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TMI Blog1975 (12) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... lso carried forward development rebate of Rs. 37,416 and depreciation allowance of Rs. 19,560. The total of carried forward loss, development rebate and depreciation allowance comes to Rs. 1,01,492. Now for the purpose of working out 8% deduction contemplated by section 80-I of the Act, the Income-tax Officer first deducted the above referred total carried forward amount of Rs. 1,01,492 from the total income of the assessee and then deducted 8% deduction contemplated by section 80-I. The stand of the assessee-company is that 8% deduction contemplated by this section should have been made on the total income of Rs. 1,59,252 before deducting the carried forward amount of Rs. 1,01,492. This contention of the assessee was rejected by the Income-tax Officer as well as by the Appellate Assistant Commissioner in appeal with the result that the assessee approached the Appellate Tribunal in the second appeal. The Tribunal relied upon the decision given by the Kerala High Court in Indian Transformers Ltd. v. Commissioner of Income-tax and held that the Income-tax Officer was wrong in calculating 8% deduction after setting off the carried forward amount of Rs. 1,01,492. It should be mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual 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 a gross total income of fifty thousand rupees or less. (3) Where a company to which this section applies is entitled also to the deduction under section 80H, the deduction under sub-section (1) of this section shall be allowed with reference to the amount of the profits and gains attributable to the priority industry or industries as reduced by the deduction under section 80H in relation to such profits and gains." We are concerned in this reference with sub-section (1) of this section. Perusal of this sub-section shows that it refers to " gross total income " and to " priority industry ". Both these expressions are statutorily defined by section 80B, clauses (5) and (7), as under : " (5) '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." Section 280-0, to which reference is made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on preference shares) within India, but does not apply to any Indian company referred to in clause (a), or to any other company referred to in clause (b), if such Indian or other company is a company referred to in section 108 and its total income as computed before applying the provisions of sub-section (1) does not exceed twenty-five thousand rupees. " If this old section 80E is put in juxtaposition, with new section 80-I read with clause (5) of section 80B of the new Chapter VI-A, it will be found that substantially the provisions of both are the same. Similarly, in both sections the interpretation, with which we are concerned in this reference, is as regards the expression " total income ", which is referred to in the first part of section 80E(1), because in both the sections the total income is required to be computed " in accordance with the other provisions of the Act ". Now, so far as the question whether the carried forward development rebate and depreciation allowance should be first set off against the income received by an assessee before deducting 8% under section 80E or section 80-I is concerned, the same has been exhaustively dealt with by us in I.T.R. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made in this sub-section (2) by the Finance (No. 2) Act of 1967 makes it clear that when the total income of an assessee is worked out to see whether it is sufficient to absorb the development rebate, wholly or partially, the said total income should be computed without making " any deduction under Chapter VI-A ". This result is brought about by inserting the words " or any deduction under Chapter VI-A or section 280-0 " in sub-section (2) and its Explanation. This amendment in section 33(2) is consistent with the statutory definition of "gross total income " given in section 80B, which emphasises that deduction of 8% which is required to be given under section 80-I of Chapter VI-A, is to be given only after setting off the carried forward development rebate. It should be noted that no such amendment was required to be made with regard to the carried forward depreciation in view of the fact that according to sub-section (2) of section 32 carried forward depreciation is deemed to be a part of the depreciation for the current year. By virtue of this deeming fiction even the carried forward depreciation operates as a charge against profits and gains of the accounting period along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1) of the Act or not. Now, if a reference is made to section 72(1), it will be found that it provides that where the net result of computation under the head " profits and gains of business or profession " is a loss and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of section 71, so much of the loss is has not been so set off, subject to the other provisons of the Chapter, shall be carried forward to the following assessment year and shall be set off against the profits and gains, if any, of any business or profession carried on by the assessee and assessable, for that assessment year. Thus, section 72(1) has a direct impact upon the computation under the head of " profits and gains of business or profession ". It is thus obvious that the correct figure of total income, which is otherwise taxable under other provisions of the Act, cannot be obtained without working out the net result of computation under the head " profits and gains of business ". As we have already pointed out in our judgment in I.T.R. No. 115/74 (Commissioner of Income-tax. v. Cambay Electric Supply Industrial Co. Ltd.), the computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d since this deduction only from profits and gains attributable to the specific activities which are referred to in the section, it must refer to the results of that particular activity. According to the High Court, therefore, that benefit should not be diminished by any other benefits conferred by the Act. The High Court further observed that the deduction contemplated by section 80E referred to the total income of a particular year, namely, the previous year, and, therefore, it was the business income of that previous year which should form the sole basis for this deduction. With great respect to the learned judges of the Kerala High Court who have decided this case, we find ourselves unable to follow the reasoning adopted by them. In our opinion, this reasoning runs counter to the express legislative mandate of section 80E that the deduction of 8% should be given only on that component of profits and gains from business of the specified industry which is obtained after computing total income " in accordance with the other provisions of the Act. " In I.T.R. No. 115/74 (Commissioner of Income-tax v. Cambay Electric Supply Industrial Co. Ltd. ), we have discussed this aspect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table to the industry specified in section 80E. (iii) If there is any component of the type referred to in clause(ii), deduct 8% thereof, from such profits and gains, and then compute the total income which becomes exigible to tax. This is the plain and simple scheme of section 80E which does not admit of any complications. This scheme is definitely suggestive of the fact that working out of the total income contemplated by the first part of the section is a condition precedent to the working out of 8% deduction contemplated by its second part." Whatever is stated above with regard to the carried forward depreciation and development rebate applies with equal force to carried forward loss. Under these circumstances we are unable to take the view which the Kerala High Court has taken in the above-referred case. The result, therefore, is that, in our opinion, the Tribunal was not justified in law in holding that relief under section 80-I of the Act should be allowed to the assessee-company at 8% without first setting off unabsorbed losses, depreciation and development rebate carried forward from earlier years. Our answer to the question, which is referred to us is, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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