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2014 DIGILAW 91 (RAJ)

Vijay Solvex Ltd. v. Commissioner of Income

2014-01-06

AJAY RASTOGI, J.K.RANKA

body2014
JUDGMENT 1. - These three Income-tax appeals under section 260A of the Income-tax Act, 1961 (for short, "the IT Act"), are directed against the order passed by the Income-tax Appellate Tribunal, Jaipur (for short, "the ITAT"), in I.T.A. No. 1296/JP/1996, I.T.A. No. 1694/JP/1993 and I.T.A. No. 390/JP/2002, dated January 12, 2004, October 14, 2004, and July 27, 2005, respectively, for the assessment years 1992-93, 1990-91 and 1998-99, respectively. 2. Since the controversy in all the three assessment years is common and arising in between the same parties, therefore, all these three appeals are being disposed of by this common order. 3. The appeals were admitted on the following substantial question of law : Substantial question of law in D.B.I.T.A. No. 185 of 2004 "(i) Whether the term `profits and gains` used in section 80HH and section 80-I of the Income-tax Act 1961, with reference to an eligible industrial undertaking have the same meaning as the term `income` whereas the statute uses both the terms independently in different provisions of the Act ? (ii) Whether the `profits and gains` of current year of the eligible undertaking would be relevant for computing deduction under Section 80HH and section 80-I of the Act or the income computed after reducing depreciation allowance under section 32(1), unabsorbed depreciation under section 32(2) and unabsorbed loss under section 72 shall be relevant for these deductions ?" Substantial question of law in D.B.I.T.A. No. 20 of 2005 "(i) Whether the learned Tribunal was justified in holding that the deduction under Chapter VI-A are to be given from the amount of gross total income for the purpose of computing the deduction under section 80HH and section 80-I of the Income-tax Act 1961 ? (ii) Whether the term `profits and gains` used in section 80HH and section 80-I of the Income-tax Act, 1961, with reference to an eligible industrial undertaking have the same meaning as the term `income` whereas the statute uses both the terms independently in different provisions of the Act ? (ii) Whether the term `profits and gains` used in section 80HH and section 80-I of the Income-tax Act, 1961, with reference to an eligible industrial undertaking have the same meaning as the term `income` whereas the statute uses both the terms independently in different provisions of the Act ? (iii) Whether the `profits and gains` of current year of the eligible undertaking would be relevant for computing deduction under Section 80HH and section 80-I of the Act or the income computed after reducing depreciation allowance under section 32(1) shall be relevant for these deductions ?" Substantial question of law in D.B.I.T.A. No. 31 of 2006 "(i) Whether the term `profits and gains` used in section 80HH of the Income-tax Act, 1961, with reference to an eligible industrial undertaking have the same meaning as the term `income` whereas the statute uses these terms independently in different provisions of the Act ? (ii) Whether the `profits and gains` of current year of the eligible undertaking would be relevant for computing deduction under section 80HH of the Act or the income computed after reducing depreciation allowance under section 32(1) shall be relevant for this deduction ?" 4. The brief facts, as revealed from the record (assessment year 1990-91), are that the appellant-assessee commenced its commercial production of crushing of oil seeds through oil mill and solvent plant and the turnover in the first assessment year is at Rs. 4,58,31,787 and it is the claim of the appellant-assessee that the major part is from the sale of solvent extracted mustard oil for Rs. 2,63,73,825. 5. The appellant-assessee claimed deduction under section 80HH and section 80-I of the Income-tax Act amounting to Rs. 14,23,468 and Rs. 17,79,334, respectively, as per the audit report annexed to the return of income. The said amount had been claimed before deducting depreciation of Rs. 72,28,897. Whereas, according to the Assessing Officer, the balance-sheet and the profit and loss account of the appellant-assessee showed net loss of Rs. 1,11,559 after deduction of depreciation of Rs. 72,28,897 and, according to the Assessing Officer, since the resultant figure of profits and gains remained negative, no deduction was allowable under section 80HH and section 80-I of the Act and it was to be allowable only after total income of the assessee had been positive after allowing deductions for depreciation, investment allowance under section 32 and section 32A, respectively. 6. 6. Aggrieved with the aforesaid finding an appeal was preferred before the Commissioner of Income-tax (Appeals) (for short, the "CIT(A)") and it was submitted that the relief under section 80HH and section 80-I is available to the industrial undertaking which fulfils the requirement and it is out of the profits and gains of an industrial undertaking. It was argued that the relief is to be deducted first for computing the total income and the other deductions ought to have been considered afterwards. It was the claim of the assessee that the term "profits and gains" having not been defined under the provisions of the Income-tax Act but the income has been defined under Chapter VI-A and the reference is to term "profits and gains" in majority of sub-section and only in certain sections, the term "income" is referred to and, accordingly, it was argued that the relief under section 80HH and section 80-I has to be worked out with reference to profits and gains. It was further submitted that the provisions of section 80HH and section 80-I are independent and self-contained. The Commissioner of Income-tax (Appeals) did not agree with the contention raised on behalf of the assessee and it was held that after the insertion of provisions of section 80AB with effect from April 1, 1981, the deduction under section 80HH to section 80-I (except section 80M), is to be allowed with reference to the net income and the net income means the income arrived at after allowing the deductions on account of the depreciation and unabsorbed losses, unabsorbed depreciation, etc., etc., and after observing that since in the present case, the resultant figure was minus (loss), the relief was not available to the appellant and, accordingly, the appeal was dismissed. 7. The matter was carried in appeal by the appellant before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal agreed with the finding of the Assessing Officer as well as the Commissioner of Income-tax (Appeals) and declined to interfere on this issue. 8. Since the Tribunal upheld the finding of the Assessing Officer as well as the Commissioner of Income-tax (Appeals), the matter has been assailed before us by raising the aforesaid substantial questions of law. 9. 8. Since the Tribunal upheld the finding of the Assessing Officer as well as the Commissioner of Income-tax (Appeals), the matter has been assailed before us by raising the aforesaid substantial questions of law. 9. Shri. Sanjay Jhanwar, learned counsel for the appellant, conceded that the issue is no more res integra in so far as the present issues are concerned and not only this court but the hon`ble apex court has come to the conclusion that the deduction under section 80HH and section 80-I are not allowable in the facts and circumstances of the case. However, in so far as question No. 1 is concerned, he contended that in none of the cases, the term "profits and gains" has been referred to and in this regard he tried to distinguish and contended that the Calcutta High Court in the case of CIT v. Orient Paper Mills Ltd. reported in [1983] 139 ITR 763 (Cal) ; the Orissa High Court in CIT v. Tarun Udyog reported in [1991] 191 ITR 688 (Orissa) and the Karnataka High Court in the case of CIT v. H.M.T. Ltd. reported in [1993] 199 ITR 235 (Karn) have considered the term "income" vis-a-vis profits and gains and this is required to be considered in section 80HH and section 80-I as well. He contended that both these sections specifically deals about the term "profits and gains" and nowhere refers to the word "income" and, therefore, he contended that the term "profits and gains" is wider than income and in the instant case, the profits and gains were substantially higher and only because of the claim of depreciation that it had gone minus (loss) otherwise for all practical purposes, the assessee had shown substantial profits. He contended that section 80HH and section 80-I are beneficial provisions and is allowable for a particular industry which is to be set up in remote areas and being beneficial provisions, the claim deserves to be allowed on profits and gains and not income. 10. Per contra, Mrs. Parinitoo Jain, counsel for the respondent, submits that deduction under section 80HH and section 80-I is allowable on net profit after deducting depreciation, unabsorbed depreciation, unabsorbed losses, etc., and, in the instant case, there is a loss, hence, no benefit under section 80HH and section 80-I could be allowed. 10. Per contra, Mrs. Parinitoo Jain, counsel for the respondent, submits that deduction under section 80HH and section 80-I is allowable on net profit after deducting depreciation, unabsorbed depreciation, unabsorbed losses, etc., and, in the instant case, there is a loss, hence, no benefit under section 80HH and section 80-I could be allowed. She further contended that the hon`ble Supreme Court in the case of Motilal Pesticides (I) P. Ltd. v. CIT reported in [2000] 243 ITR 26 (SC); [2000] 9 SCC 63 had an occasion to consider this very issue and after analysing the provisions affirmed the judgment of the Delhi High Court which had considered the issue at length. She also contended that again the hon`ble Supreme Court in the case of Synco Industries Ltd. v. Assessing Officer (Income-tax) reported in [2008] 299 ITR 444 (SC) has come to the same conclusion. She also contended that this court had consistently held in favour of Revenue and against the assessee in the cases of CIT v. Loonkar Tools P. Ltd. reported in [1995] 213 ITR 721 (Raj) ; CIT v. Vishnu Oil and Dal Mills [1996] 218 ITR 71 (Raj) ; CIT v. Sea Hawk (I.) P. Ltd. [1994] 75 Taxman 381 (Cal) ; CIT v. Aggarwal Gum Industries [2001] 250 ITR 843 (Raj) , CIT v. Rajendra Textiles reported in [1997] 225 ITR 516 (Raj) ; CIT v. Sunil and Co. reported in [1996] 132 CTR (Raj) 202 and CIT v. Rajasthan Co-operative Spinning Mills Ltd. [1997] 225 ITR 574 (Raj) and, accordingly, submitted that the issue is covered in favour of Revenue and against the assessee. 11. In so far as the contention raised by counsel for the appellant about income and profits and gains cited by the learned counsel for the appellant, as referred to supra, she contended that the same are distinguishable on facts and when the hon`ble apex court has considered this very issue, then no interference is required in the matter. 12. We have considered the arguments advanced by counsel for the parties. 13. 12. We have considered the arguments advanced by counsel for the parties. 13. The hon`ble apex court in the case of Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444 (SC) while considering the question whether deduction under section 80HH and section 80-I were allowable, observed as under (page 454) : "The above discussion makes it very evident that predominant majority of the High Courts have taken the view that while working out the gross total income of the assessee the losses suffered have to be adjusted and if the gross total income of the assessee is `nil` the assessee will not be entitled to deduction under Chapter VI-A of the Act. It is well-settled that where the predominant majority of the High Courts have taken a certain view on the interpretation of certain provisions, the Supreme Court would lean in favour of the pre domain ant view. Therefore, this court is of the opinion that the High Court was justified in holding that the gross total income must be deter mined, by setting off against the income, the business losses of earlier years, before allowing deduction under Chapter VI-A and if the resultant income is `nil`, then the assessee cannot claim deduction under Chapter VI-A . . . However, this court finds that the non obstante clause appearing in section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of section 80A(2) of the Act nugatory and, therefore, the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in 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 the operation of sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier, section 80-I(6) deals with actual computation of deduction whereas section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and, therefore, while interpreting section 80-I(1), which also refers to gross total income one has to read the expression `gross total income` as defined in section 80B(5). There fore, this court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was `nil` the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80-I also. The proposition of law, emerging from the above discussion is that the gross total income of the assessee has first got to be determined after adjusting losses, etc., and if the gross total income of the asses see is "nil" the assessee would not be entitled to deductions under Chapter VI-A of the Act." 14. The hon`ble apex court in the case of Motilal Pesticides (I.) Pvt. Ltd. (supra) had also an occasion to consider the above issue and observed as under (page 27) : "Both sections 80HH and 80M fall in Chapter VI-A relating to deductions to be made in computing total income. It will be seen that the language of sections 80HH and 80M is the same. It was held in Cloth Traders (P.) Ltd.`s case [1979] 118 ITR 243 (SC) that deduction is to be allowed on the gross total income and not on the net income. It will be seen that the language of sections 80HH and 80M is the same. It was held in Cloth Traders (P.) Ltd.`s case [1979] 118 ITR 243 (SC) that deduction is to be allowed on the gross total income and not on the net income. But then the decision in Cloth Traders (P.) Ltd.`s case [1979] 118 ITR 243 (SC) was overruled in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) . After the decision in Cloth Traders (P.) Ltd.`s case [1979] 118 ITR 243 (SC) , two sections 80AA and 80AB were introduced by the Finance (No. 2) Act, 1980. While section 80AA was to have retrospective effect with effect from April 1, 1968, section 80AB was to have operation with effect from April 1, 1981. Section 80AA had the effect of effacing the decision of this court in Cloth Traders (P.) Ltd.`s case [1979] 118 ITR 243 , which had interpreted section 80M. Section 80AB was made applicable to all the sections in Chapter VI-A except section 80M. In Distributors (Baroda) P. Ltd.`s case [1985] 155 ITR 120 (SC) , however, this court specifically overturned its earlier decision in Cloth Traders (P.) Ltd.`s case [1979] 118 ITR 243 (SC) and held that deduction is to be allowed only on the net income and not on the gross income. With reference to section 80AB, this court said it was merely of a classificatory nature and the decision of this court in Distributors (Baroda) P. Ltd.`s case [1985] 155 ITR 120 is thus irrespective of section 80AB of the Act. The High Court, therefore, relying on the decision of this court in Distributors (Baroda) P. Ltd.`s case [1985] 155 ITR 120 answered the question in favour of the Revenue and against the assessee." 15. Recently, the hon`ble apex court, in the case of Himatsingka Seide Ltd. v. CIT Civil Appeal No. 1501 of 2008, decided on September 19, 2013 [2014] 2 ITR-OL 467 (SC) also took similar view. In the case of Himatsingka Seide Ltd., the assessee filed nil return claiming exemption under section 10B and the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of the assessment year 1988-89. In the case of Himatsingka Seide Ltd., the assessee filed nil return claiming exemption under section 10B and the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of the assessment year 1988-89. It is claimed that as section 10B conferred "exemption" for the profits of the EOU, the said brought forward depreciation could not be set off from the profits of the EOU but was available to be set off against income from other sources. It was also claimed that the profits had to be computed on a "commercial" basis. It also adjusted brought forward unabsorbed depreciation against income from other sources. The Assessing Officer, accepting the assessee`s claim, assessed the total income at nil. The Commissioner, in exercise of the powers under section 263, set aside the assessment order holding that exemption under section 10B was allowed on an inflated amount without deducting unabsorbed depreciation from export income. On appeal by the assessee, the Tribunal reversed the order of Commissioner. On appeal by the Department, the High Court in CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn) reversed the Tribunal`s order and held that the brought forward depreciation had to be adjusted against the profits of the EOU before computing the exemption allowable under section 10B. On appeal, the hon`ble apex court held as under (page 468) : "Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the Civil Appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly." 16. This court in the case of Loonkar Tools (I.) Ltd. (supra) observed as under (page 732 of 213 ITR) : "In view of the above discussion, we are of the view that the depreciation and investment allowance have to be deducted before giving the special deduction as provided under Chapter VI-A and the `profits and gains` which are alleged to be equivalent to commercial profits have to be restricted only to the extent of such profits and gains which are included in the gross total income on which the deduction is available. In these circumstances, we are of the view that the Income-tax Appellate Tribunal was not justified in coming to the conclusion that the deduction under section 80HH is to be computed on the commercial profits and in computing the commercial profits the assessee is entitled to require addition of the provision for tax, depreciation and investment allowance reserve to the net profit as per the profit and loss account to arrive at the commercial profits." 17. This court in the case of Vishnu Oil and Dal Mills (supra); Agarwal Gum Industries (supra); Rajendra Textiles (supra); Sunil and Co. (supra); Rajasthan Co-operative Spinning Mills Ltd. (supra); Vijay Industries v. CIT reported in [2004] 270 ITR 175 (Raj) and CIT v. Surendra Textiles reported in [2002] 258 ITR 387 (Raj) ; Modern Syntex (India) Ltd. v. CIT [2005] 142 Taxman 80 (Raj) came to the same conclusion. 18. The Calcutta High Court in the case of Sea Hawk (I.) (P) Ltd. observed as under : "It is also a point of interest to note that the larger Bench of the Supreme Court in Distributors (Baroda) (P.) Ltd.`s case (supra) observed that the ratio in Cambay Electric Supply Industrial Co. Ltd.`s case (supra) was a correct one and the decision in Cloth Traders (P.) Ltd.`s case (supra) was wrongly taken and taken in oversight of the principle laid down by Cambay Electric Supply Industrial Co. Ltd.`s case (supra). Therefore, we have no hesitation to say that the Tribunal erred in following the ratio in Cloth Traders (P.) Ltd.`s case (supra) and in holding that the assessee is entitled to the deduction of the profits and gains from its new hotel business before adjustment of the past unabsorbed loss carried forward for set off." 19. Ltd.`s case (supra). Therefore, we have no hesitation to say that the Tribunal erred in following the ratio in Cloth Traders (P.) Ltd.`s case (supra) and in holding that the assessee is entitled to the deduction of the profits and gains from its new hotel business before adjustment of the past unabsorbed loss carried forward for set off." 19. After analysing the provisions of section 80HH and section 80-I of the Income-tax Act and the judgments rendered by the hon`ble apex court and this court (supra), we are of the view that for claiming deduction under any provision of Chapter VI-A, of which section 80HH and section 80-I are also part, then it has to be after allowance of all deductions such as depreciation, unabsorbed depreciation and unabsorbed losses and, therefore, in order to compute the profit and loss of income from an industrial undertaking, to which section 80HH and section 80-I applies, the provisions of Part D of Chapter IV has to be taken into consideration and it is only after computing the income in accordance with the provisions contained in the Chapter that income from such industrial undertaking, included in the gross total income of an assessee, could be found out. We are in conformity with the observations of the authorities referred to herein above that deduction can only be calculated with reference to the profit and loss account of the assessee and after deductions on account of depreciation or additional depreciation unabsorbed depreciation, unabsorbed losses etc. and only if such income is positive would be eligible for deduction under sections 80HH and 80-I of the Income-tax Act. The gross total income of the assessee has to be worked out after deducting the aforesaid deductions only to arrive at the net income and in case, after deducting all these statutory deductions, some income remains, then obviously the assessee would be entitled to deduction under section 80HH and section 80-I of the Income-tax Act. However, when there is no taxable income, then no deduction under Chapter VI-A could be allowed. 20. It is an admitted fact that in so far as the present facts and circumstances of the case are concerned, after allowing depreciation, unabsorbed loss and unabsorbed depreciation, there was no positive income and we accordingly hold that the assessee was not entitled to any deduction under sections 80HH and 80-I of the Income-tax Act. 21. 20. It is an admitted fact that in so far as the present facts and circumstances of the case are concerned, after allowing depreciation, unabsorbed loss and unabsorbed depreciation, there was no positive income and we accordingly hold that the assessee was not entitled to any deduction under sections 80HH and 80-I of the Income-tax Act. 21. The judgments relied upon by learned counsel for the appellant are of no assistance. In our view, no different answer is required to be given in the facts and circumstances of the present cases and, consequently, the substantial questions are answered in the negative, i.e., against the assessee and in favour of the Revenue. 22. Consequently, the appeals, being devoid of merit, are hereby dismissed. No order as to costs. *******