall be included all income on which no income-tax is payable under Chap. VII ". Chapter VII is entitled " Incomes forming part of total income on which no income-tax is payable ". By virtue of s. 80A, " in computing the total income of an assessee, there shall be allowed from his gross total income ... the deductions specified " in the sections therein mentioned. Logically and on a plain reading, therefore, the " total income of the assessee assessable for the assessment year " must mean his income from whatever source derived which must be computed under the provisions of the Act for the relevant assessment year. The expression "total income" must bear the same connotation wherever it is used in the Act. Total income for the purpose of s. 33(2) must be computed as total income is computed for the purpose of the other provisions of the Act, except for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebate must, before it is allowed to be carried forward, be set off there against. No provision of the Act gives an assessee the option to exclude his long-term capital gains from his total income or to decline to set off the long-term capital gains against development rebate. It is not absurd or unreasonable or anomalous that the legislature should permit the carry forward of the advantage of development rebate, which can be set off against total income in subsequent years, only after it is utilised to absorb an assessee's total income for the relevant assessment year, from whatever source derived, including capital gains. There is no justification for reading the expression " total income " in s. 33(2) so as to exclude long-term capital gains. Applying the conclusions to the facts before us, the assessee's total income for the relevant assessment year must be computed to be (234 + 103 + 43) = 377. The total income is, therefore, more than the amount of the development rebate of Rs. 354. The development rebate is, therefore, fully absorbed by the total income and nothing is left to be carried forward. The question put to us is, accordingly, answered in the negative and in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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