Gujarat H.C : Whether the deductions claimed under ss. 80HH and 80J of the IT Act, 1961 by the assessee were allowable in full as claimed?

Counsel Appeared

Mihir Joshi, for Manish R. Bhatt, for the Petitioner : Bhargav Karia, for R.K. Patel, for the Respondent

JUDGMENT

A.R. DAVE, J. :

At the instance of the Revenue, the Tribunal, Ahmedabad Bench, ‘A’, has referred to this Court for its opinion the following questions of law arising out of an order passed by the Tribunal in ITA No. 997/Ahd/1984 under the provisions of s. 256(1) of the IT Act, 1961 (hereinafter referred to as ‘the Act’).

“(1) Whether the deductions claimed under ss. 80HH and 80J of the IT Act, 1961 by the assessee were allowable in full as claimed?

(2) Whether, the Tribunal has been right in law in confirming the view taken by the CIT(A) in directing the ITO to allow both the deductions under ss. 80J and 80HH of the IT Act, 1961 in full without reducing from the deduction under s. 80J of the Act the amount of deduction under s. 80HH of the Act?”

2. The circumstances in which the questions have been referred to this Court, in a nutshell, are as under : The assessee established a new industrial undertaking in a backward area and, therefore, it was getting benefit of deduction under the provisions of ss. 80HH and 80J of the Act. For the asst. yr. 1981-82, the assessee was entitled to deduction of Rs. 55,518 under the provisions of s. 80HH whereas it was entitled to deduction of Rs. 62,515 under the provisions of s. 80J of the Act. The AO while assessing income of the assessee, took the following course for the purpose of determining the taxable income to the assessee. First of all he allowed the deduction under the provisions of s. 80HH of the Act to the assessee. The AO did not allow deduction of Rs. 62,515 under the provisions of s. 80J in toto. He deducted Rs. 55,518, the amount which the assessee was entitled to for deduction under s. 80HH, from Rs. 62,515 and thereby allowed deduction of only Rs. 6,997 (Rs. 62,515 less Rs. 55,518 = Rs. 6,997) under the provisions of s. 80J of the Act. Thus, the assessee did not get complete benefit under the provisions of s. 80J. According to the assessee, it was entitled to the entire benefit under the provisions of s. 80J, which would amount to 6 per cent of the capital employed by the assessee in the new industry.

Being aggrieved by the order of assessment, the assessee preferred an appeal before the CIT (A). The CIT(A) allowed the appeal and directed the AO to allow both the deductions, viz., under the provisions of ss. 80J and 80HH of the Act in toto, without reducing any amount from the amount deductible under s. 80J of the Act. Being aggrieved by the order passed in appeal by the CIT(A), the Revenue filed an appeal before the Tribunal.

The appeal filed by the Revenue was dismissed by the Tribunal for the reason that the CIT(A), while allowing the appeal, had followed an order passed by the Tribunal in the case of the assessee for the asst. yr. 1978-79.

Before adverting to the legal position, it is important to note certain undisputed facts. At present we are concerned with asst. yr. 1981-82. So far as the asst. yr. 1978-79 is concerned, the Tribunal, in an appeal filed before it had come to a conclusion that the assessee was entitled to deduction under ss. 80J and 80HH of the Act and the initial assessment framed by the AO was set aside. For the asst. yrs. 1979-80 and 1982-83, the Tribunal had taken a similar view in the case of the assessee and had directed the Revenue to give deduction under both the provisions. Being aggrieved by the orders passed by the Tribunal for both the years, the Revenue had approached this Court by filing IT Applns. Nos. 35 and 36 of 1988 under s. 256(2) of the Act but the said applications were rejected by this Court on 4th April, 1988. Being aggrieved by the orders of rejection, the Revenue had approached the Hon’ble Supreme Court but the Hon’ble Supreme Court had dismissed the SLPs filed by the Revenue.

So far as the asst. yr. 1980-81 is concerned, the AO had allowed deduction to the assessee under both the sections and the said assessment framed by the AO was accepted by the Revenue. The relevant provisions with which we are concerned are reproduced hereinbelow : 80HH “Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.—(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, 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.” xxx xxx xxx xxx” 80J “Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.—(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, 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 (reduced by the deduction, if any, admissible to the assessee under s. 80HH or s. 80HHA of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the manner specified in sub-s. (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year). xxx xxx xxx xxx Upon perusal of the sections referred to hereinabove, it is clear that the assessee whose total income included profits and gains derived from an industrial undertaking or the business of a hotel to which the provisions of s. 80HH applied, became eligible for deduction from such profits and gains of an amount equal to twenty per cent thereof. So far as the provisions of s. 80J are concerned, the said provisions enabled the assessee to get deduction to the extent of 6 per cent of its capital employed. Thus, upon perusal of the provisions of the sections referred to hereinabove, it is clear that the benefits which the Act gives under the above referred two sections are different. Moreover, under the provisions of s. 80HH of the Act, 20 per cent of the profits and gains are to be deducted from the profits and gains which the assessee earns from certain industries. Whereas, so far as the provisions of s. 80J are concerned, deduction is given to the assessee on the basis of certain percentage of the capital employed by the assessee in certain industries.

Mr. Mihir Joshi, learned advocate appearing for the Revenue, has submitted that the Tribunal was in error when it directed the AO to allow deduction under the provisions of ss. 80HH and 80J in full to the assessee for the relevant assessment year. According to him, as per the provisions of s. 80J of the Act, a total limit has been prescribed for the purpose of deduction under ss. 80HH, 80HHA and 80J. According to him, s. 80J prescribes an overall ceiling, which is equivalent to 6 per cent of capital employed by the assessee in the new industry. In other words, according to him, total benefit of deduction under the provisions of ss. 80HH and 80J of the Act, cannot exceed the outer limit, which is 6 per cent of the capital employed in the industry by the assessee. It has been submitted by him that upon reading the provisions of s. 80J(1) it is clear that the deduction from the profits and gains should be reduced by the deduction if any, admissible to the assessee under s. 80HH or s. 80HHA as stated in the said sub-section. He has relied upon the following portion of the said sub-section so as to submit that the legislature wanted to clarify the fact that the benefit of deduction to be given under the provisions of s. 80J should be reduced by the benefit of deduction given under the provisions of s. 80HH. “a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under s. 80HH or s. 80HHA) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the manner specified in sub-s. (1A) . .

11. On the other hand, Mr. Bhargav Karia, learned advocate appearing for the respondentassessee has submitted that the Tribunal was absolutely justified in giving the direction to the AO that the assessee should be entitled to complete deduction under the provisions of ss. 80HH and 80J as well. It has been submitted by him that the benefit under s. 80J is to be given for a period of five years as provided in s. 80J(2) of the Act. It has been further submitted by him that it is not in dispute that except for the asst. yr. 1981-82, from the asst. yrs. 1978-79 to 1982- 83, the assessee has been given benefit as interpreted by the Tribunal. Thus, out of five years, for four assessment years the assessee has got the benefit and the view expressed by the Tribunal for the years 197980 and 1982-83 has been confirmed by this Court as well as by the Hon’ble Supreme Court. He has, therefore, submitted that for the assessment year in question also, the assessee should get deduction as ordered by the Tribunal.

We have heard the learned advocates and have also gone through the relevant sections and the impugned orders. Upon perusal of the provisions of s. 80HH(9) of the Act, it is clear that when benefit of deduction under the provisions of ss. 80HH and 80J is admissible to a particular assessee, first of all benefit under the provisions of s. 80HH is to be given to the assessee. Thus, the assessee becomes entitled to the deduction under the provisions of s. 80HH first. Thereafter, the assessee gets benefit of deduction under the provisions of s. 80J of the Act. It is clear from the provisions of s. 80J(3) that if the assessee is not in a position to avail complete deduction under the provisions of s. 80J on account of not having sufficient profits, he is entitled to carry forward the deficiency and can get the whole or balance of the deficiency, as the case may be, set off against the profits and gains for the next assessment year. This fact denotes that the Revenue cannot deprive the assessee of the benefit of deduction under the provisions of s. 80J even if the assessee is not having sufficient profits to have complete advantage under the provisions of ss. 80HH and 80J in one particular year. Thus, in our opinion the submission of Mr. Joshi, learned advocate appearing for the Revenue, that s. 80J prescribes maximum ceiling for the purpose of deduction does not appear to be just and proper.

As stated hereinabove, the deductions under ss. 80HH and 80J are based on different considerations. Benefit of deduction under s. 80HH is given to those industrial units which establish their industries in a backward area whereas so far as s. 80J is concerned, benefit under the said section is given to new industrial units. Moreover, the manner in which the benefit of deduction is to be given under the said sections is also absolutely different. So fas as s. 80HH is concerned, it depends upon the amount of gross profits whereas deduction under the provisions of s. 80J is based upon the quantum of capital employed in the new industry. Otherwise also, we do not find anything to justify the submission of Mr. Joshi. Even if we look at the legislative history s. 80J was brought into force w.e.f. 1st April, 1968 so as to give benefit to those who establish new industries. It is clear that the Government wanted to see that new industries are set up and for the purpose of encouraging industrialists to set up new industries, etc., the said section was enacted. It appears that the Government was more keen to see that new industries are set up in backward area and, therefore, some additional benefit was proposed to be given to those who set up their industries in backward area and so as to see that the said purpose is served, the legislature introduced s. 80HH w.e.f. 1st April, 1974. Thus, we can very well presume that the legislature wanted to give some additional benefit to those who establish new industries in backward area. If the benefit given under s. 80J is restricted as submitted on behalf of the Revenue, in our opinion the entire object of giving additional benefit to those who establish new industries in backward area would be frustrated. Sec. 80J(3) of the Act enables the assessee to carry forward the benefit of deduction under the provisions of s. 80J of the Act to a subsequent year if the profits and gains are not sufficient to cover the benefit of deduction under s. 80J of the Act. If an overall limit or ceiling is imposed on the deduction as submitted on behalf of the Revenue, the provisions of s. 80J(3) of the Act would practically become nugatory.

15. For the reasons stated hereinabove, we are of the view that the assessee is entitled to benefit of deduction under the provisions of ss. 80HH and 80J in full as directed by the Tribunal. In our opinion, the Tribunal has interpreted the provisions of ss. 80HH and 80J correctly and we do not find any reason to opine in a different manner especially in view of the fact that for other assessment years this Court and the Hon’ble Supreme Court have also upheld a similar view of the Tribunal.

For the reasons stated hereinabove, we answer both the questions in the affirmative i.e., in favour of the assessee and against the Revenue. Reference stands answered accordingly and is disposed of with no order as to costs.

[Citation : 252 ITR 777]