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TMI Blog2024 (12) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... rial undertaking cannot be set off against the loss suffered from another industrial undertaking in view of Section 80-I(6) has no merits. CIT(A) observed that the Hon ble Supreme Court upheld that loss from the oil division of the assessee was required to be adjusted against the profits of the chemical division. CIT(A) further observed that the principle decided in the case of Dewan Kraft System (P.) Ltd. [ 2007 (2) TMI 149 - DELHI HIGH COURT] was considered and not approved by the Hon ble Supreme Court in the case of Synco Industries Ltd. (supra). Drawing support from the decision of the Hon ble Supreme Court (supra), the ld. CIT(A) was of the firm belief that the assessee was bound to set off the loss from one priority undertaking at Daman against profit from another priority undertaking at Daman. In our understanding, the Hon ble Supreme Court was seized with the question, whether a person is eligible for deduction under Chapter-VIA, when the gross total income of the assessee is determined as Nil. The Hon ble Supreme Court was of the opinion that if the gross total income of the assessee is Nil, there is no question of any deduction being allowed under Chapter VIA in computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard on the ground of enhancement of income done by the ld. CIT(A) on the ground that loss should have been adjusted from exempt income of the Daman Units. 5. Representatives of both the sides were heard at length. Case records carefully perused. 6. The entire quarrel revolves around the following observations of the ld. CIT(A):- 4.0. During the course of appellate proceedings, it was noticed that the appellant had incurred a loss of Rs. 15.89 lakhs in the Asstt.Year 2002-03 from Daman Unit- I. Such business loss of Rs. 15.89 lakhs derived from Daman Unit-I was not set-off against the profits of Rs. 98.74 lakhs derived from Daman Unit-II and profits of Rs. 167.47 lakhs derived from Daman Unit-III. Such action of the appellant in not setting-off the said business loss of Rs. 15.89 lakhs derived from Daman Unit-I against the exempt profits derived from Daman Unit-II and Daman Unit-III led me to believe, prima facie, that income chargeable to tax has been under-disclosed and also under-assessed by the said amount of Rs. 15.89 lakhs. Had the appellant adjusted the said business loss of Rs. 15.89 lakhs against the profits derived from Daman Unit- II and III, the deduction u/s. 80IB wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m one industrial undertaking cannot be set off against the loss suffered from another industrial undertaking in view of Section 80-I(6) has no merits. The ld. CIT(A) observed that the Hon ble Supreme Court upheld that loss from the oil division of the assessee was required to be adjusted against the profits of the chemical division. The ld. CIT(A) further observed that the principle decided in the case of Dewan Kraft System (P.) Ltd. (supra), was considered and not approved by the Hon ble Supreme Court in the case of Synco Industries Ltd. (supra). Drawing support from the decision of the Hon ble Supreme Court (supra), the ld. CIT(A) was of the firm belief that the assessee was bound to set off the loss from one priority undertaking at Daman against profit from another priority undertaking at Daman. The ld. CIT(A) finally concluded as under:- 4.5. I have carefully and dispassionately considered the facts of the case, the show-cause notice issued for enhancement dated 1/12/2008 and the reply of the appellant filed vide letter dated 4th December, 2008. I have also carefully listened to the arguments made by the Ld. AR. It is understood that the deduction u/s. 80IA has to be granted no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-tax (Appeals)-V, Mumbai who confirmed the view of the Assessing Officer by dismissing the same. Therefore, the appellant preferred two appeals before Income-tax Appellate Tribunal Mumbai Bench 'B', Mumbai. The Tribunal held that gross total income of the appellant had got to be computed in accordance with the Act before allowing deductions under any section falling under Chapter VI-A and as the gross total income of the appellant after setting off the business losses of the earlier years, was 'nil ', the appellant was not entitled to any deductions either under section 80HH or 80-I of the Act. In that view of the matter the Tribunal dismissed the appeals filed by the appellant. 9.1. The relevant observations/findings of the Hon ble Supreme Court read as under:- 8. If the gross total income of the assessee is determined as 'nil', then there is no question of any deduction being allowed under Chapter VI-A in computing the total income. The Assessing Officer has to take into account the provisions of section 71 providing for set off of loss from one head against income from another and section 72 providing for carry forward and set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed by the Income-tax Appellate Tribunal and the High Court. While reversing the decision of the High Court, the Supreme Court has held that in view of the express provision defining the expression gross total income in clause (5) of section 80B, for the purpose of Chapter VI-A, the gross total income must be determined by setting off, against the income, the business losses of the earlier years as required by section 72, before allowing deduction under section 80P. The contention raised on behalf of the appellant that the deduction must first be allowed under section 80-I and then only the gross total income as computed under the provisions of the Act before allowing deductions under Chapter VI-A should be worked out, cannot be accepted. As noticed earlier section 80A provides that the deductions shall be allowed out of the gross total income, whereas sub-section (2) restricts the deductions of the gross total income. It is, therefore, clear that the gross total income of the assessee has got to be computed in accordance with the Act after adjusting losses, etc., and if the gross total income so determined is positive then the question of allowing deductions under Chapter VI-A a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Chapter VI-A of the Act and as the gross total income was computed to be a loss, no relief was available to the assessee under section 80M. In CIT v. Mercantile Bank Ltd. [1988] 169 ITR 44 (Bom.) after examining the scheme envisaged by sub-section (1) of section 80A, sub-section (2) of section 80A and subsection (5) of section 80B, the Calcutta High Court has held that the gross total income defined by section 80B(5) is the total income computed under the provisions of the Act, but before making any deductions under Chapter VI-A and if the total income computed under the Act before making the deductions under Chapter VI-A is found to be a positive figure, can the deductions permissible under Chapter VI-A be given. In CIT v. Rambal (P.) Ltd. [1988] 169 ITR 50 the Madras High Court has taken the view that the relief under section 80-I would not be available if net taxable income determined is 'nil' after computation of gross total income as per the provisions of the Act, after setting off carried forward loss and unabsorbed depreciation of earlier years. In Orient Paper Mills Ltd. v. CIT [1986] 158 ITR 695 the Calcutta High Court has taken the view that deductions under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. In IPCA Laboratory Ltd. v. Dy. CIT [2004] 12 SCC 742 the appellant was a holder of an Export House Certificate. It exported self-manufactured goods as well as goods manufactured by supporting manufacturers. It had earned a profit from the export of self-manufactured goods and had suffered loss from the export of trading goods. In its return for assessment year 1996-97, it claimed deduction under section 80HHC contending that profits from the two types of export should be considered separately and the profit in respect of one could not be negated or set off against the loss from the other. Dismissing the appeal the Supreme Court ruled that although section 80HHC has been incorporated with a view to provide incentive to export houses, if there is a loss then no deduction would be available under section 80HHC(1) or (3). What is held is that in arriving at the figure of positive profit both the profits and loss will have to be considered and if the net figure is the positive profit then the assessee will be entitled to a deduction but if the net figure is a loss then the assessee will not be entitled to a deduction. In CIT v. Lucky Laboratories Ltd. [2006] 284 ITR 435 (All.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand, section 80-I(6) deals with determination of the quantum of deduction. Section 80-I (6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words includes any profits used by the Legislature in section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6) the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter VI-A of the Act. 10. In our understanding, the Hon ble Supreme Court was seized with the question, whether a person is eligible for deduction under Chapter-VIA, when the gross total income of the assessee is determined as Nil. The Hon ble Supreme Court was of the opinion that if the gross total income of the assessee is Nil, there is no question of any deduction being allowed under Chapter VIA in computing the total income. This view has been followed by the Hon ble High Court wherein the High Court has also taken the view that deduction under Chapter VIA would be available only if the computation of gross total income as per the provisions of the Act, after setting off carried forward and unabsorbed depreciation of earlier years, is not Nil. 11. The chart exhibited elsewhere clearly shows that in all the captioned assessment years under consideration, the assessee had positive gross total income from which it claimed deduction under Chapter VIA u/s 80I of the Act, in respect of eligible profits of Daman Units. In our considered opinion, the facts are totally distinguishable from the facts considered by the Hon ble Supreme Court in the case of Synco Industries Ltd. (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the new units is for carrying on the same business yet it is a distinct industrial undertaking for the two units were capable of functioning autonomously without relying on another unit. The two units are functioning distinctly inasmuch as they manufacture different products using different technology and located in separate premises although in the same compound. In the instant case, the products manufactured, technology used, premises utilized, establishment, managerial personnel and input are all different and can be said to be functioning as two separate units even separate sales-tax numbers are allotted and sale-tax benefit scheme was also granted separately. Having common management in the form of Board of Directors or incurring common expenses for two units will not be decisive factors to hold that the two units are distinct and separate business or one. Thus, it is to be held that steering unit and axle unit are two different units for the purpose of computing deduction under section 80-I. The Assessing Officer shall grant deduction without set-off of loss of one unit against the profit of another subject to the availability of gross profits as per section 80B(5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft 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 equal to twenty per cent thereof : Provided that in the case of an assessee, being a company, the provisions of this subsection shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words 'twenty per cent', the words 'twenty-five per cent' had been substituted. Section 80-I(6) reads as under: (6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision suggests that the loss of one such industrial undertaking cannot be set off against the profit of another such industrial undertaking to arrive at a computation of the quantum of deduction that is to be allowed to the assessee under section 80-I(1) of the said Act. 9. In this regard, we may refer to the decision of this Court in the case of Dewan Kraft Systems (P.) Ltd. (supra), which considered the pari materia provisions of section 80-IA(7) of the said Act. In that case, the question arose with respect to computation of the deduction in relation to three units - the Kalamb Unit, the Delhi Unit and the Noida Unit. This court held that while computing the deduction under section 80- IA of the said Act, the profits and gains of the Kalamb unit for the purposes of determining the quantum of deduction under section 80-IA(5) was to be computed as if such eligible business of the said unit was the only source of income of the assessee. This court observed that the Assessing Officer had erroneously mixed the profits of the Delhi and Noida units and had thereby restricted the deduction to the extent of business income and that such an exercise was in total disregard of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court observed as under: 13. . . . While computing the quantum of deduction under section 80-I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. However, this court finds that the non obstante clause appearing in section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80- I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of section 80A(2) of the Act nugatory and, therefore, the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by us above. In fact, the Supreme Court clearly held that while computing the quantum of deduction under section 80- I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income of the assessee in order to arrive at a deduction under Chapter VI-A. The Supreme Court also held that under section 80-I(6), for the purposes of calculating the deduction, the loss sustained in one of the units is not to be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. 13. The above discussion makes it absolutely clear that the Supreme Court decision sought to be relied upon by the learned counsel for the appellant/revenue, rather than deciding the issue in favour of the revenue, clinches the matter in favour of the assessee. In view of the foregoing discussion, the substantial question of law, referred to above, is decided in favour of the assessee and against the revenue. 13. Considering the factual matrix of the claim of deduction, in light of the judicial decision discussed hereinabove, we are of the considered view that enhancem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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