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Income Tax Appellate Tribunal – Jodhpur
Secure Meters Ltd. vs Commissioner Of Income-Tax on 11 August, 2000


ORDER

S. R. Chauhan, J.M.

1. This appeal by the assessee for asst. yr. 1992-93 is directed against the order of CIT(A), Udaipur dt. 21st July, 1994, whereby he confirmed the action of AO in allowing deduction under ss. 80HHC and 80HHE (in Chapter VI-A) only after considering the brought forward losses, the depreciation, investment allowances, etc.

2. The assessee had claimed special deduction under ss. 80HHC and 80HHE of the IT Act, 1961. The AO allowed special deduction under ss. 80HHC and 80HHE by computing the profits and gains of business only after deducting therefrom the amount of unabsorbed depreciation and investment allowances. This manner of computing had the effect of reducing the assessee’s claim of rebate under s. 80HHC from Rs. 85,160 to Rs. 73,944 and under s. 80HHE from Rs. 1,22,928 to Rs. 1,06,739. Aggrieved thereby, the assessee preferred appeal before CIT(A) who vide his impugned order held that deductions under s. VI-A had to be allowed only after considering brought forward losses, depreciation, investment allowances, etc. Hence aggrieved, the assessee is in appeal before us.

3. We have heard the arguments of both the sides and also perused the records. We have also gone through the written submissions of the learned authorised representative of assessee as also the cited decisions placed on record.

4. The assessee has raised only one ground of appeal disputing the allowance of special deduction under ss. 80HHC and 80HHE of the IT Act, 1961, after deducting the brought forward losses and applying the provisions of s. 80AB and s. 80B(5). The learned authorised representative of assessee has contended that the learned CIT(A) has relied on Cambay Electric Supply Industrial Co. Ltd. vs. CIT (1978) 113 ITR 84 (SC) but the same does not apply in the instant case, nor is the case covered by the decision dt. 13th November, 1995, of Hon’ble Rajasthan High Court in the case of CIT vs. Vishnu Oil & Dal Mills (1996) 218 ITR 71 (Raj) passed in DBIT Ref. No. 1 of 1991. He has contended that the decision of the Hon’ble apex Court in (1978) 113 ITR 84 (SC) (supra) is on s. 80E which is on a different footing from s. 80HHC. He has contended that the relief claimed by the assessee and involved in this appeal is under s. 80HHC and the same is covered by the decision of Hon’ble Andhra Pradesh High Court CIT vs. Goginini Tobacco Ltd. He has contended that s. 80HHC speaks of profits of business to be computed under the head “Profits and gains of business and profession”. For this he has referred to sub-s. (3) of s. 80HHC. He has also drawn our attention to explanation below sub-ss. (3) and (4B), and in particular cl. (baa). He has contended that the various terms like “Adjusted export turnover” and Adjusted total turnover” and “profits of the business” etc. have been explained in the said Explanations. He has contended that s. 72 regarding carry forward and set off the business loss do not come in the way. He has contended that s. 72 will come into operation after profits are calculated. He has contended that s. 80AB does not supersede computation. He has cited Salgaocar Mining Industries Ltd. vs. Dy. CIT (1997) 58 TTJ (Pune) 468 : (1997) 61 ITD 105 (Pune) and contended that provisions of s. 80AB cannot be applied to the provisions of s. 80HHC. He has contended that s. 80HHC refers to business profits and does not provide that income from export should be included in gross total income (GTI). He has accordingly contended that carry forward business loss should not be set off for computing relief of special deduction under s. 80HHC. He has also cited CIT vs. Highway Construction Co. (1996) 217 ITR 234 (Gau) wherein it has been laid down that decision of a different High Court can be followed when there is no contrary judgment (of own jurisdictional High Court) and referred to in petition No. 2 on p. 2 of his written submission wherein extracts of s. 80HH is given and has contended that in this s. 80HH “Gross total income” of assessee has been referred and it is mentioned that where it includes the profits of industrial undertaking then deduction is to be allowed of twenty per cent of the said profits from such profits. He has referred to s. 80AB and contended that its language speaks of “gross total income” and the same including the income of the particular nature specified in any section under heading ‘C’ in Chapter VI-A and that here the deeming provisions is there and that after allowing other deductions including loss, etc., the income of that nature will be worked out regarding which special deduction is to be given. He has contended that s. 80HHC does not so refer. He has contended that in s. 80HHC it is the profit computed in accordance with this section regarding which special deduction is to be given. He has contended that there is material difference in the language of the two sections. He has contended that even the format prescribed for ss. 80HH and 80HHC are quite different from each other. He has also contended that s. 72 of IT Act does not fall within Chapter IV but falls within Chapter VI and so s. 72 does not come in computation under s. 80HHC. He has accordingly contended that the deductions both under ss. 80HHC and 80HHE be allowed before deduction of brought forward losses.

5. As against this the learned Departmental Representative of Revenue has contended that the judgment of Hon’ble Rajasthan High Court in the case of M/s. Vishnu Oil & Dal Mills (supra) is directly on the point involved in this appeal. He has contended that s. 80 contains incentive provision which applies when there is real income otherwise incentive provision will not come into operation. He has contended that brought forward losses will have, therefore, to be deducted. He has referred to s. 80B(5) which speaks of GTI and that GTI has to be worked out under IT Act, and that brought forward losses also come on the way. He has contended that s. 80B(5) is applicable in the matter as the same has overriding effect and that s. 80AB contains a non obstante clause. He has cited Mettur Chemical & Industrial Corporation vs. CIT (1996) 217 ITR 768 (SC) and contended that the Hon’ble Supreme Court has laid down in the said citation that development rebate has to be deducted from total income before computing relief under s. 84 of IT Act, 1961. He also referred to the decision of Hon’ble Rajasthan High Court in the case of Vishnu Oil & Dal Mills. He has contended that the decision of Hon’ble Supreme Court will apply to all sections from 80HH to 80VV. He has contended that accordingly all brought forward losses will have to be deducted first before allowing relief of special deduction.

6. In the rejoinder, the learned authorised representative of assessee has contended that the decision of Hon’ble Supreme Court in (1996) 217 ITR 768 (SC) (supra) is on s. 80E of the IT Act, whereas in the appeal under consideration the provision of s. 80HHC is involved and not s. 80E. He has also contended that in the case of Vishnu Oil & Dal Mills (supra) the issue before the Hon’ble High Court was of s. 80HH and not of s. 80HHC. He has also contended that the learned authorised representative of assessee has referred to the provisions of s. 80B(5) but s. 80HHC does not refer to GTI and that is not in issue before us. He has also tried to distinguish the decision of Hon’ble Kerala High Court in the case of CIT vs. V. T. Joseph (1997) 225 ITR 731 (Ker).

7. We have considered the rival contentions. The relevant material on record to which our attention has been drawn during argument as also the cited decisions.

8. We may note that the main emphasis of the learned authorised representative of assessee has been on distinguishing the language of s. 80HH from that of 80HHC and reference in that context of the decision of the Hon’ble High Court. In this regard, relevant provisions may, for convenience sake, be quoted hereunder :

“80HHC(1) – Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel in 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.”

“80HH(1) – Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise 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 of the profits derived by the assessee from the export of such goods or merchandise ……”

9. In the Hon’ble Andhra Pradesh High Court has held that special deduction under s. 80HHC is to be allowed from current year’s profit before adjusting unabsorbed depreciation and business loss carried forward from earlier years. It has been held that deduction under s. 80HHC is to be allowed out of profits derived from exports in view of the plain language on s. 80HHC. The reason for the above conclusion, as ascertainable from the judgment, seems to be that the s. 80HHC provides that deduction is to be allowed out of “profits” derived from exports and that it does not say that the deduction is to be allowed from “GTI”. It is in this context that the interpretation application to s. 80HH has been considered to be not relevant for interpretation of s. 80HHC.

10. However, from the perusal of records including the decisions of Andhra Pradesh High Court in we find that emphasis has been laid on the use of the expression “This section” in s. 80HHC and that it does not say that the deduction is to be allowed from the GTI. On a careful reading of the provisions, we find that the phraseology “in accordance with and subject to the provisions of this section” does occur in the language of s. 80HHC no doubt, but the same very much occurs in the provisions of s. 80HH as well. In s. 80HHC it is “a deduction of the profits derived by assessee” while in s. 80HH it is “a deduction from such profits and gains of an amount equal to twenty per cent thereof”. Thus, in s. 80HHC the deduction is of entire profits whereas in s. 80HH the deduction is of twenty per cent of profits. As such the deduction in both these sections being of profits, there does not appear to be any material difference in the languages of the two sections in this regard. In s. 80HH the term “GTI” has been used no doubt but the same has been used to express that it included “profits” (of industrial undertaking or hotel) and that twenty per cent of these profits was to be allowed as deduction under that section, i.e. under s. 80HH. The said user of “GTI” in s. 80HH is not material in anyway to distinguish s. 80HHC from s. 80HH because the non-user of “GTI” in s. 80HHC is for the reason that in s. 80HHC deduction is not of any partial percentage or part of “profits” but is of the entire profits. Besides, the use of the word “profit” instead of “income” also does not seem to be of any material significance here for the reason that income, under IT Act, is, in itself, nothing but the aggregation of six variables, namely, (a) salaries, (b) interest on securities, (c) income from house property, (d) profits and gains of business or profession, (e) capital gains, and (f) income from other sources.

11. We may illustratively express the analysis of the working out under s. 80HHC with reference to s. 80AB so as to make the nicety of the issue, involved in two distinct interpretations, self-explicable and to facilitate an easy understanding. Suppose the export profits are of Rs. 7 lakhs and carry forward past losses and depreciation are of Rs. 5 lakhs. As per the view taken by Hon’ble Andhra Pradesh High Court, the special deduction under s. 80HHC will be granted on Rs. 7 lakhs without deducting carry forward past losses and depreciation. As per the other view based on 80AB, the deduction will be allowed on Rs. 2 lakhs (Rs. 7 lakhs minus Rs. 5 lakhs). Even if the carry forward past losses are of Rs. 8 lakhs, as per the Hon’ble Andhra Pradesh High Court, special deduction under s. 80HHC will be allowed of Rs. 7 lakhs whereas according to the other view, no special deduction will be allowed as GTI will be negative figure after adjusting past carry forward Rs. 8 lakhs.

12. The view taken by the Hon’ble Andhra Pradesh High Court, in its decision referred to above, cited by the learned authorised representative of assessee, seems to be not in conformity with the decision of Hon’ble Supreme Court in the case of Motilal Pesticides (Ind.) (P) Ltd. vs. CIT (2000) 243 ITR 2 (SC) and of Hon’ble Rajasthan High Court in the case of Vishnu Oil & Dal Mills (supra). The provision of s. 80AB, relevant as it is, may, for convenience sake, be quoted hereunder :

“Sec. 80AB – Where any deduction is required to be made or allowed under any section included in this Chapter under the heading “C-Deductions in respect of certain income” 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 this gross total income.”

13. Obvious as it is, the said provision of s. 80AB contains a non obstante clause and the section therefore, has an overriding effect with respect to any section appearing under the heading “C” of Chapter VI-A. In that view of the matter, the interpretation of s. 80HHC has to be made in conformity with s. 80AB which, in unequivocal terms, provides that amount of income of that nature (export profits eligible for deduction under s. 80HHC in the instant case) will have to be computed in accordance with the provisions of this Act.

14. In the case of Motilal Pesticides (Ind.) (P) Ltd., (supra) the Hon’ble apex Court has expounded the legal position that the effect of s. 80AB is that deduction to be made in respect of income specified under the head “C” in this Chapter (VI-A) is to be allowed on net income and not on gross income. In the array of provisions in IT Act, 1961, s. 80HHC falls under head “C” within Chapter VI-A and so the judgment of the Hon’ble apex Court (supra) does apply squarely to s. 80HHC as well.

15. Likewise, the Hon’ble Rajasthan High Court has, in the case of Vishnu Oil & Dal Mills (supra) held that for computing special deduction allowable under head “C” or Chapter VI-A in respect of any income of the nature specified in that section, notwithstanding anything contained in that section (s. 80HHC in the instant case), the amount of income of that nature, as computed in accordance with the provisions of this Act, shall alone be deemed to be the amount of income of that nature (export profit in the case in hand) which is derived by assessee and which is included in GTI. The Hon’ble High Court has clearly held that unabsorbed losses and depreciation will have to be deducted first before arriving at the figure that would be eligible for such deduction under s. 80HH or any other section under this head “C” within Chapter VI-A.

16. We may also consider one more contention of the learned authorised representative of assessee being to the effect that for computing deduction under s. 80HHC, s. 80AB would not have any application and such computation has to be done with reference to the current year income i.e. business income computed before setting off the carry forward losses. Explaining further, he submitted that the gross total income (GTI) shall be computed after setting off the brought forward losses and allowances and while allowing the deduction under s. 80HHC as computed above, the claim shall be restricted to the GTI as per the provisions of s. 80AB. In support of this contention, he referred to the “Guidance Notes on Audit under s. 80HHB and 80HHC” issued by the Institute of Chartered Accountants of India, the relevant portion whereof may well be reproduced below :

“The term “profit derived by the assessee from export business” has not been limited to the ‘profits’ included in the gross total income or in the total income. Therefore, considering the context, in one view of the matter, it appears that for purposes of computing deduction under s. 80HHC, the brought forward losses and allowances are not to be deducted from profits and gains of business or profession. The deduction is to be computed with reference to the profits and gains of business or profession of the current year without setting off the brought forward losses and allowances. Once the deduction is computed, that deduction shall be restricted to profits and gains of business or profession computed after setting off the brought forward losses and allowances. If after setting off the brought forward losses or allowances, there is no income under head “profits and gains of business or profession”, then no deduction will be available to the assessee.”

17. The Institute has given the following illustration to further clarify its views :

Rs.

Profits and gains of business or profession before 
setting off the brought forward losses 
and allowances                                              50 lakhs 
Brought forward losses & allowances                         30 lakhs 
Export turnover                                            200 lakhs 
Total turnover                                             400 lakhs 
 
 

Deduction under s. 80HHC will be computed with reference to Rs. 50 lakhs. Assuming that in the present cases, manufactured goods are exported, the deduction shall be : 
 

50 lakhs x 200 lakhs/400 lakhs = 25 lakhs 
 

 But since the income under the head "profits and gains of business or profession" after setting off the brought forward losses and allowance is Rs. 20 lakhs, the deduction shall be restricted to Rs. 20 lakhs." 
 

18. It may be observed that the views expressed by the Institute are in noway different from the decisions of Hon’ble Supreme Court as well as Hon’ble jurisdictional High Court relied upon in our order above so far as the applicability of provisions of s. 80AB while allowing the deduction under s. 80HHC is concerned. The only issue which remains to be considered is as to whether the computation of deduction under s. 80HHC is also restricted by s. 80AB. In this respect, we may analyse the provisions of s. 80AB, for the sake of clarity and better understanding as under :

(a) Where any deduction is required to be made or allowed under any section included in this chapter under the heading “C – deductions in respect of certain income” in respect of any income of the nature specified in that section which is included in the GTI of the assessee,

(b) then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section,

(c) the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter),

(d) 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 GTI.

19. From a perusal of the above analysis of s. 80AB it is evident that the deduction mentioned in s. 80AB is to be allowed in respect of any income of the nature specified in that section which is included in the GTI of the assessee as mentioned in situation (a) above and if there is any controversy of conflict in the determination of such amount of income for computation of deduction like the one raised here in respect of deduction under s. 80HHC, the amount of income mentioned in situation (c) above shall alone be deemed to be such income as mentioned in situation (d) above. Therefore it becomes clear that in that present case, for the purpose of computation of deduction under s. 80HHC, the amount of income from export business, as computed in accordance with the provisions of IT Act, shall alone be deemed to be the amount of income from export business which is derived by the assessee and which is included in the GIT. Consequently, the controversy regarding the allowance and computation of deduction on different amounts gets automatically settled as the basis for working out the computation as well as deduction remains the same amount as mentioned in (c) and (d) above. The purpose of incorporating the deeming provisions in s. 80AB is perhaps to avoid any conflict or dispute in allowance and computation of any deduction under s. 80. Therefore, the legal position that follows clearly from the reading of s. 80AB is that the restrictions/limitations provided in the said section apply to both computation as well as to allowance of deduction under s. 80HHC which ultimately renders the contention of the learned authorised representative of assessee to be devoid of force and being not tenable in law.

20. In view of the settled position of law as clearly enunciated by the Hon’ble Supreme Court as also by the Hon’ble Rajasthan High Court referred/discussed above, it is no more necessary to elaborate the interpretational/analogy between the two sections, or for that matter, enter into a discussion of various other citations referred to by the learned authorised representative of assessee. As such, considering all the facts and circumstances of the case, as also the discussions made by us above, the conclusion we may draw is that the relief of special deduction under head “C” of Chapter VI-A of IT Act, 1961, is to be allowed not on net income/profit and not on gross profit/income, or in other words, the carried forward business losses, unabsorbed depreciation and investment allowances have to be considered/adjusted first, and thereafter only the special deduction postulated in Chapter VI-A needs appropriately be allowed. We may also mention here that this Bench has earlier also taken a similar view in its decision dt. 8th February, 2000 in ITA No. 667/Jp/1993 for asst. yr. 1986-87 in the case of Dy. CIT vs. Wolkem (P) Ltd. That being the position, we find the impugned order of learned CIT(A) to be in noway laconic and to be quite justified and we, therefore, find no fault therewith.

21. In the result, this appeal of assessee is found to have no merits and this accordingly dismissed.


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