High Court Of Madras
Asvini Cold Storage (P) Ltd. vs. CIT
Section 80AB, 80HHC
Asst. Year 1992-93
P.D. Dinakaran & Mrs. Chitra Venkataraman, JJ.
Tax Case (Ref.) No. 305 of 2001
3rd January, 2007
Counsel Appeared :
R. Vijayaraghavan, for the Assessee : Ms. Pushya Sitaraman, for the Revenue
JUDGMENT
Mrs. Chitra VenkataramaN, J. :
The present reference at the instance of the assessee relates to the asst. yr. 1992-93. The question relates to the relief under s. 80HHC. The following are the questions of law raised in the reference under s. 256(1) of the IT Act, 1961 :
“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the unabsorbed depreciation and unabsorbed investment allowance of earlier years should be set off while computing the profits of business for the purpose of determining the relief under s. 80HHC ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the entire amount receivable under an agreement for sale of goods should be treated as sale consideration for purposes of computing relief under s. 80HHC ?
(iii) Whether, on the facts and in the circumstances of the case, the Tribunal erred in rejecting the ground raised by the applicant regarding computation of relief under the proviso to s. 80HHC(3) in respect of incentives received by the applicant ?
(iv) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have decided the claim of the applicant regarding computation of relief under the proviso to s. 80HHC(3) in respect of incentives received inasmuch as the relief under s. 80HHC was on appeal before the Tribunal ?
(v) Whether, on the facts and in the circumstances of the case, the Tribunal, having come to the conclusion that the CIT(A) has not dealt with the issue on appeal before him, should have remitted the matter back to the CIT(A) and not dismissed the appeal of the applicant on this issue ?”
It is seen that the assessing authority deducted the unabsorbed depreciation and the unabsorbed investment allowance carried forward from earlier years in computing the profits and gains from business and calculated deduction under s. 80HHC. The contention of the assessee was that the unabsorbed depreciation and investment allowance could not be set off against the profits and gains of business for the purpose of computing the relief under s. 80HHC. Consequently, they were entitled to the relief in terms of sub-s. (1A) of s. 80HHC.
Aggrieved by the order rejecting the relief, an appeal was preferred before the CIT(A), who also rejected the contention of the assessee. On further appeal before the Tribunal, the assessee applicant took the contention that s. 80HHC is an independent section and that the deduction had to be worked out in terms of the provisions contained therein. Consequently, given the scheme of s. 80HHC, the profit under s. 80HHC was not to be computed in a normal manner. The Tribunal rejected the contention, taking the view that in terms of s. 80AB, the unabsorbed depreciation and the unabsorbed investment allowance were to be deducted from the profits and gains of thebusiness for the purpose of determining the relief under s. 80HHC. Thus, the Tribunal confirmed the orders of the authorities below. Aggrieved by the said view, the assessee preferred a petition under s. 256(1) of the IT Act, 1961, for referring the questions of law as stated above. The Tribunal, on the facts stated, referred the questions for the opinion of this Court.
4. Learned counsel appearing for the assessee contended that the view of the Tribunal that the computation of profit and loss has to be done in the normal circumstances for the purpose of working out the deduction is totally erroneous considering the fact that unlike other provisions in this chapter, the relief has to be under s. 80HHC and has to be considered as per sub-s. (3). He submitted that in so computing the deduction, s. 80AB has no supervening controlling effect. In this connection, learned counsel for the applicant assessee placed reliance on the decision of the Bombay High Court in CIT vs. Shirke Construction Equipments Ltd. (2000) 163 CTR (Bom) 580 : (2000) 246 ITR 429 (Bom). Referring to the decision of the Supreme Court reported in IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC), learned counsel submitted that the same has to be understood in the context of an assessee incurring a loss. He laid a particular emphasis on the decision of the Bombay High Court to state that the language used in s. 80HHC is different from the other sections in the chapter. He submitted that for the purpose of computing the deduction under s. 80HHC, the formula is given under sub-s. (3). Hence s. 80AB has no play in the matter of working out the deduction, except to have a harmonious construction that the deduction under sub-s. (3) is not disturbed. He submitted that for the purpose of working out the total income alone, s. 80AB will have its application and thereafter subs. (3) of s. 80HHC alone will have its play. In the circumstances, he submitted the Bombay High Court decision will have to be applied to grant relief.
Learned standing counsel for the IT Department, however, placed strong reliance on the decision of the Supreme Court in IPCA Laboratory Ltd. vs. Dy. CIT (supra) and submitted that in view of the apex Court decision overruling the Bombay High Court decision, the relief has to be worked out only as interpreted by the apex Court and the reliance placed on the decision of the Bombay High Court is no longer maintainable in law. A perusal of the decision of the Supreme Court in IPCA Laboratory Ltd. vs. Dy. CIT (supra) shows that overruling the interpretation given on the scope of s. 80HHC by the Bombay High Court, the apex Court held that : “s. 80AB has been given an overriding effect over all other sections, in Chapter VI-A. Sec. 80HHC does not provide that its provisions are to prevail over s. 80AB or over any other provision of the Act. Sec. 80HHC would thus be governed by s. 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Sec. 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act.” Thus, the apex Court held that s. 80AB has to be given its due weightage in calculating the relief under s. 80HHC.
7. It must be seen that s. 80HHC provides for deduction of profits from the gross total income. Sub-s. (3) is a machinery provision to lay down the manner of calculating the profits which constitutes deduction under s. 80HHC(1). Consequently, s. 80HHC(3) aids in the working of the deduction under s. 80HHC(1). Considering the fact that s. 80HHC is a section which comes under Chapter VI-A providing for special deduction in gross total income, necessarily, the computation for deduction has to be in accordance with the total income computed in a manner provided for under s. 80AB. It is relevant to note that s. 80A deals with deduction to be made under Chapter VI-A in computing the total income. It may also be noted that s. 80A(2) lays down that the aggregate amount of the income under Chapter VI-A shall not exceed the gross total income of the assessee. Read in the context of s. 80A and s. 80AB, the scheme of deduction under s. 80HHC has to be computed out of the income from profits and gains of business in accordance with the provisions of the Act, as stated so under s. 80AB. A reading of this provision does not yield any other interpretation as suggested by the assessee.
It is no doubt true that the facts of the case in the reported decision of the Supreme Court relate to a case of loss. Yet, it must be noted that the mandate of s. 80AB is that it starts with the words “Where any deduction is required to be made or allowed under any section included in this chapter,……. notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter), shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.” It may be seen that the provisions of s. 80AB contemplate that the gross total income has first to be computed in accordance with the provisions of the Act. When it comes to a deduction,s. 80AB further provides that for the purpose of deduction under any of the sections in Chapter VI-A, the amount of income of that nature has to be computed in accordance with the provisions of the Act, which means, necessarily for the purpose of deduction, the income of that nature computed for deduction must have a working in accordance with the provisions of the Act. If that be so, income from profits and gains of business must necessarily conform to the provisions in Part D, including set off and carry forward. In the light of the decision of the apex Court, the argument placed on the strength of the decision of the Bombay High Court is not sustainable in law. Consequently we do not find any merit in upholding the contention of the assessee. In the circumstances, the claim of the assessee has to be rejected. Consequently, the questions raised before this Court are answered in the affirmative and against the assessee. On the last question raised, the Tribunal has held that the said question does not arise after the order of the CIT.
In the circumstances, the references are answered against the assessee. There will, however, be no order as to costs.
[Citation : 290 ITR 183]
