JUDGMENT
S. Ananda Reddy, J.
1. This appeal by the Revenue under Section 260A of the Income-tax Act, 1961, is directed against the order of the Income-tax Appellate Tribunal, Hyderabad Bench “A”, Hyderabad, in iTA No. 1173 of 1995, dated August 2, 2000, for the assessment year 1992-93.
2. The brief facts leading to the filing of this appeal are :
3. The assessee, a limited company, filed ifs return of income disclosing “nil income”. In the statement of computation the assessee recorded income from the asbestos cement division at Rs. 1,38,21,748 and loss from its spinning division at Rs. 89,90,222. The net total income of the two divisions was reflected at Rs. 48,31,526. The assessee has, however, claimed deductions under sections 80HH and 80-1 of the Income-tax Act, 1961
(hereinafter referred to as “the Act”), on the net income from its asbestos division amounting to Rs. 27,04,350 and Rs. 34,55,437, respectively. Thus, the total deduction claimed amounts to Rs. 62,19,787. The assessee thereafter restricted the claim of deduction to Rs. 48,31,526, which was the net income that was available after computation from all the sources to the assessee and the balance of Rs. 13,86,461 was claimed to be carried forward as unabsorbed deduction under the above provisions. This claim of the assesses was, however, not accepted by the Assessing Officer, as according to the Assessing Officer the deductions under sections 80HH and 80-1 of the Act have to be computed after setting off the loss of the spinning division against the profits of the asbestos division and, therefore, he had recomputed the deductions that are available. According to the Assessing Officer, the net income after setting of floss is at Rs. 31,91,108 and thereafter he computed the deductions under sections 80HH and 80-1 of the Act on that income at Rs. 6,38,222 and Rs. 7,07,777, respectively, both put together at Rs. 13,45,999 (wrongly shown for Rs. 14,38,999) as against the claim of Rs. 48,31,526. While doing so, the Assessing Officer relied upon the decision of the Delhi High Court in the case of Motilal Pesticides (India) Pvt. Lid. v. CAT [1994] 207 1TR 636 and the decision of the Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 1TR 120. Aggrieved by the said action of the Assessing Officer, the assessee carried the matter in appeal to tbe Commissioner (Appeals). – The Commissioner (Appeals) felt that the relevant case law as to the issue in question is the decision of the apex court in the case of CIT v. Cannra Workshops P. Ltd. and applying the ratio of the said decision and also a decision of the Calcutta High Court in the case of Gouri Prasad Goenka v. CIT accepted the claim of the assessee and directed the Assessing Officer to recompute the deductions that are available under sections 80HH and 80-I of the Act with reference to the net profits of the asbestos division before setting off the loss of the spinning division. The Revenue, thereafter, carried the matter in second appeal before the Income-tax Appellate Tribunal contending that the deductions under sections 80HH and 80-I of the Act are to be computed on the combined profits of the entire business of the assessee-company and not with reference to the profits of the asbestos division before setting off the loss of the spinning division. The Revenue referred to the provisions of Section 80AB and Section 80B(5) of the Act and also relied upon the decisions of the apex court in the case of Motilal Pesticides (I.) Pvt. Ltd. v. CIT and the decision in the case of H. H. Sir Rama Vtirnta v. CIT . The Income-tax Appellate Tribunal after considering the contentions of the Department found that the relevant decision applicable to the issue in question was only the decision of the apex court in the case of Canara Workshops P. Ltd. and the decision of
the Calcutta High Court in Gouri Prasad Goenka and according to the Tribunal there is no conflict between the decisions of the apex court in Canara Workshops P. Ltd. and Motilal Pesticides (1.) Pat. Ltd. . Therefore, the Tribunal affirmed the view taken by the Commissioner (Appeals). Aggrieved by the said decision, the Department has come up in appeal to this court.
4. Learned standing counsel contended that the Appellate Tribunal erred in accepting the contention of the assessee-company. It is stated that deductions under the provisions of sections 80HH and 80-I of the Act are to be allowed on the net total income of the assessee and not on the gross total income. In support of his contention, he relied upon the decisions that were referred to and relied upon by the Department before the Income-tax Appellate Tribunal. To make it clear, the contention of standing” counsel was that the deductions contemplated under the above two provisions are to be computed only after selling off the loss in the spinning division against the profits of the asbestos division and not with reference to the profits of the asbestos division.
5. Learned counsel for the assessee-company, on the other hand, supported the order of the Tribunal and referred to the decision of the apex court in Canara Workshops P. Ltd. where there was a specific reference to its decision in the case of Distributors (Baroda) P. Lid. and held that the decision rendered in that case has no relevancy while considering the computation of deduction under sections 80HH and 80-I of the Act. In the light of the said observation of the apex court, the judgments relied upon by learned standing counsel have no relevancy.
6. The issue to be decided in this appeal relates to the computation of deduction under sections 80HH and 80-I of the Act.
7. It is not in dispute that the assessee-company owns two separate industrial undertakings under its umbrella–one is the asbestos division and another is a spinning division. Both are independent units, functioning independently. Under the scheme of the Act, the assessee is entitled for deduction out of its profits in respect of the asbestos division. It is also not in dispute that the assessee earned profits of Rs. 1,38,21,748 in the asbestos division while if suffered a loss of Rs. 89,90,222 in the spinning division. While computing the profits, for deduction under sections 80HH and 80-I of the Act, the assessee-company took the profits derived from the asbestos division and claimed the deductions after computing the profits in accordance with the provisions of the Act but before setting off the loss that it had incurred in the spinning division. While so computing the assessee claimed deduction of Rs. 27,64,350 and Rs. 34,55,437 under the above two provisions, respectively, totalling a sum of Rs. 62,19,787. However, as the net profit after computation of the income from all the units was available
only to the extent of Rs. 48,31.526, the assessee restricted the claim for deduction only to that extent and claiming the balance to be carried forward to the next year. The said claim was not accepted by the Assessing Officer, as according to him, the deduction is to be allowed only after setting off the loss of spinning division also, and thus the Assessing -Officer computed the deduction available under the above two sections at Rs. 13,45,999 (wrongly shown for Rs. 14,38,999), against the claim of Rs. 48,31,526. According to learned standing counsel, the said computation is the proper computation in the light of the provisions of the Act and the decisions of the apex court.
8. Before proceeding further, it would be proper to refer to the relevant provisions :
“80AB. Where any deduction is required to be made or allowed under any Section except Section 80M included in this Chapter under the heading ‘C.–Deductions in respect of certain incomes’ in respect of any income of the nature specified in that Section which is included in the gross total income of the assessee, then, 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.
80B. (5) ‘gross total income’ means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter ;
80HH. (1) Where the gross total income of an assessee includes any profit 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 toial income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof . . .
80-I. (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, or the business of repairs to ocean-going vessels or other powered craft, 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.”
9. A perusal of the above provisions shows that Section 80B refers to the profits in respect of which deductions are available under various provisions referred to in Chapter VI-A of the Act. As according to the said section, for the purpose of computing the deduction under the specified sec-
tion, the amount of income, which was included in the gross total income as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A shall alone be considered. To the same effect is the definition of the gross total income referred to under Section 80B(5). Similarly, if we look into the provisions of sections 80HH and 80-I of the Act also, the benefit of deduction is referable only to the profits and gains derived from an industrial undertaking computed in accordance with the provisions of the Act, which was included in the gross total income of the assessee. The deduction is not referable to the gross total income of the assessee but is only with reference to the income of that particular industrial undertaking alone. The deduction is referable to “such profits and gains” included in the gross total income of the assessee. To be more explicit, the deduction is to be given only in respect of the profits and gains of an industrial undertaking included in the gross total income of the assessee and not from the gross total income of the assessee.
10. If the contention of learned counsel is accepted, it would lead to anomalous results. In the present case, the assessee-company is having two divisions, viz., asbestos division and spinning division, which are separate and independent industrial undertakings. The assessee derived profits from the asbestos division, whereas it has suffered loss from the spinning division. Therefore, the Department is contending that the deduction contemplated under the above two provisions is to be allowed only after computing the income of the two industrial units together. If the said contention of the Department is accepted, the assessee’s entitlement to benefit would be reduced by the extent of losses suffered in the spinning division. To illustrate the fallacy of the contention, suppose the assessee derives profits from both the units, but the assessee is entitled for deduction only from the asbestos division, then the assessee would be entitled to higher deduction, though that was not the intention of the Legislature. The benefit of deduction is intended only to certain specified industrial undertakings, which fulfil the conditions specified in the respective provisions. Take another case where an assessee has established an industrial undertaking in respect of which it is entitled for deduction from the profits and gains of that unit. The said unit may not contribute any profits and gains but the assessee derives huge income from non-industrial activity. In such case, if the Department’s contention is accepted the assessee is entitled for deduction even though there are no profits from the industrial undertakings. The intention of the Legislature is not to create such a situation, but to provide the benefit of deduction from the profits and gains of an industrial undertaking, which fulfils the conditions specified in the respective provisions of the Act. The said benefit is an incentive intended to boost the industrial activity. Hence, the proper interpretation is that the deduction shall be in respect of the profits and gains of an industrial under-
taking, specified in the provisions of the Act and not with reference to the total profits of the assessee. This view is also supported by the decision of the apex court in the case of Canara Workshops P. Ltd. .
11. The facts in the case of Canara Workshops P. Ltd. are :
12. The assessee is a public limited company, engaged in the manufacture of automobile spares. The products manufactured by it are covered by the list in the Fifth Schedule to the Income-tax Act, which is treated as priority industry, in respect of which the deduction is available at eight per cent, of the profits from that industry. The assessee had also commenced another industry for the manufacture of alloy steel, which is also included in the priority list. For the assessment years 1966-67 and 1967-68, the assessee sustained a loss in the alloy steel industry ; whereas it disclosed profit from the industry of automobile ancillarics. The assessee claimed relief under Section 80E of the Act at eight per cent, of the profits from the automobile industry. The provisions of Section 80E are in pari materia with the present provisions of sections 80HH and 80-I of the Act. The Income-tax Officer declined to grant the relief as claimed by the assessee for the relevant two assessment years on the ground that the assessee had not taken into account the losses incurred in the alloy steel industry. According to the Assessing Officer, the assessee is entitled for deduction under Section 80E on the profits of the manufacture of automobile parts only after setting off the loss in the alloy steel industry. After making certain adjustments the Assessing Officer computed the relief at a much lower figure than what was claimed by the assessee. This was contested in appeal by the assessee, unsuccessfully. But, however, on second appeal, the Income-tax Appellate Tribunal accepted the contention of the assessee that the deduction was permissible at eight per cent, on the entire profits of the automobile parts industiy included in the total income without deducting therefrom the losses in the alloy steel industry. Thereafter at the instance of the Revenue, the Tribunal referred the question for the opinion of the High Court. The High Court answered the question in favour of the assessee and against the Revenue. Therefore, further appeal was carried to the apex court. The apex court while confirming the judgment of the High Court held (headnote) : “In computing the profits for the purpose of deduction under Section 80E of the Income-tax Act, 1961, the loss incurred by the assessee in the manufacture of alloy steels (a priority industry) could not be set off against the profits of the manufacture of automobile ancillaries (another priority industry). The assessee was entitled to a deduction at eight per cent, on the entire profits of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture.” While negativing the contention of the Revenue the apex court specifically considered its own judgment
rendered in Distributors (Baroda) P. Ltd. . The observations of the apex court are as under (page 325) :
“That is a case in which the Constitution Bench of this court was called upon to consider the scope of Section 80M of the Income-tax Act. We do not see how that case is in any way relevant to the case before us. The point before the court appears to have been whether the income by way of dividends from a domestic company, which fell to he included in the gross total income of the assessee, should be the amount computed in accordance with the provisions of the Act or the full amount received from the paying company.”
13. Observing so, it was held that the said judgment is not relevant for the purpose of considering the issue as to the compulation of deduction under Section 80E, which is in pan materia with the provisions under consideration in the present case.
14. From the above decision, it is clear that the deduction contemplated is to be allowed with reference to the particular industrial undertaking and not with reference to the total income of the assessee.
15. Coming to the decisions relied upon by learned stand ing counsel, in the case of Motilal Pesticides (I) Pvt. Ltd. , the question that was considered by the apex court was whether the Tribunal was right in holding that the assessee was not entitled to deduction under Section 80HH of the Income-tax Act, 1961, on the gross profit of Rs. 34,30,035 but on the net income therefrom for the assessment year 1979-80. Though the facts were not brought out in the said judgment of the apex court, but the issue itself is totally different from the one which fell for consideration in the case of Canara Workshops P. Ltd. , before the apex court as well as in the present case before this court. The issue was not whether the deduction is to be allowed with reference to a particular industrial undertaking or with reference to the total income of the assessee, but whether on the gross profits or on the net income, as computed under the provisions of the Act. The apex court referred to the relevant provisions and thereafter referred not only to the judgment in Cloth Traders (P.) Ltd. v. Addl. CIT . as well as to the subsequent judgment in the case of Distributors (Baroda) P. Ltd. , where the apex court specifically held that the decision in Cloth Traders (P.) Ltd.’s case was not in accordance with the provisions of the Act. Thereafter it referred to another decision where a similar issue was also considered by the apex court in the case of H. H. Sir Rama Varma and upheld the view of the Delhi High Court in the above said decision.
16. The other decision referred to and relied upon by learned standing counsel is in the case of H. H. Sir Rama Varma . In this case, the dispute relates to the computation of long-term capital gains
under Section 80T of the Act, whether the deduction contemplated under the said provision is to be allowed before or after the capital losses brought forward from the earlier years, set off against the long-term capital gains of the current assessment year. In this case, the apex court, after referring to the provisions of sections 80A, 80AA, 80AB, 80B and 80T of the Act, referred to and relied upon the decision in the case of Distributors (Barada) P. Ltd. , and held that the provisions of Section 80AA were only dedaratory and finally held the view of the High Court that the deduction under Section 80T is to be allowed after setting off the capital gains carried forward in the earlier years. Here also the issue was only whether the deduction is to be allowed from the gross profit or profits as computed under the provisions of the Act. For the same reasons that arc recorded by the apex court in the case of Centura Workshops P. Ltd. , where it was held that the decision of the apex court in the case of Distributors (Baroda) P. Ltd. in no way advances the case of the Department, holds good for this decision also.
17. From the above it is clear that the ratio laid down by the apex court in the case of Canara Workshops P. Ltd. would squarely apply to the present case and not the ratio laid down by the apex court in the case of Distributors (Baroda) P. Ltd. , which was followed in the other two decisions.
18. Under the above circumstances, no substantial question of law arises
out of the order of the Tribunal and accordingly the appeal is dismissed.
19. No costs.