Research › Browse › Judgment

Madras High Court · body

1989 DIGILAW 119 (MAD)

Murugappa and Sons v. Commissioner of Income Tax

1989-02-14

BAKTHAVATSALAM, RATNAM

body1989
Judgment :- RATNAM J. The assessee is a firm. The business of the firm is the promotion of companies. In respect of the assessment year 1972-73, it filed a return disclosing an income of Rs. 3, 741 by way of interest on securities, Rs. 53, 813 by way of dividend under the head "Other sources", Rs. 8, 770 by way of long-term capital gains and a loss of Rs. 76, 529 under the head "Business". In completing the assessment, the Income-tax Officer disallowed the expenditure of Rs. 4, 587 incurred in connection with the foreign travel of one of the partners and after computing the business loss and setting off the income by way of interest on securities, capital gains and dividend, the net loss was computed at Rs. 5, 618. In doing so, the Income-tax Officer declined to allow deduction under sections 80K and 80T of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Aggrieved by that, the assessee preferred an appeal before the Appellate Assistant Commissioner contending, inter alia, that deductions under sections 80K and 80T of the Act should have been allowed. The Appellate Assistant Commissioner accepted the contention of the assessee and directed the Income-tax Officer to grant relief under sections 80K and 80T of the Act. On further appeal by the Revenue to the Tribunal, it was contended that as the gross total income of the assessee was a negative figure, the assessee was not entitled to claim the benefit of deduction under sections 80K and 80T of the Act. Considering the relevant provisions and taking into account provisions of section 80K(2) and 80B(5) of the Act, the Tribunal held that where the gross total income is a loss, there can be obviously no question of deduction, being allowed under Chapter VI-A of the Act and in that vi upheld the order of the Income-tax Officer disallowing the deductions under sections 80K and 80T of the Act. That conclusion arrived at by the Tribunal has given rise to this reference, wherein, at the instance of the assessee, under section 256(2) of the Act, the following question of law has been referred for the opinion of this court "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that deduction permissible under sections 80K and 80T was not allowable, in view of the total income being a loss ?" * Learned counsel for the assessee contended, referring to sections 67(2) and 80A(3) of the Act and the decision in CIT v. K. Saraswathi Ammal 1981 (127) ITR 404 (Mad) (sic) that, in the absence of any indication in the allowance sheet in relation to the disallowance in the assessment of the firm, the partners, with reference to their individual assessment, are placed at a disadvantage in the matter of claiming the benefit of deductions and allowances and that such a situation ought to be removed. On the other hand, learned counsel for the Revenue, inviting attention to sections 80A(1), 80A(2) and 80B(5) of the Act and relying upon the decisions in CIT v. Mercantile Bank Ltd. 1988 (169) ITR 44, 1987 (63) CTR 79, 1987 (32) TAXMAN 426, 1987 (63) CTR 80 (Bom) and CIT v. Rambal (P.) Ltd. 1988 (169) ITR 50, 1984 (42) CTR 45 (Mad), submitted that where the gross total income is a loss, there can be obviously no question of any deduction being allowed under Chapter VI-A of the Act and the Tribunal was, therefore, right in its conclusion. Adverting to the difficulty mentioned by learned counsel for the assessee, it was further submitted that, having regard to the limited scope of the question referred, that fell outside the ambit of the reference. We have carefully considered the rival submissions. Considering the restricted scope of the reference before this court, we are of the view that it is unnecessary to go into the difficulties stated to be experienced by the individual partners of a firm in relation to their separate assessments or to evolve some method by which those so-called difficulties may be remedied. We, therefore, do not feel that the argument of learned counsel for the assessee deserves any consideration in this reference. We, therefore, do not feel that the argument of learned counsel for the assessee deserves any consideration in this reference. We are also of the view that there is no need to consider the decision in CIT v. K. Saraswathi Ammal 1981 (127) ITR 404 (Mad) (sic) relied on by learned counsel for the assessee in this connectionHowever, the main question that arises for consideration and the decision in this reference is, whether if the gross total income is a loss, nevertheless, it is open to the assessee to claim the deductions permissible under sections 80K and 80T of the Act. There is no dispute that in this case, the Income-tax Officer, after adjusting the income on securities, capital gains and dividends against the business loss, arrived at a net loss. Chapter VI -A, containing sections 80A to 80U at the relevant time, provides for deductions to be made in computing the total income. Section 80A(1) provides that in computing the total income of the assessee from his gross total income, there shall be allowed, in accordance with and subject to the provisions of Chapter VI-A, the deductions specified in sections 80C to 80U (as the section stood at the relevant time). Section 80A(2) provides that the aggregate amount of the deductions under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee. For purposes of Chapter VI-A, section 80B(5) of the Act defines "gross total income" as meaning. "total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-O." * It is thus seen that while, under section 80A(1) of the Act, the Revenue is empowered, in computing the total income of an assessee, to allow deductions specified in Chapter VI-A from the assessee's gross total income, section 80A(2) provides that the aggregate amount of such deductions under Chapter VI-A should not exceed the gross total income of the assessee. The gross total income under section 80B(5) of the Act is the total income computed under the provisions of the Act, prior to making any deduction either under Chapter VI-A or under section 280-0 of the Act. The gross total income under section 80B(5) of the Act is the total income computed under the provisions of the Act, prior to making any deduction either under Chapter VI-A or under section 280-0 of the Act. In a case where relief is claimed by the assessee under sections 80K and 80T of the Act, the first step to be taken is to find out whether the assessee's gross total income includes any income by way of dividends and long-term capital gains'. If that is found, the next step is to compute the assessee's gross total income which, under section 80B(5), for purposes of Chapter VI-A, means the total income computed in accordance with the provisions of the Act, before making any deductions either under Chapter VI-A or under section 280-0 of the Act. This is the total income computed under the Act but before making the deductions under Chapter VI-A or under section 280-0, and if the gross total income is found to be a positive figure, only then, it is possible and permissible to allow the deductions under Chapter VI-A and not otherwise. This follows from the several provisions of the Act referred to earlier. Where, therefore, the gross total income, as in this case, is a negative figure, viz., loss, no deduction is permissible either under section 80K or 80T of the Act. We may, in this connection, refer to the two decisions relied on by learned counsel for the Revenue. In CIT v. Mercantile Bank Ltd. 1988 (169) ITR 44, 1987 (63) CTR 79, 1987 (32) TAXMAN 426, 1987 (63) CTR 80 (Bom), the assessee claimed the benefit of deduction under sections 80L and 80M of the Act with reference to its negative income in the relevant assessment years in question. The authorities declined to allow the deduction so claimed by the assessee. The authorities declined to allow the deduction so claimed by the assessee. In dealing with the question, whether the authorities were right in doing so, the Bombay High Court pointed out, referring to sections 80A(1), 80A(2) and 80B(5) of the Act, that, for the purpose of applying the provisions of Chapter VI-A, the first enquiry to be made is, whether the assessee's gross total income includes any income by way of dividends and if it does, the next step would be to compute the assessee's gross total income, which would be the total income, computed under the Act without deductions under Chapter VI-A or under section 280-0 of the Act and only if the gross total income is found to be a positive figure, the deductions permissible under Chapter VI-A can be given and, therefore, the authorities were not in error in disallowing the claim made by the assessee for deduction under the provisions of sections 80L and 80M of the Act having regard to its negative income in the years in question. To similar effect is the decision in CIT v. Rambal (P.) Ltd. 1988 (169) ITR 50, 1984 (42) CTR 45 (Mad) (to which one of us was a party). In that case the assessee, private limited company, in respect of the assessment year 1970-71, claimed the benefit of deduction allowable under section 80-I of the Act. The Income-tax Officer rejected this on the ground that as the total income for that assessment year was determined as "nil", no deduction under section 80-I was permissible or could be given. However, the Appellate Assistant Commissioner accepted the claim of the assessee and the Tribunal took the view that relief under section 80-1 of the Act was, in its nature, an independent relief and the deduction permissible thereunder, should be given from the business income, as computed before setting off the loss pertaining to the earlier years. However, the Appellate Assistant Commissioner accepted the claim of the assessee and the Tribunal took the view that relief under section 80-1 of the Act was, in its nature, an independent relief and the deduction permissible thereunder, should be given from the business income, as computed before setting off the loss pertaining to the earlier years. On a reference, this court, referring to CIT v. Madras Motors (P.) Ltd. 1984 (150) ITR 150, 1984 (19) TAXMAN 67 , 1984 (2) TLR 463, held that in view of section 80A, section 80A(2) and section 80B(5) occurring in Chapter VI-A, if the total income, as computed under section 80B(5) of the Act is "nil", then no relief could be granted based on the other sections in view of the limitations contained in section 80A(2) according to which, the aggregate amount of deduction under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee and if the gross total income of the assessee is determined as "nil", then, there is no question of any deduction being allowed under Chapter VI-A as that will clearly exceed the gross total income of the assessee. We are of the view that the principle laid down in the decisions referred to above would be applicable in this case also. We, therefore, answer the question referred to us in the affirmative and against the assessee. The Revenue will be entitled to its costs of this reference. Counsel's fee Rs. 500.