Delhi High Court

Sybly Spinning Mills Ltd. vs Dy. Cit on 6 February, 2004

Equivalent citations: (2004) 91 TTJ Del 824

ORDER

T.N. Chopra, A.M.:

These cross-appeals, each filed by the assessed as well as the revenue, are directed against the order of the Commissioner (Appeals), dated 15-11-1999, for assessment year 199697. In revenue's appeal, following grounds have been raised :

"1. The learned Commissioner (Appeals) has erred in law and on facts in directing the assessing officer to allow deduction of Rs. 21,28,859 under section 80-I calculated @ 25 per cent on the amount of Rs. 85,15,435 (Rs. 93,20,232 profit of unit-I minus Rs. 8,04,797 income from other sources) as against the deduction of Rs. 4,42,088 allowed by the assessing officer ignoring the fact that as per provisions contained in sections 80AB and 80B(5), the deduction under section 80-I has to be calculated only on that part of the profit of the entitled industrial undertaking which is included in the gross total income and not on the total profit of industrial undertaking only. As the gross total income of the assessed after setting off losses of earlier years is Rs. 23,87,168 which also includes loss of unit-II and income from other sources, the Abwas justified in computing deduction under section 80-I at Rs. 4,42,088 after taking into consideration the profit of unit I, loss of unit II and income from other sources.

2. The learned Commissioner (Appeals) has erred in law and on facts in holding that from the gross total income the amount of deduction under section 80-I amounting to Rs. 21,28,859 as per para 1 above, has to be allowed in such a manner that the net income does not result in a loss ignoring the provisions of section 80AB which provides for the deduction only in respect of the income which is included in the gross total income determined as per provisions of section 80B(5) of Income Tax Act, 1961.

3. Learned Commissioner (Appeals) has erred in law and on facts in allowing relief under section 80-I without adequately appreciating the ratio of decision given by Hon'ble Courts as follows :

(i) Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC);

(ii) H.H. Sir Rama Varma v. CIT (1994) 205 ITR 433 (SC);

(iii) CIT v. Rockweld Electrodes India Ltd. (1995) 215 ITR 358 (Mad).

The common issue thus involves the computation of deduction allowable to the ,assessed under section 80-I for the assessment year 1996-97 under reference. In assessed's appeal, the solitary ground raised reads as under :

"On the facts and in the circumstances of the case and in law the authorities below have misinterpreted the section 80-I of the Income Tax Act, 1961, and have arbitrarily, erroneously and illegally whittled down the benefits which, it is prayed, may kindly be directed to be restored."

2. Briefly stated the facts are that the assessed-company has two units. In one unit, the assessed has declared a profit of Rs. 93,20,232 and in the second unit loss of Rs. 67,47,084 has been shown. The assessed claimed deduction under section 80-I on the profit of the first unit whereas the assessing officer computed the deduction after adjusting the loss of the second unit against the profit of the first unit.

3. Aggrieved, the assessed carried the matter in appeal before the Commissioner (Appeals). Commissioner (Appeals) referred to his earlier order dated 24-3-1998, whereby adjustment made by the assessing officer while processing the return under section 143(l)(a) was upheld observing that deduction under section 80-I is to be calculated after setting off the loss of unit No. 2 against profit of unit No. 1. In the impugned appellate order, Commissioner (Appeals) has followed his earlier decision and further placed reliance on the decision of Hon'ble Supreme Court in CIT v. V. Venkatachalam (1993) 201 ITR 737 (SC) CIT v. V. T. Joseph (1997) 225 ITR 731 (Ker) and CIT v. Smt Shanta Ben D. Shah (1997) 228 ITR 305 (Bom). Commissioner (Appeals) accordingly dismissed the appeal of the assessed.

4. Aggrieved, the assessed has come up in appeal before us.

5. Shri K. Sampath, learned counsel for the assessed, placed heavy reliance on the following decisions in support of his contention that deduction under section 80-I is to be allowed in respect of Unit No. I without setting of the loss of unit No. 2 :

(i) English Electric Co. Ltd. v. CIT (2001) 249 ITR 793 (SC);

(ii) CIT v. Visakha Industries Ltd. (2001) 251 ITR 471 (AP).

Further reliance is placed on the decision of the Supreme Court in the case of CIT v. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC).

5.1 Learned counsel submitted that the aforesaid decisions are directly on the issue and, therefore, no contrary view would hold the field. He further contended that the quantum of deduction under section 80-I has to be computed in terms of section 80AB without setting of the loss of the other unit. Thereafter, however, the quantum of deduction would be available against the gross total income of the assessed in terms of the provisions of section 80B(5). Learned counsel further submitted that the same proposition has been followed even in the decisions being relied upon on behalf of the department.

6. Smt. Vandana Verma, learned Senior Departmental Representative, on the other hand, supported the impugned order of the Commissioner (Appeals) and placed reliance on the following decisions :

(i) CIT v. Macmillan Co. of India Ltd. (2000) 243 ITR 403 (Mad);

(ii) CIT v. Sundaravel Match Industries (P) Ltd. (2000) 245 ITR 605 (Mad);

(iii) Synco Industries Ltd. v. Assessing Officer & Ors. (2002) 254 ITR 608 (Bom).

7. We have carefully considered the rival submissions and gone through the various judicial authorities cited by the learned representatives before us. At the outset, we may point out that the Delhi Bench of the Tribunal in the case of Bajaj Motors (P) Ltd. has considered a similar issue in ITA No. 246/Del/1998 for assessment year 1994-95. One of us, the AM, was a party to this decision. In this decision, a view has been taken that deduction under section 80-I is to be computed after setting off loss of the other unit of the assessed. However, it appears to us that the view taken by the Tribunal is clearly at variance with the direct decisions of Supreme Court in Canara Workshops (P) Ltd. (supra) and English Electric Co. Ltd. (supra) cited by the learned counsel. Since both these decisions laid down the law which is binding in view of constitutional directive as contained under Art. 141 of the Constitution, we are inclined to.take a view respectfully following these decisions of the Hon'ble Supreme Court and hold that while computing deduction under section 80-I, loss of unit No. 2 would not be set off against profits of unit No. 1 as claimed by the assessed. Since we are making a departure from the earlier decision of the Tribunal, we consider it necessary to specifically consider and discuss the various judicial pronouncements which have been relied upon before us by both the sides.

8. The landmark judgment of the Hon'ble Supreme Court in Canara Workshops (P) Ltd. (supra) has considered the question of set off of losses shown in one industry by the assessed against profits of another industry for the purpose of computation of deduction under section 80E which dealt with the priority industry. The question considered by the Apex Court was whether in computing the profits for the purpose of deduction under section 80E of the Income Tax Act, 1961, the loss incurred by the assessed in the alloy steel division could be set off against the profits of manufacture of automobile ancillary. Both the industries were covered under section 80E. While taking this view, the Supreme Court overruled contrary decision of Madras High Court in the case of CIT v. English Electric Co. Ltd. (1981) 131 ITR 277 (Mad). The Supreme Court has approvingly referred to the decision of the Calcutta High Court in CIT v. Bellis & Morcom (I) Ltd. (1982) 136 ITR 481 (Cal). The Supreme Court observed at p. 326 of the report, "We may refer at this point to CIT v. Belliss & Morcom (I) Ltd. (1982) 136 ITR 481 (Cal), a decision of the Calcutta High Court to which one of us (Sabyasachi Mukharji, J.) was a party. That decision supports the view taken by us in so far as it lays down that in applying section 80-I of the Income Tax Act (which replaced section 80E), it is not permissible to compute the profits of the priority industry respecting which the relief is claimed, by taking into account the depreciation loss from other industries. No doubt the depreciation loss arose in that case from non-priority industries, but in view of what we have said earlier, that should make no difference whatever.)

9. The Supreme Court has further referred with approval to the decision of Mysore High Court in CIT v. Balanoor Tea & Rubber Co. Ltd. (1974) 93 ITR 115 (Mys). It appears to us that Canara Workshop (P) Ltd.'s judgment (supra) is the basic decision which supports the case of the assessed and any contrary view would, therefore, not be permissible.

10. In English Electric Co. Ltd. v. CIT (supra), the Supreme Court has held that the assessed would be entitled to deduction under section 80E on the profits of a priority industry without adjusting of losses in non-priority industry. In this decision, Supreme Court placed reliance on its earlier decision in Canara Workshops (P) Ltd. (supra).

11. The next decision cited by the learned counsel has been rendered by Andhra Pradesh High Court in CIT v. Visakha Industries Ltd. (supra). This decision has been rendered in the context of section 80-I of the Act. The High Court has heavily relied upon Canara Workshops (P) Ltd.'s case (supra) and observed that, "A perusal of sections 80AB, 80B, 80HH and 80J of the Income Tax Act, 1961, shows that section 80B refers to profits in respect of which deductions are available under various provisions referred to in Chapter VI-A of the A7ct. According to the said section, for the purpose of computing the deduction under the specified section, the amount of income, which was included in the gross total income as computed in accordance with the provisions of sections 80HH and 80-I of the Act, the benefit of deduction is referable only to the profits and gains derived from an industrial undertaking computed in accordance with the provisions of the Act, which was included in the gross total income of the assessed. The deduction is not referable to the gross total income of the assessed but is only with reference to the income of that particular industrial undertaking alone. The deduction is referable to "such profits and gains" included in the gross total income of the assessed. To be more explicit, the deduction is to be given only in respect of the profits and gains of an industrial undertaking included in the gross total income of the assessed and not from the gross total income of the assessed. The intention of the legislature is to provide the benefit of deduction from the profits and gains of an industrial undertaking, which fulfills the conditions specified in the respective provisions of the Act. The said benefit is an incentive intended to boost industrial activity. Hence, the proper interpretation is that the deduction shall be in respect of the profits and gains of an industrial undertaking specified in the provisions of the Act and not with reference to the total profits of the assessed." The decision directly supports the case of the assessed.

12. The next decision which needs to be referred is CIT v. Siddaganga Oil Extractions (P) Ltd. (1993) 201 ITR 968 (Kar). In this decision, the High Court upheld the view taken by the Tribunal that deduction under section 80HH should be allowed in respect of the solvent plant of the assessed without setting off the loss incurred in respect of the hydro-generation plant.

13. We may next refer to the decisions cited by the learned Departmental, Representative in support of revenue's case. Learned Departmental Representative has mainly relied upon the two decisions of Madras High Court, namely, CIT v. Macmillan Co. of India Ltd. (supra) and CIT v. Sundaravel Match Industries (P) Ltd. (supra). In Macmillan's case (supra) while assessed had made a profit in the business of printing and publishing,. it had suffered a loss in its business of trading. The High Court held that the deduction under section 80QQ, available in the business of printing and publishing was to be calculated after excluding the loss suffered in the trading activity. While taking this view, the court referred to two decisions of Supreme Court, namely, CIT v. Canara Workshops (P) Ltd. (supra) and H.H. Sir Rama Varma v. CIT (supra). The court further observed that in Canara Workshops (P) Ltd.'s case (supra), Supreme Court did not consider the provisions of section 80AB while the question has been specifically considered by the Supreme Court in the latter case of H.H. Sir Rama Varma (supra). On these grounds, Madras High Court observed that the latter decision of the Supreme Court was binding. With great respect to their for lordships, we feel that both the decisions of the Supreme Court have been rendered in the context of different set of facts and issues involved and laid down good law which is binding in view of Art. 141 of the Constitution. The binding authority of Canara Workshops (P) Ltd.'s case (supra) is not in any manner diluted or eroded by the latter decision of the Supreme Court in the case of H.H. Sir Rama Varma (supra). In fact, we see no conflict in these two decisions of the Hon'ble Supreme Court. In Canara Workshops (P) Ltd. (supra), as we have discussed above, the issue was whether profit of one unit is to be set off against loss of another unit for the purpose of computation of deduction under section 80E whereas in H.H. Sir Rama Varma's case (supra), the issue involved was entirely different. The assessed in that case had made long-term capital gains during the year relevant for assessment year 1970-71. He had brought forward a long-term capital loss from previous assessment years to be set off. The assessed claimed deduction under section 80T of the Income Tax Act, 1961. The Supreme Court held that deduction is to be given only for the amount of capital gains after the brought forward capital loss is set off. This proposition is not in any manner in conflict with the ratio of Canara Workshops (P) Ltd.'s (supra) decision. We, therefore, feel, with great respect to their Lordships of the Madras High Court, that the view taken by the Hon'ble Madras High Court does not appear to be in conformity with the ratio of Canara Workshops (P) Ltd.'s case (supra) which holds the field and is binding as law of the land.

14. Before parting with this order, we would like to point out that in Visakha Industries Ltd.'s case (supra), the Andhra Pradesh High Court has taken note of the decision of H.H. Sir Rama Varma (supra) relied upon by the revenue and observed that the decision does not in any manner advance the case of the department for set off of loss of one unit against profit of another unit for computing deduction under section 80-I. The observations of the Andhra Pradesh High Court thus fortify the view taken by us above.

15. One decision which remains to be considered is the decision rendered by Bombay High Court in Synco Industries Ltd. v. Assessing Officer & Ors. (supra) relied upon by the learned Departmental Representative. This decision does not support the case of the revenue. In this decision, the gross total income of the assessed before allowing deduction under Chapter VI-A was nil. The assessing officer, therefore, held that assessed is not entitled to any deduction under sections 80HH and 80-I in view of the specific provisions contained under section 80A(2). The Bombay High Court upheld the view and observed that section 80A(2) and section 80B(5) of the Income Tax Act, 1961, will apply to all the sections under Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore, the non obstante clause in section 80-I(6) cannot restrict sections 8OA(2) and 80B(5) since they operate in different spheres, This decision does not in any manner lay down the proposition as canvassed by the learned Departmental Representative that deduction under section 80-I is to be calculated on the profits of one unit after set off of loss of the other unit. What the High Court has laid down is to place a ceiling on the quantum of deduction in view of section 80A(2). In so far as the quantum of deduction is to be calculated, such calculation has to be made on the basis of profits of the unit without any set off of losses incurred by the assessed in any other unit. In fact, the High Court has clarified this point at p. 611 of the report by giving a hypothetical example by pointing out that if the assessed has profits of Rs. 80 from the eligible industrial unit and simultaneously if there was a loss of another unit of Rs. 50 then the gross total income would be Rs. 30. However, for the purposes of deduction under sections 80HH and 80-I, deduction available would be Rs.'16 each and total deduction would be Rs. 32. However, in view of section 80A(2), the deduction under Chapter VI-A is restricted to Rs. 30 only. This clearly shows that Bombay High Court decision in fact supports the view being taken by us I in the present decision. Reference may further be made to a similar proposition laid down by the Bombay High Court in CIT v. Nima Specific Family Trust (2001) 165 CTR (Bom) 518: (2001) 248 ITR 29 (Bom).

16. It is in the light of the aforesaid discussion that we proceed to take a view contrary to the view taken by Delhi Bench of the Tribunal in Bajaj Motors (P) Ltd.'s case (supra) even though one of us, the AM, was a party to that decision and in fact has written the judgment in that case..

17. For the aforesaid reasons, we hold that the view taken by the Commissioner (Appeals) directing the assessing officer to allow deduction under section 80-I on the profits of unit No. 1 without set off of losses of unit No. 2 is correct and is hereby sustained.

18. The issue of set off of loss of one unit against the eligible profit of the first unit for the purposes of computation of deduction under section 80-I is thus decided in favor of the assessed as above. No other issue having a bearing on the computation of deduction under section 80-I has been argued before us. From the computation of deduction under section 80-I, we find that other income which includes interest income amounting to Rs. 8,04,797 has been excluded by the assessing officer for the purposes of computation of deduction under section 80-I. This appears to be in conformity with the strict and narrow interpretation of 'derived from' made by Hon'ble Supreme Court in various decisions, namely, CIT v. Sterling Food (1999) 237 ITR 579 (SC) and Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC). On this issue, we would, therefore, uphold the treatment accorded by the assessing officer.

19. With these observations, the appeal of the assessed as well as the revenue are disposed of.