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TMI Blog1987 (12) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that the entire dividend of Rs.,3,30,133 was exempt under s. 85 and therefore, no income by way of dividend was adjustable against business loss of Rs. 2,64,679. The CIT(A) dealt with this issue in his order dt. 27th March, 1980. In Para 10 the CIT(A) observed as under; "10. The ITO is directed to verify the claim of the appellant in respect of allowance under s. 85A in respect of dividend received from M/s Devidayal Tube Industries Ltd. to the extent of Rs. 3,30,132. The ITO is directed to allow the same". Effect to this order was given by the 2nd ITO Com. Cir. VI, Bombay on 31st July, 1980. In a letter dt. 6th Sept., 1980 addressed to that ITO, the assessee pointed out that he had not been allowed deduction for loss under s. 85A inter alia on Rs.3,30,138 and under s. 80M of Rs. 1,98,080. In response to this application, an order under s. 154 was passed on 28th Jan., 1982. In this order, the ITO dealt with this issue as under; "The CIT(A) has directed to allow deduction under s. 85. (not 85A) to the extent of Rs. 3,30,132 in respect of the dividend income. Under s. 85 the assessee is entitled to 100per cent in respect of the dividend income. Hence, the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghtly different from the nature and scope of deduction under the corresponding s. 80J after amendment of Chapter VIA w.e.f. 1st April, 1968 by Finance (no,2) Act 1967, As stated in our order in assessee's appeal in ITA No. 4090 (Bom) 87, the exemption under s. 84 and consequential exemption under s. 85 were in the form of a rebate from tax calculated at an average rate of tax. Those sections did not contemplate straight deduction from total income of items of income of the assessee who were to be conferred with the benefit of the type that was later contemplated under ss. 80J or 80K. This aspect has been discussed at some length in our order in the assessee's appeal. The Supreme Court in Jamnadas Daga's case held that although the assessee's share of profit from unregistered firm was exempt from tax in his hands, it had to be included to ascertain his total income in order to determine the rate applicable to his other income. However, the assessee was also entitled to carry forward his share of loss in the registered firm to the succeeding year under s. 24(2). The reason for this as explained in the Board circular dt. 2nd Aug., 1967, is that the share of unregistered firm's profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of calculating rebate under ss. 80G and 80M, the total income and gross total income should be computed after setting off brought forward losses and unabsorbed depreciation of earlier years. If this finding is given in respect of brought forward losses, it would apply with greater force in respect of losses of the same year adjustable against income under other heads. At page 561-2 of the report the Court observed as under: "The decision in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT (1978) CTR (SC) 50 : (1987) 113 ITR 84 (SC) would clearly show that the total income of the assessee has to be computed in accordance with the provisions of s. 80M and s. 80G as the case may be. In computing the total income, the ITO has to take into account the provisions of s. 71 providing set off of loss from one head against income from the other and s. 72 providing for carry forward and set off business losses. The same view was expressed by the Bombay High Court in CIT vs. Mercantile Bank Ltd. in a very recent decision reported in (1987) 63 CTR (Bom) 79. In Para 13 of their order at page 430, the Court observed as under: "The gross total income, defined by s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd., being a new industrial undertaking within the meaning of s. 84 (as it then was), was exempt from tax under s. 85. The ITO passed the assessment order on 20th March, 1970. In the computation of income, he included dividend income of Rs. 4,15,523 along with an item of income from other sources amounting to Rs. 3,90,000 to arrive at a figure of Rs. 8,05,525 which along with income from interest on securities (Rs. 9) he adjusted against business loss which he determined at Rs. 8,43,992. The balance of the loss of Rs. 38,460 was carried forward by him. 3. The assessee took the matter in appeal before the AAC on several grounds, one of which read as under: "That the ITO has incorrectly assessed in our hands the dividend from M/s Devidayal Tube Industries Ltd., which is a new industrial undertaking and as such the said dividend amount being exempt under s. 85 r/w s. 84 of the IT Act 1961". The AAC (Central) Range-I, dealt with this appeal as well as the appeal for the asst yr. 1966-67 in a joint order dt. 23rd March, 1972. In this order, he set aside the assessments for both the years on the main ground of appeal challenging addition on account of unexplained hundi loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed an order under s. 154 on 22nd Jan., 1982. While dealing with the claim of relief on dividend income, the IAC gave the following finding: "Hence, the deduction under s. 85 would amount to Rs. 4,15,523. However, the assessee is not actually entitled to the benefit of this deduction on account of the set off of the business loss against the dividend income under s. 71 and the absence of any provision for carry forward of such deficiency under s. 85". Against this finding yet another appeal was filed to the CIT(A) by the assessee on 3rd March, 1982. The question raised before the CIT(A) was whether deductions under ss. 84 and 85 as they stood at the relevant time should be allowed to be carried forward if they cannot be absorbed against current year's tax liability. The CIT(A) held that the provisions of ss. 84 and 85 do not provide for any deduction from the total income but provide that income-tax shall not be payable by the assessee on certain part of the profits gains from an industrial undertaking or on certain types of dividend. From this he deduced that the question of allowing any rebate of income tax can arise only if there is any positive income. Against this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in appeal. 4. The only substantial argument taken in this appeal is that the loss to be carried forward should be quantified as per the provisions of the IT Act. The first specific ground is that the learned CIT(A) referred to the claim under s. 84 in his order, while really the Tribunal has remanded back the case to determine the claim under s. 85 and then the quantum of loss. In support of this ground Shri Kirit Mehta, learned Representative for the assessee, pointed out that an additional ground was raised on 9th Dec., 1971 before the AAC in which it was claimed that the ITO had incorrectly assessed in their hands dividends from M/s Devidayal Tube Industries Ltd., which is a new industrial undertaking and the said dividend was exempt under s. 85 r/w s. 84 of the IT Act, 1961. It was pointed out that the reference to s. 80M made by the ITO in the body of the order was wrongly mentioned. However, a claim for relief under s. 80K was made by the assessee in its letter dt. 28th July, 1978 at item 6 of the various reliefs claimed. In the course of arguments, the assessee's Representative tended to expand the scope of the claim for relief not only to s. 80K but also to s. 80M al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l other such sections under Chapter VII was that a rebate from tax liability was to be given in respect of certain types of income. Sec. 84 provided that income-tax shall not be payable by an assessee on so much of the profits and gains derived from industrial undertaking or business of a hotel etc. to which this section applies as does not exceed 6 per cent per annum on the capital employed in such undertaking. The computation of capital employed for this purpose was prescribed under the rules. The relief available in respect of income from new industrial undertaking under s. 84 was in the form of a rebate from tax. Such rebate from tax was calculated by applying the average rate of tax payable by an assessee to that portion of the tax liability which related to the income of such industrial undertaking. The income tax rebate contemplated in s. 85 was a consequential relief provided to the shareholders or owners of shares who derived income from dividend, a portion of which came out of profits of a company or an industrial undertaking to which the provisions of s. 84 applied. The rationale behind this section was that if tax rebate was to be given on the income of an industrial un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstituted by the same Finance (No.2) Act 1967. The main scheme of this Chapter was that it provided for straight deductions in respect of certain types of income or items of expenditure as specified in ss. 80-C to 80VV. Thus, the scheme of tax rebates which existed till 1968 was replaced by a scheme of straight deductions in respect of items on which the Govt. wanted to give relief to assessee. These deductions were in respect of payments as in ss. 80-C to 80GG or in respect of income as in ss. 80-H to 80T. Sec. 80K was inserted in place of s. 85 dt. 1st April, 1968. In broad terms, it provided that where the gross total income of an assessee who is an owner of shares of a company and who is chargeable to tax on income by way of dividend on shares includes any income by way of dividend, there shall be allowed in computing his total income a deduction from such income by way of dividend an amount equal to such part thereof as is attributable to the profits and gains derived by the company from and industrial undertaking or ship on which no tax is payable or in respect of a company which is entitled to deduction under s. 80J. Sec. 80A(2) provided that the aggregate amount of deductio ..... 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