High Court Of Punjab & Haryana
CIT vs. S.B. Oil Industries (P) Ltd.
Sections 80HH, 80-I, 256(2)
Asst. Year 1988-89
G.S. Singhvi & M.M. Aggarwal, JJ.
IT Case No. 22 of 1998
29th November, 2004
Counsel Appeared
Rajesh Bindal, for the Petitioner : None, for the Respondent
JUDGMENT
G.S. Singhvi, J. :
In this petition filed under s. 256(2) of the IT Act, 1961, (for short, “the Act”), the Revenue has prayed for issuance of a direction to the Income-tax Appellate Tribunal, Delhi Bench “E”, Delhi (for short, “the Tribunal”), to refer the following question of law for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case and in view of the provisions of s. 80HH(9), the Tribunal is right in holding that the deduction under ss. 80HH and 80-I are independent deductions and are to be allowed with reference to the gross total income ?”
The assessee is a private limited company engaged in the manufacture of oil from mustard seeds. For the asst. yr. 1988-89, it filed the return on 27th July, 1988, declaring an income of Rs. 2,33,450. By an order dt. 29th Sept., 1989, passed under s. 143(3) of the Act, the Asstt. CIT, Investigation Circle, Hisar (hereinafter described as “the AO”), made an addition of Rs. 1,46,752 on account of low yield declared by the assessee. He also rejected the assessee’s claim for deduction under s. 80-I of the Act on the gross total income and allowed deduction under that section after excluding deduction granted under s. 80HH of the Act. On appeal, the CIT(A), Rohtak, vide his order dt. 15th Jan., 1991, held that the deductions under ss. 80-I and 80HH of the Act are independent of each other and are to be worked out with reference to the gross total income as defined under s. 80B of the Act. He further held that the AO was not justified in allowing deductions under s. 80-I after reducing the gross total income by excluding the deduction granted under s. 80HH. Accordingly, he directed the AO to recompute the deduction admissible to the assessee under s. 80-I of the Act. The appeal filed by the Revenue against the order of the CIT(A), Rohtak, was dismissed by the Tribunal vide its order dt. 25th Oct., 1996.
Shri Rajesh Bindal relied on the judgment of the Rajasthan High Court in CIT vs. Vishnu Oil & Dal Mills (1996) 132 CTR (Raj) 132 : (1996) 218 ITR 71 (Raj) and argued that the Tribunal may be directed to refer the question framed by the Revenue for the opinion of this Court. He, however, fairly stated that the question has been answered in favour of the assessee by the Bombay, Madhya Pradesh and the Rajasthan High Courts in CIT vs. Nima Specific Family Trust (2001) 165 CTR (Bom) 518 : (2001) 248 ITR 29 (Bom); J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329 : (1998) 229 ITR 123 (MP) and CIT vs. Chokshi Contacts (P) Ltd. (2001) 166 CTR (Raj) 383 : (2001) 251 ITR 587 (Raj).
4. We have thoughtfully considered the entire matter. In CIT vs. Vishnu Oil & Dal Mills (supra), a Division Bench of the Rajasthan High Court referred to ss. 80AB and 80HH of the Act and held as under : “For the determination of the relief under s. 80HH, the total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction will be the net income as computed in accordance with the provisions of the Act and not the gross income.”
5. In J.P. Tobacco Products (P) Ltd. vs. CIT (supra), a Division Bench of the Madhya Pradesh High Court, after noticing the provisions of ss. 80HH, 80-I and 80J of the Act, held as under :
“Sub-s. (9) of s. 80HH of the IT Act, 1961, as it stood prior to insertion of s. 80-I by the Finance (No. 2) Act, 1980, w.e.f. 1st April, 1981, originally included only s. 80J. Sec. 80J providing for deduction in respect of the profits and gains from newly established industrial undertakings or ships or hotel business in certain cases did not make any provision for reduction of the gross total income by the amount of deduction admissible to the assessee under s. 80HH. It was only by an amendment of the said s. 80J that the provision for reducing the gross total income by the amount of deduction under s. 80HH of the Act by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1st April, 1974, was inserted. Sec. 80-I was inserted in its present form by the Finance (No. 2) Act, 1980, w.e.f. 1st April, 1981, and by the same Finance (No. 2) Act, s. 80HH(9) was amended and the words ‘s. 80-I or’ were inserted to make the said provision applicable to s. 80-I as well. However, no provision was made in s. 80-I to provide for deduction of the gross total income by deduction allowed under s. 80HH for the purpose of allowing deduction under s. 80-I. It would, thus, be seen that when s. 80J already existed in sub-s. (9) of s. 80HH, an amendment was made in s. 80J in the year 1974 but no such provision was made insofar as s. 80-I was concerned. This clearly contra-indicates that sub-s. (9) of s. 80HH by itself meant that deduction allowed under s. 80HH is to be reduced from the gross total income for granting the benefit of s. 80J and, for that matter, of s. 80-I. It was provided in s. 80J itself by later amendment while no such provision was made in s. 80-I even though inserted on a later date. The provision of law is, therefore, clear that insofar as the benefit of s. 80-I is concerned, it has to be granted on the gross total income and not on the income reduced by the amount allowed under s. 80HH.”
6. In CIT vs. Nima Specific Family Trust (supra), a Division Bench of the Bombay High Court considered the scope of ss. 80HH and 80-I along with s. 80J of the Act and held :
“Sec. 80HH of the IT Act, 1961, falls in Chapter VI-A of the Act. Chapter VI-A deals with deduction in respect of certain payments. Sec. 80HH falls under the Heading ‘C’ which deals with deductions in respect of certain incomes. Briefly, a special deduction is provided in cases where the assessee has established an industrial undertaking in a backward area. This section indicates that the deduction contemplated is based on profits derived from such industrial undertakings. Hence, the deduction is profit-based. Sec. 80HH was inserted by the Direct Taxes (Amendment) Act, 1974, 1st April, 1974. It has continued to remain without any change on the statute book. Sec. 80J prior to its omission w.e.f. 1st April, 1989, also fell under Chapter VI-A. It dealt with deductions in respect of profits from newly established industrial undertakings in certain cases. The quantum of deduction under s. 80J(1) was limited to six per cent per annum of the capital employed in the new undertaking. Therefore, although the base for calculation of the quantum of deduction was supplied by the amount of capital employed, the deduction was made from the profits of the new unit. If a unit was eligible for deductions both under ss. 80HH and 80J as they stood at the relevant time, then priority to the deduction under s. 80HH would be given before calculating the deduction under 80J. After 1st April, 1989, s. 80J came to be omitted. At this stage, it is also important to bear in mind that s. 80-I was a dead section during the period 1st April, 1973 to 1st April, 1981. Sec. 80-I was brought back into the IT Act by the Finance (No. 2) Act, 1980, w.e.f. 1st April, 1981. Under s. 80-I, as inserted w.e.f. 1st April, 1981, it was provided that where the gross total income of an assessee included profits derived from an industrial undertaking, after a certain date, to which the section applied, there shall be a deduction from such profits of an amount equal to twenty per cent. This s. 80-I was in a way a successor to s. 80J. However, s. 80J was founded on the concept of capital employed which has been done away with by the successor. Sec. 80-I is now based on profits as is the case with deductions under s. 80HH. Moreover, the concept of shortfall in s. 80J(3) was also done away with by s. 80- I. Sec. 80J, however, continued to remain on the statute book till 1st April, 1989, so that the assessees who had set up new industries before the specified date would get the tax holiday for the entire period as promised. However, after 1st April, 1989, s. 80J was deleted. It is for this reason that the same Finance (No. 2) Act, 1980, which reintroduced s. 80-I, also brought into force, the bracketed portion in s. 80HH(9). Reading the bracketed portion in 80HH(9), it is clear that s. 80-I is a successor to s. 80J. Under s. 80HH(9), it is provided that where the unit is entitled to relief under s. 80HH and also under s. 80J, then priority shall first be given to the deduction under s. 80HH. However, from 1st April, 1981, since there was an entire structural change brought into force in s. 80-I under which deduction became profit-based and not capital employed based, and particularly after 1st April, 1989, when s. 80J stood omitted, the legislature also introduced the bracketed portion in s. 80HH(9) which shows that where the assessee was entitled to deduction under s. 80-I or s. 80J as well as s. 80HH, then priority shall be given to s. 80HH. The word ‘or’ is very important. Sec. 80HH(9) only talks about priority. It does not refer to the quantum of deduction as was the case under s. 80J(1). Sec. 80HH does not talk of carry forward of shortfall as in the case of s. 80J(3). In fact, after 1st April, 1981, ss. 80HH and 80I are both dealing with deductions based on profits. The concept of deduction based on capital employed is completely given a go-by. Special deduction is first given under s. 80HH and then special deduction will be given under s. 80-I to the extent available.”
7. In CIT vs. Chokshi Contacts (P) Ltd. (supra), a Division Bench of the Rajasthan High Court referred to the judgments in CIT vs. Vishnu Oil & Dal Mills (supra) and CIT vs. Nima Specific Family Trust (supra) and laid down the following proposition : “Chapter VI-A, which consists of ss. 80A to 80V of the IT Act, 1961, becomes operative on reaching the last stage of computation of income from different sources. The expression ‘gross total income’, in various sections of Chapter VI-A, has been assigned a special meaning to mean total income computed in accordance with the provisions of the IT Act, 1961, except any provision under Chapter VI-A. Computation of gross total income of the industrial undertaking for the purpose of deduction under s. 80HH and s. 80-I operates independently and has to be made without making any deduction under Chapter VI-A. The language and intent of the provisions of sub-s. (9) of s. 80HH make it clear that the three deductions, viz., under s. 80HH, s. 80-I and s. 80J, are simultaneously permissible and not mutually exclusive. The provision only fixes the priority of order in which deduction under each provision is to be adjusted in the gross total income derived from such industrial undertaking to which s. 80HH or s. 80-I or s. 80J, respectively apply simultaneously. In case any industrial undertaking falls in the category of new unit established in a backward area and it is entitled to avail of the benefit under all the provisions, deduction under s. 80HH is to be made in the first instance which is with an object to promote industrial establishment in backward areas and only thereafter deduction computed under s. 80-I or s. 80J shall be given effect to.”
8. The Bench then referred to an earlier judgment of the same Court in CIT vs. Shree Engineers (DB IT Ref. No.38 of 1995, decided on 10th Jan., 1996) and observed as under :
“Coming to the judgment relied on by learned counsel for the Revenue in Shree Engineers’ case, we are of the opinion that the answer to question No. 3 which was referred by the Tribunal has been rendered solely with the reference to the earlier decision of the Court in CIT vs. Vishnu Oil & Dal Mills (1996) 132 CTR (Raj) 132 : (1996) 218 ITR 71 (Raj) only without noticing the relevant provisions of ss. 80A and 80AB and s. 80B(5) and also s. 80HH(9). It may be noticed that the decision in Vishnu Oil & Dal Mills’ case (supra) dealt with the question whether in computing the gross total income for the purpose of Chapter VI-A requires adjustments of unabsorbed carried forward loss or unabsorbed carried forward depreciation in terms of Part D of Chapter IV or in terms of Chapter VI of the Act, which as seen above has to be computed without taking into account the provisions of Chapter VI-A, but after taking into account other provisions of Act— whether under Chapter IV or Chapter VI. However, the Court was not dealing with interaction of the various sections contained in Chapter VI-A on the issue of deduction of any amount which is to be allowed under Chapter VI-A. Thus, the decision rendered in Shree Engineers’ case without reference to the relevant provisions of the Act merely by reference to Vishnu Oil Mills’ case (supra) was per incuriam and cannot be taken as a binding precedent and does not assist the Revenue in any manner.”
9. We respectfully agree with the identical views expressed by the Bombay, Madhya Pradesh and the Rajasthan High Courts in the last mentioned three judgments and hold that the computation of gross total income of the industrial undertaking for the purpose of deduction under ss. 80HH and 80-I operate independently. We further hold that the AO committed a grave illegality in computing deduction under s. 80-I after reducing the gross total income with reference to deduction admissible under s. 80HH of the Act and the CIT(A), Rohtak, rightly directed the AO to compute deduction under s. 80-I on the total gross income without excluding the deduction admissible under s. 80HH of the Act.
10. As a result of the above discussion, we hold that no referable question of law arises in this petition which is liable to be dismissed. Ordered accordingly.
[Citation : 274 ITR 495]
