ORDER
I.P. Bansal, J.M.
1. This is an appeal filed by the Revenue against the order of CIT(A) in the case of assessee for asst. yr. 1994-95. The following ground of appeal has been raised.
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that deduction under Section 33AC of the IT Act, 1961, has to be allowed to the assessee before considering the unabsorbed investment allowance without appreciating that the provisions of Section 33AC clearly provides for that deduction under Section 33AC is to be allowed from total income computed before any deduction under Section 33AC and Chapter VI-A which means that brought forward investment allowance has to be adjusted prior to deduction under Section 33AC.”
2. The issue regarding the claim of the assessee under Section 33AC was restored to the file of AO by GIT(A) vide his order dt. 22nd Dec., 1997. In the order passed under Section 250, the AO while considering the claim under Section 33AC first granted the set off of unabsorbed investment allowance brought forward from asst. yr. 1990-91 and thereafter allowed the claim under Section 33AC. The computation of AO made in the order under s. 250 is as follows:-
Total income as per order
dt. 31st March. 1997
2,91.152,191
Less : Set off of unabsorbed
investment allowance of asst. yr. 1990-91
2,37,70,949
53,81,242
Less : Shipping reserve to
the extent of income available out of reserve of Rs. 1,00,00,000
53,81,242
Total income
NIL
As per computation of income, the assessee first reduced the deduction under Section 33AC which was claimed at Rs. 1 crore and then out of balance, adjusted brought forward unabsorbed investment allowance. The assessee is aggrieved by the order of AO passed under Section 250 whereby the AO had given effect first to brought forward unabsorbed investment allowance and thereafter provided the allowance under Section 33AC. The appeal was filed before CIT(A). Before CIT(A) it was claimed that the assessee was entitled for deduction under Section 33AC to the tune of Rs. 1 crore based on the requisite reserve created by it by debiting the said amount to the P&L a/c. The deduction under Section 33AC being an incentive deduction for development of shipping company and also being allowable only in the year in which the necessary reserve was created, therefore, the effect first should be given to deduction under Section 33AC. The investment allowance which can be carried forward upto further eight assessment years should be considered only after allowance of deduction under Section 33AC. The reliance was also placed on the Circular No. 26, dt. 7th July, 1955, in which while explaining Section 24(1) of the 1922 Act it was clarified by the Board that the Department should adopt the mode which will give the assessee the maximum benefit. Reference to various decisions was also made to contend that where there are two views, the view favourable to the assessee should be adopted. Considering the submissions the CIT(A) allowed the appeal of the assessee and directed the AO to allow deduction under Section 33AC before adjusting brought forward investment allowance of earlier years. The Revenue is aggrieved with such directions of CIT(A).
3. The learned Departmental Representative narrated the above-mentioned facts and contended that the CIT(A) was wrong in directing the AO to give
preference to the claim of deduction under Section 33AC in preference to brought forward unabsorbed investment allowance. He contended that for the purpose of deduction under Section 33AC. total income has to be computed first. Accordingly, unabsorbed investment allowance has to be reduced from the income before giving deduction under Section 33AC. He further contended that the provisions of Section 33AC are clear provisions. There is no ambiguity in the said provisions. In short, he relied upon the order of AO passed under Section 250 of the IT Act, 1961.
4. On the other hand, the learned counsel of the assessee referred to the statement of objects and reasons for insertion of Section 33AC contended that it was considered by the Government that development of shipping industry was extremely important and it needs Government’s assistance for further promotion in the shape of incentive under the tax system. He therefore, contended that Section 33AC was introduced to give incentive to shipping business. He further referred to Circular No. 554, dt. 13th Feb., 1990 in which vide para No. 9.1 it is mentioned that it is an incentive provision. Thus, he contended that this being an incentive provision should be taken in its real spirit. Referring to the para 4 of AO’s order under Section 250, he contended that Section 33AC could not find a mention in Explanation to Section 32A(3) as and when this provision was enacted, the provision of Section 33AC was not in existence. He further contended that deduction under Section 33AC cannot be carried forward and is limited to the year in which the reserve was created. He further contended that there being ambiguity in the provisions of IT Act as in regard to preference given to deduction under Section 33AC or unabsorbed investment allowance, the view favourable to assessee has to be adopted. He in this regard placed reliance on the following decisions :
(1) Bajaj Tempo Ltd. v. CIT (1992) 196 ITR 188 (SC);
(2) CIT v. Poddar Cement (P) Ltd. (1997) 226 ITR 625 (SC): and
(3) Asstt CIT v. Thanthi Trust (2001) 247 ITR 785 (SC).
He further contended that interpretation of provision should be made keeping in view the purpose of object for which it is enacted. For this contention, he relied upon the following decisions :
(1) Government of India v. Jagdish A. Sadarangani (1996) 221 ITR 338 (Mad);
(2) B.M. Parmar v. CIT (1999) 235 ITR 679 (P&H);
(3) International Computer Indian Manufacturers Ltd. v. Dy. CIT (1997) 63 ITD 195 (Mumbai); and
(4) Harisson Malayalam ltd. v. Dy. CFT (1995) 53 TTJ (Coch) 207 : (1997) 60 ITD
306 (Coch).
5. We have carefully considered the rival submissions in the light of material placed before us. The limited issue raised in this appeal is whether deduction under Section 33AC will have precedence over brought forward unabsorbed investment allowance. For this, it is necessary to reproduce the following provisions of IT Act.
33AC as applicable for asst. yr. 1994-95
“In the case of an assessee being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships there shall in accordance with an subject to the provisions of this section be allowed a deduction of an amount not exceeding the total income (computed before making any deduction under this section and Chapter VI-I) as is debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised in the manner laid down in Sub-section (2).”
Section 32A(3):
“Whether the total income of the assessee assessable for the assessment year
relevant to the previous year in which the ship or aircraft was acquired or the
machinery or plant was installed, or, as the case may be, the immediately
succeeding previous year [the total income for the purpose being computed
after deduction of the allowances under Section 33 and Section 33A, but without making
any deduction under Sub-section (1) of this section or any deduction under Chapter
VI-A] is nil or is less than the full amount of the investment allowance-
(i) the sum to be allowed by way of investment allowance for that assessment
year under Sub-section (1) shall be only such amount as is sufficient to reduce the
said total income to nil; and
(ii) the amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year.”
From the above provisions, it is clear that the total income computed for grant of deduction under Section 33AC will be total income before making any deduction under Section 33AC and Chapter VI-A. As unabsorbed investment allowance does not fall under Chapter VI-A, so the only exception to computation of total income remains the deduction under Section 33AC itself.
6. The total income as applicable to carried forward investment allowance has to be computed after deduction of allowance under Section 33 and Section 33A, but without making any deduction under Sub-section (1) of Section 32A or deduction under Chapter VI-A.
7. There is no force in the contention of the learned counsel that Section 33AC was incorporated later to Section 32A(3), therefore, there is no mention of Section 33AC in Section 32A(3). Had there been any intention of legislature, the legislature might have inserted Section 33AC also in the provisions of Section 32A{3) when the provisions of Section 33AC were inserted.
8. According to the provisions of Section 33AC total income has to be computed before making any deduction under Section 33AC and Chapter VI-A. The brought forward unabsorbed investment allowance which falls under Section 32A has to be considered first before granting any deduction under Section 33AC. There is no ambiguity in the provisions for grant of deduction under Section 33AC, therefore, the contention of the learned counsel that a view favourable to assessee should be adopted also has no force. It is true that the provisions of incentive should be construed liberally, but at the same time regard has to be given to the language of the section, which is very much clear that the total income has to be arrived at for the purpose of deduction under Section 33AC, after granting all the deductions and allowances except deduction under Section 33AC and deduction under Chapter VI-A.
9. In view of the above discussion, the view adopted by the AO was the only possible view and CIT(A) was wrong in directing the AO to consider the claim of the assessee under Section 33AC in priority to brought forward unabsorbed investment allowance. We set aside the order of CIT(A) and restore that of AO.
10. In the result, appeal of the Revenue is allowed.