The Commissioner Of Income-Tax vs M/S.S.S.C.Shoes Ltd on 25 November, 2002

[Cites 10, Cited by 8]

Madras High Court

The Commissioner Of Income-Tax vs M/S.S.S.C.Shoes Ltd on 25 November, 2002

The assessee is a company. The assessee claimed deduction under section 80HHC of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') for the assessment year 1987-88 and 1988-89. There is no doubt that the assessee was entitled to claim deduction under section 80 HHC of the Act, but however, the Income-tax Officer, while completing the assessment for the years 1987-88 and 1988-89 restricted the deduction available under section 80 HHC of the Act applying the provisions of sub-section (1) of section 80 VVA of the Act. A sum of Rs.2,04,475/- was not granted to the assessee in respect of deduction admissible under section 80 HHC for the assessment years 1987-88 and 19 88-89. The assessment year with which we are concerned is 1989-90. The assessing officer, in the assessment of the assessee for the assessment year 1989-90, held that the assessee was not entitled to carry forward and set off the deduction under section 80 HHC of the Act relating to the earlier years on the ground that the deduction cannot be carried forward and his view was also confirmed by the Commissioner of Income-tax (Appeals) holding that section 80 VVA of the Act was omitted from the statute book and therefore the assessee was not entitled to the relief claimed.

2. The Income-tax Appellate Tribunal, however, took a different view and held that a vested right had accrued to the assessee to carry forward and set off the relief to which it was entitled during the subsequent assessment years under sub-section (4) of section 80VVA of the Act and hence, the assessee was entitled to carry forward the relief which was restricted under section 80 VVA (1) of the Act. The Appellate Tribunal, relying upon the decision of this Court in J.K. K. Angappan's case (94 ITR

397), held that by virtue of section 6 of the General Clauses Act the assessee was entitled to carry forward the relief though Section 80 VVA of the Act was omitted from the statute book. The Appellate Tribunal allowed the appeal by the assessee.

3. On the basis of the directions of this Court, the Appellate Tribunal has stated a case and referred the following question of law:

" Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in directing the assessing officer to give set off of deduction under section 80 HHC in the assessment year 198 0-90 carried forward from the assessment years 1987-88 and 1988-89 by virtue of the restrictions imposed by section 80 VVA of the Incometax Act?"

4. We heard Mrs.Pushya Sitharaman, learned senior standing counsel for the Revenue and Mr.George Philip, learned counsel for the assessee.

5. Section 80 VVA of the Act was introduced by the Finance Act, 198 3 with effect from 1.4.1984 to curb the expenditure in case of companies which had paid no tax or paid nominal tax due to absorption of various fiscal incentives and concessions granted to the companies though the companies were highly profitable companies. The section came to be introduced when it was found that several highly profitable companies were able to reduce their tax liability to zero though they continued to pay dividend and hence, the restriction was imposed to the effect that the fiscal incentives and deductions granted under Chapter VI-B of the Act should not exceed 70% of the profits. Section 80 VVA(1) has imposed certain restrictions on the allowability of certain deductions specified in sub-section (2) of that section and the deductions were restricted in the sense that the deduction was granted to the extent of 70% of the amount of profits as computed under sub-section (2) of section 80 VVA of the Act. Section 80VVA(4) of the Act provides that where the deduction was not granted in respect of any provision specified in section 80 VVA (2) of the Act, by virtue of the restrictions, the amount remaining unallowed shall be added to the amount to be allowed in the next financial year and shall be deemed to be a part of the deduction admissible to the assessee under the said provision for that year. Section 80 VVA(4) further provides that the deduction not allowed shall be added to the deduction for the succeeding assessment years. Section 80 VVA was deleted by the Finance Act, 1987 with effect from 1.4.1988 and in its place section 1 15J of the Act was introduced.

6. There is no dispute that the assessee was not granted the relief or deduction for a sum of Rs.2,04,475/- in respect of the claim under section 80 HHC of the Act for the assessment years 1987-88 and 1988 -89. Though section 80 VVA of the Act was deleted, the effect of sub-section (4) of section 80 VVA of the Act is that the unallowed remaining deduction was permitted to be carried forward to the next succeeding assessment year and by statutory fiction it is deemed to be the deduction for the next following assessment year which means that it is liable to be allowed in that year in accordance with the provisions of the Act. In other words, the assessee has a statutory right to carry forward the unallowed deduction. The effect of section 80 VVA(4) of the Act is that the unallowed deduction under sub-section (2) of section 80 VVA of the Act is taken to be deduction allowable in the next following assessment year. We are therefore of the view that notwithstanding the deletion of section 80 VVA of the Act, the assessee is entitled to claim the deduction in accordance with law and the deletion of section 80 VVA(4) has no effect as the disallowed deduction is deemed to be a deduction allowable in the next following assessment year.

7. We therefore hold that the statutory right under section 80 VVA (4) of the Act conferred on the assessee is not taken away by the deletion of section 80 VVA from the statute book and the assessee is entitled to claim the deduction, but was disallowed as a deduction, in the next following assessment year. In other words, a vested right had accrued in favour of the assessee and that right is not taken away either expressly or by necessary implication by the deletion of section 80 VVA of the Act.

8. The Supreme Court has considered a similar question in C.I.T. V. SHAH SADIQ & SONS (166 ITR 102) where the Supreme Court held that the accrued right of the assessee could be taken away expressly or by necessary implication. In that case, the Supreme Court was dealing with a case of carried forward loss and the Supreme Court held that under section 6(c) of the General Clauses Act, the assessee had a vested right to carry forward the loss though the Act was repealed and laid down the principle of law as under:-

" ... the right of the respondent under section 24(2) of the 1922 Act to carry forward and set off speculation losses of the assessment years 1960-61 and 1961-62 was an accrued right and a vested right: it could have been taken away expressly or by necessary implication. This had not been done either by section 75 or by section 297 of the 1 961 Act. That vested right was preserved by section 6(c) of the General Clauses Act. The respondent was, therefore, entitled to the set-off claimed."

9. Though the Supreme Court was dealing with a case of repeal of an enactment, the principle laid down by the Supreme Court would apply to carry forward the deduction provided under section 80 VVA(4) of the Act. Hence, we are of the view that it is not necessary to consider the larger question that section 6 of the General Clauses Act does not apply to the omission of a provision and the omission of a provision is different from 'repeal' as held by the Supreme Court in M/s. RAYALA CORPORATION (P) LTD. AND M.R.PRATAB v. DIRECTOR OF ENFORCEMENT, NEW DELHI (1969) 2 SCC 412) and KOLHAPUR CANE SUGAR WORKS LTD. v. UNION OF INDIA (2000) 2 SCC 536) as the assessee had secured a right to carry forward the unabsorbed deduction deeming the same as the deduction of the next following assessment year when section 80 VVA was in existence and in full force, which was not taken away by the omission of the provision from the statute book. Following the principle laid down by the Supreme Court, we hold that the Appellate Tribunal was correct in holding that a vested right had accrued to the assessee to treat the deduction disallowed as a part of deduction for the next assessment year to be allowed in the computation of total income for the next following assessment year and the assessee is entitled to carry forward the deduction for the subsequent assessment years, if not allowed, as the deduction disallowed would join the main stream of deduction.

10. We therefore hold that the Appellate Tribunal has come to the correct conclusion in holding that the assessee was entitled to claim the relief even though section 80 VVA of the Act was omitted from the statute book by the Finance Act, 1987 with effect from 1.4.1988, and there are no grounds to interfere. Accordingly, the question of law referred to us is answered in the affirmative, against the Revenue and in favour of the assessee. However, in the circumstances, there will be no order as to costs.

Index:Yes Web site: Yes na.

1. The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, Besant Nagar, Chennai 600 090 (five copies with records)

2. The Secretary, Central Board of Direct Taxes, New Delhi (3 copies)

3. The Commissioner of Income-tax, Tamil Nadu-II Madras.

4. The Commissioner of Income-tax (Appeals-VII), Madras.

5. The Assistant Commissioner of Income-tax,

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