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TMI Blog1981 (2) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,53,761 attributable to priority industry. But the gross total income was determined at Rs. 3,78,573 as above. It appears that the gross income calculated by the assessee (sic). This indicates that the priority income was offset by loss from non-priority business and the gross total income as computed above represents net priority income. Hence, relief u/s. 80-1 is allowed @ 8% on Rs. 3,78,573. Rs. 30,286 -------------------- Total income: 3,48,287 Rounded off to: 3,48,290 -------------------- " There was subsequently an appeal and then a further appeal to the Tribunal. One of the grounds raised by the revenue in the appeal before the Tribunal against the order of the AAC allowing the assessee's contention related to the mode of computation of relief under s. 80-I of the I.T. Act, 1961. The Tribunal in its order on this aspect observed, inter alia, as follows: " The second ground relates to the mode of computation of the relief u/s. 80-I of the Income-tax Act, 1961. The assessee, claimed to have made a profit of Rs. 15,53,761 in its priority industry and suffered losses in its other business activities. After setting of the losses in the other activities again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tains a definition clause, viz., s. 80B, and in sub-cl. (5) of s. 80B for the purpose of that Chap. VI-A, gross total income has been defined to mean as follows: " 'Gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter or under section 280-0 and without applying the provisions of section 64." Incidentally, we may mention that s. 2(45) of the Act defines " total income" as the total income referred to in s. 5 computed in the manner laid down in the Act. The section with which we are presently concerned is s. 80-I, which at the relevant time was as follows: "80-I. (1) In the case of a company to which this section applies, where the gross total income includes any profits and gains attributable to any priority industry there shall be allowed, in accordance with and subject to the provisions of this section, a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company. (2) This section applies to a domestic company, save in a case where such company is a company which is referred to in section 108 and has gross total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with deduction in respect of certain inter-corporate dividends, a section which was considered by the Supreme Court in a decision to which we shall have occasion to refer, s. 80-0, etc., the most material portion for our purposes appears to be the legislative mandate to allow a deduction from " such profits and gains " of an amount equal to 8 per cent. thereof, meaning thereby, the profits and gains of any priority industry of a company to which s. 80-I applied. Therefore, the Legislature enjoins, in our opinion, clearly to give certain companies, which are priority industries, from the profits and gains of such priority industry, certain relief. This intention of the Legislature is manifest from the language used in the section. There is no dispute that the present assessee is a company to which s. 80-I applies. If such a company is also entitled to other deductions, then such deductions are enjoined to be deducted from the deductions allowed under sub-s. (1) of s. 80-I. This would be manifest from a reference to sub-s. (3) of s. 80-I read in conjunction with sub-s. (1) of s. 80-I. In our opinion, the expression such profits " is descriptive of the profits of the priority indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the legislative intent. Similarly, the case of deduction if allowed in setting off the losses or other carried forward depreciation allowances of non-priority industry, then in some cases the entire profits or gains of the priority industry might be wiped out. In this case, there was a profit of Rs. 3,78,573, by setting off the losses of non-priority industry against the profit of Rs. 15,53,760, to the priority industry. But, logically, suppose a case where there will be no profit at all by setting off, then the entire purpose would be defeated if the expression "such profits" which is entitled to relief under s. 80-I was construed in the manner as contended for by the revenue. This position, therefore, appears to us to be quite manifest that the expression " such profits " to which relief as contemplated under the section is qualitative, viz., the profits of the priority industry only and descriptive of the same. This view which we are taking appears to be in consonance with the view of the Division Bench of the Mysore High Court in the case of CIT v. Balanoor Tea and Rubber Co. [1974] 93 ITR 115. There, the assessee had derived an income of Rs. 1,18,214 from tea plantation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business from the specified priority industry and the assessee cannot insist that the loss should be set off in the first instance against its business profits other than the profits from specified priority industries." We must, however, note in fairness to the learned advocate for the revenue that he did not seek any support from any circular, issued by the CBDT. We are in respectful agreement with the aforesaid observations of the Division Bench. This view of the Division Bench, in our opinion, is supported by the ratio of the decision of the, Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. There, the Supreme Court was concerned with the deduction permissible under s. 80M of the Act. The Supreme Court noted that s. 99(1)(iv) of the IT. Act, 1961, granted exemption from super-tax in respect of " any dividend from an Indian company " and these words could not mean anything else but the full amount of dividends, according to the Supreme Court, derived from an Indian company. The Supreme Court was further of the view that this did not mean dividend from an Indian company minus any expenses incurred in earning it or less any deduction allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer only to the category of income included, viz., income by way of dividends from a domestic company. The possibility that the income by way of dividend might exceed the quantum of such income inclusive of the gross total income was taken care of by s. 80M(2) which provided that the aggregate amount of deduction should not in any case exceed the gross total income. The observations of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT at p. 260 of [1979] 118 ITR 243 are instructive and, in our opinion, decisive on this aspect though the Supreme Court was not dealing with either s. 80E or 80-I of the Act. This position is further strengthened by the introduction of s. 80AA and s. 80AB by the Finance (No. 2) Act of 1980. That was an appeal which the Supreme Court was deciding from the decision of the Gujarat High Court in the case of Addl. CIT v. Cloth Traders (P.) Ltd. [1974] 97 ITR 140. It appears that on the question of construction of cl. (iv) of sub-s. (1) of s. 99, this High Court as well as the High Courts at Bombay and Madras, had taken similar views while the Gujarat High Court in the decision under appeal took a contrary view. The Supreme Court referring to the Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of dividends from a domestic company' and not to the quantum of the income so included, the words 'such income.' cannot have reference to the quantum of the income included, but they must be held referable only to the category of the income included, that is, income by way of dividends from a domestic company. The words 'such income' as matter of plain grammar must be substituted by the words 'income by way of dividends from a domestic company' in order to arrive at a proper construction of the section and if that is done, it would be obvious that the deduction is to be in respect of the whole or 60 per cent of the 'income by way of dividends from a domestic company which can only mean the full amount of dividends received from a domestic company. The deduction permissible under the section is, therefore, to be calculated with reference to the full amount of dividends received from a domestic company and not with reference to the dividend income as computed in accordance with the provisions of the Act, that is, after making deductions provided under the Act." We are also adopting this ratio of the said decision and we are of the view that the expression " where the gross tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the other provisions of the Act, one should deduct, the depreciation allowance and the development rebate as contemplated under s. 32 and s. 33 of the Act. It was contended for, the assessee that the expression " total income in s. 80E(1) was used in the commercial sense and neither a carried forward depreciation: nor a development rebate had anything to do with the commercial profits and gains attributable to the profits of the business under s. 80E(1). The Gujarat High Court was of the view that the deduction of 8 per cent. contemplated by that section was to be worked out not on the total income but on that portion of the profits and gains which were attributable to the specified industries. The Gujarat High Court was also of the view that it was not every profit and gain attributable to the specified industry which became the basis of deduction of 8 percent. because the use of the words " such " with reference to the " profits and gains " appearing in the, section, indicated that the "profit; and gains " were those which were referred to in the first part of the section which referred to those profits and gains which were included in the total income as computed in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner as would be curtailing the effect of the same, that is to say, by working out such profits by setting off carried forward depreciation or losses from non-priority industry. This view of the Gujarat High Court was also reiterated in a subsequent decision which dealt which s. 80-1, viz., in the decision in the case of CIT v. Amul Transmission Line Hardware P. Ltd.. [1976] 104 ITR 771 (Guj). The Gujarat High Court was of the view that s. 80-1 was the same as s. 80E in all material respects and followed the ratio of the previous decision and was of the view that for the purpose of working out 8 per cent. deduction in respect of the profits and gains from priority industry contemplated by s. 80E of the LT. Act, 1961, it should be made after setting off the unabsorbed loss, the depreciation and development rebate carried forward from the earlier years. For the reasons we have mentioned hereinbefore, we are, however, unable to accept this view with great respect to the Gujarat High Court. We may also point out that the Division Bench of the Madras High Court had also occasion to express a view different from that of the Gujarat High Court in the case of CIT v. E. M. Van Moppes Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits of a priority industry against the losses or depreciation of a priority industry. The Gujarat High Court in the first decision was not concerned, as we are in the present case, viz., the question of setting off of the profits of priority industries against the losses of non-priority industries. Similarly, the Mysore High Court in the case of CIT v. Balanoor Tea Rubber Co. [1974] 93 ITR 115, which we have referred to hereinbefore, was also not concerned with the same position. This distinction has to be kept in view, because though reference was made before the Supreme Court to the Mysore decision referred to hereinbefore, the Supreme Court observed that the decision had nothing to do with the facts before the Supreme Court, because in that case the question was whether the loss incurred by an assessee in a non-priority industry could be set off against the profits and gains made by the assessee in the priority business while computing deduction of 8 per cent. under s. 80E and the High Court upheld the Tribunal's View that for the purpose of allowing deduction under s. 80E, the words " such profits " occurring in that section meant the profits and gains attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tending to cover receipts from sources other than the actual conduct of the business of the specified industry'. The Supreme Court emphasised that the important words in s. 80E(1) were those that appeared in parenthesis, viz.., " as computed in accordance with the other provisions of the Act ", and, since it was income from business, the same, in view of s. 29, had to be computed in accordance with ss. 30 to 43A, which would include s. 41(2) (providing for the balancing charge). Therefore, the Supreme Court was not directly concerned with the quantum of profit which is descriptive of the expression " such profits ". Learned advocate for the revenue made an argument that in the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, no reference had been made to the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. The reasons, first, it may be, that the question involved was different. Furthermore, it must be reiterated that the decision in the case of Cloth Traders (P.) Ltd. [1979] 118 ITR 243 was decision rendered by three learned judges, while the decision in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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