Income Tax Appellate Tribunal - Mumbai
Mercator Lines Ltd. vs Deputy Cit, Range 5(1) on 25 June, 2007
ORDER
Sunil Kumar Yadav, Judicial Member
1. These appeals are preferred by the assessee as well as the revenue against the respective orders of the Commissioner (Appeals). Since common issues are involved in these appeals these were heard together and are being disposed of by this consolidated order.
ITA Nos. 8045, 8046 & 8047/M/2003
2. These appeals are preferred by the assessee on almost common grounds. We, therefore, adjudicate them on the basis of issues involved therein.
3. In appeal No. 8045/M/2003 first ground relates to the validity of reopening of assessment. During the course of hearing this ground was not pressed by the learned Counsel for the assessee. As such it is dismissed being not pressed.
4. Next issue in these appeals relates to the computation of deduction under Section 33AC. For the sake of reference we take up the facts for the assessment year 1997-98 in ITA No. 8045 of 2003 in which the assessee, claimed deduction under Section 33AC on interest income and miscellaneous income amounting to Rs. 1,22,630 besides other business income of operation of ships. The assessing officer disallowed the deduction under Section 33AC on this interest income and miscellaneous income and reduced the claim of deduction from Rs. 82,40,660 to Rs. 81,79,345. While Adisallowing the claim of the assessee, the assessing officer observed that interest income and business income was not derived from the operation of ships. The assessee preferred an appeal before the Commissioner (Appeals) but could not find favour with him. He has disallowed the claim of the assessee following the judgment of the Apex court in the case of CIT v. Sterling Foods (1999) 237 ITR 5791.
5. Now the assessee is before us with the submissions that interest was generated on FDRs purchased for business purposes and likewise the miscellaneous income, i.e., insurance claim and sale of scrap was also generated during the course of business of operation of ships. He has invited our attention to the language used in Section 33AC of the Income Tax Act. As per Section 33AC deduction is eligible on profits derived from the business of operation of ships. As such the income generated during the course of business of operation of ships is eligible for deduction under Section 33AC. The lower authorities relied upon the judgment of the Apex C court in the case of Sterling Foods (supra) which has been rendered with reference to Sections 80-I and 80HH of the Act in which the eligible income should have been derived from industrial undertakings. Under Section 33AC the eligible income is a profit derived from business of operation of ships. When the words 'business of operation of ships' or 'industrial undertakings', is used, the scope of eligible income is wider than the income which is derived from the industrial undertakings or operation of ships. Since the insurance claim and the sale proceeds of scrap are received during the business of operation of ships, it is eligible for deduction under Section 33AC. Likewise the interest income earned on FDRs, which were purchased for business exigencies are also eligible for deduction under Section 33AC of the Act.
6. The learned DR placed reliance upon the order of the lower authorities.
7. Having given a thoughtful consideration to rival submissions and from a perusal of provision to Section 33AC, we find from the language used in Section 33AC that the eligible income is profit derived from the business of operation of ships. Profit from business means any profit generated during the course of business of operation of ships and does not confined only for operation of ships. The lower authorities have placed reliance upbn the judgment of the Apex court in the case of Sterling Foods (supra) which has no relevance to the present controversy as it was rendered with reference to Sections 80-I and 80HH of the Act wherein the eligible profit must be derived from industrial undertakings and not from the business of industrial undertakings, meaning thereby the scope of eligible profit is wider in Section 33AC in comparison to Sections 80-I and 80HH. But during the course of hearing nothing has been placed on record by the learned Counsel for the assessee whether the insurance claim was received by the assessee during the course of business of operation of ships. Similar is the position with regard to the interest earned on FDRs. If the FDRs are purchased to obtain the credit limit or on account of business exigencies the interest generated thereon certainly be business income and is eligible for deduction under Section 33AC. In case surplus funds were put in FDRs and interest was generated thereon that interest income would not qualify to business income of the assessee and also would not be eligible for deduction under Section 33AC of the Act. So far as sale of scrap is concerned it is certainly generated during the course of business of operation of ships. Sale proceeds of it will certainly be an income derived from the business of shipping operation and, as such, eligible for deduction under Section 33AC of the Act. Since the relevant information with regard to insurance claim and interest earned on FDRs are not available on record we restore the matter to the file of the assessing officer to readjudicate the issue in terms indicated above. If he comes to the conclusion that the insurance claim and interest on FDRs were received during the course of business of shipping operation of the assessee, deduction be allowed otherwise it would be treated as income from other sources.
8. So far as variation in the figures of Return Income and assessee's income are concerned we are of the view that assessee is entitled for deduction under Section 33AC on the finally assessed income from business of operation of ships. In this regard the Commissioner (Appeals) has also issued directions for rectification by the assessing officer. As such no further direction is required. We, however, of the view that the deduction is always available on the assessed income and not on the Returned income.
9. Next issue relates to the disallowance of claim under Section 35D of the Act. In this regard also we take up the fact for the assessment year 1997-98 in ITA No. 8045 of 2003.
10. During the year assessee incurred public issue expenses and he claimed its 1/10th at Rs. 8,60,000 as deduction under Section 35D of the Income Tax Act. The assessing officer issued show-cause notice as to why deduction under Section 35D should not be disallowed as deduction is available only to the industrial undertakings. In response thereto the assessee wrote a letter on 26-12-2002 stating therein that the assessee has written off public issue expenses of Rs. 8.6 lakhs. The same is capital expenditure in view of the Supreme Court Judgment. As against this the amount allowable under Section 35D works out to be Rs. 2,78,134 being 10 per cent of 2.5 per cent of capital employed. He accordingly made a request that the excess amount of Rs. 5,81,866 to be disallowed. With regard to entitlement of its claim it was submitted that operation of ships is also an industrial undertaking. Since the words 'industrial undertakings' or 'industrial unit' has not been defined in the Act, especially in the context of Section 35D, one has therefore to look at the generic meaning of the words 'industrial undertaking' or 'industrial unit' and to look at the definition elsewhere in other provisions of the Act. Reliance was further placed upon Explanation 1 to Section 10(15)(iv)(i), according to which industrial undertaking means any undertaking which is engaged in manufacture and processing of goods or the operation of ships or aircrafts or construction or operation of rail systems. Therefore there is no reason why this definition cannot be applied to the provision of Section 35D of the Act. Reliance was also placed on the judgment of Bombay High Court in the case of Ship Scrap Traders v. CIT(2001) 251 ITR 8061 and Gujarat High Court in the case of CIT v. J.B. Kharwar & Sons (1987) 163 ITR 3942. Contentions of the assessee was thoroughly examined by the assessing officer and he finally concluded that the meaning of industrial undertaking imparted in Explanation 1 to Section 10(15)(iv)(i) and Section 80-IA bear different context and significance. He, accordingly disallowed the claim of the assessee. Relevant observations of the assessing officer are extracted here as under:
Before going into merits; and demerits of allowability of deductions, I feel it is necessary and expedient to go through the relevant statute. For the sake of conveyance and better understanding the relevant provisions of Section 35D are reproduced below:
35D. Where an assessee being an Indian company by or person (other than a company) who is resident in India incurs, after 31st day of March, 1970 any expenditure specified in Sub-section (2)
(i) before, the commencement of his business or
(ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting of a new industrial unit....
the assessee shall, in accordance with and subject to the provisions of the section, be allowed a deduction of an amount equal to 1/10th of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or as the case may be, the previous year in which extension of the industrial undertaking is completed or new industrial unit commences production or operation.
From the provision of Section 35D, it is clear that, only Indian company can amortize expenditure: incurred on public issue of shares or debentures of the company when such Indian company makes that issue in connection with extension of industrial undertaking or setting up of a new industrial unit. The term "Industrial Undertaking" or "Industrial Unit" has not been defined in the Section 35D and therefore, these terms must be given their natural meaning. "Undertaking in common parlance means an "enterprise", "venture" or "engagement". An undertaking must be one maintained by a person for the purpose of carrying on his business and must be "Industrial Undertaking". The demonstrative adjective "Industrial" qualifying the word "undertaking" and "unit" unmistakably and with precision shows that the undertaking or unit must be one which partakes the character of an industry. The terms "Industrial Undertaking" means an undertaking engaged in the business of manufacture or processing of goods. It was held by the Calcutta High Court in the case of CIT v. Textile Machinery Corporation 80 ITR 428 that the words "industrial undertaking" in the Indian Income Tax Act should be interpreted to mean any venture or enterprise which a person undertakes to do which has relation to some industry or has some industrial consequences. In another case CWT v. C.S. Rao (147 ITR 437) it was held by Andhra Pradesh High Court that industrial undertaking is one which is engaged in the manufacture or processing of goods and the process of converting paddy into rice amounts to manufacture and also processing of goods.
An "Industry" in one which has industrial consequences, that is, it carries on manufacture or processing of goods or articles. In case of Ujjagar Prints v. Union of India (179 ITR 341) it was held by the Supreme Court that the prevalent and generally accepted test to ascertain whether there is "Manufacture" is to find out whether the change of series of changes brought about by the application of process takes the commodity to a point where, commercially speaking, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of processes. An industry can be engaged in processing of goods. The Supreme Court had held in the case of Delhi Cold Storage (199 ITR 660) that processing is understood as an action which bring forth some change or alteration of the goods or material which is subjected to the act or processing.
Under the provisions of Section 35D in case an Indian Company makes a public issue of debenture after commencement of its business, then in order to determine the previous year in which the deduction is to be first allowed, one has to ascertain the year in which the extension of industrial undertaking is completed or the new industrial unit commences production or operation. Whether it is undertaking or a unit it has to be "Industrial Undertaking" or "Industrial Unit" and it is the date of completion of extension of industrial unit which is relevant for the purpose of Section 35D.
When the Indian Company which is carrying on business of operation of ships that carry goods, passengers, etc. acquires a new ship, it cannot be said to have extended its industrial undertaking or set up a new industrial unit. Acquisition of a ship is not referred to a setting up of an industrial unit. A ship is not used to manufacture or produce any article or goods but is used to carry goods, passengers, etc. from one place to another. Therefore, a ship is not an industry. A company which is carrying on business of operation of ships cannot be considered to be having an industrial undertaking consisting of one or more ships which is extended by acquisition of a ship as neither a ship nor a fleet of ships can be said to be an industrial undertaking. A ship is a unit but not an "Industrial Unit". Under the provisions of Section 43, a ship is defined to be a plant for which rate of depreciation is given in the Appendix-1 to the Income-tax Rules. A ship shall have a date on which the operation of carriage of goods, passengers, etc. commences but then a ship is not an industrial unit or undertaking having a date on which it began to manufacture or produce. Accordingly it is held that assessee's business of shipping cannot be considered to constitute an "Industrial Undertaking" or an "Industrial Unit".
It is worth noting that in Sections 80-I and 80J, industrial undertaking and ship have been separately mentioned, whereas in Section 35D the word "ship" is conspicuous by absence. A reading of Section 80-I makes it clear that out of the entire service sector only assessee engaged in operation of ship or running a hotel or repair of ocean going vessels are entitled to benefit under Section 80-I and the rest are denied the benefit. Similarly, the entire service sector or trading sector companies stand exclude from the benefit of amortization under Section 35D if such expenditure was incurred after the commencement of business.
Since the assessee's business of shipping cannot be considered to constitute "industrial unit", the claim of Rs. 8,60,000 under Section 35D of the assessee is not allowed and the same is added back to the taxable income.
It may not be out of place to mention here that on identical facts in other shipping cases, the Hon'ble Commissioner (Appeals)XIV has confirmed the disallowance made by the assessing officer in the case of Great Eastern Shipping Co. Ltd. Assessment Year 1993-94 Appeal No. Commissioner (Appeals) DCSR.31/IT/124/95-96 dated 19-11-1998, Tolani Ltd. Assessment Year 1995-96 Appeal No. Commissioner (Appeals) XIV/DCSR.31/IT 43/98-99 dated 18-1-1998 and Tolani Shipping Co. Ltd. Assessment Year 1995-96 appeal No. Commissioner (Appeals)/DCSR/31/IT 156/97- D 98 dated 18-11-1998.
The assessee's objection regarding reopening of the issue of disallowance under Section 35D, which has already been decided by the assessing officer in the order passed under Section 143(3) on the basis of changing of opinion is not acceptable on the basic premises that the purpose of Section 147/148 are to protect the interest of revenue. Any escapement of income, be it on the part of the assessee or on omission on the part of the department, it noticed within the valid time limit, irrespective of the fact that whether order has been passed summarily under Section 143(1) or in a scrutiny assessment under Section 143(3) of the Income Tax Act can be brought to tax. As regards assessee's contention that disallowance under Section 35D could not have been made as the shipping business is an industrial undertaking, the same is not tenable. The definition, which has been cited by the assessee, in Explanation 1 to Section 19(15) of the Income Tax Act, is inclusive and has limited meaning to that section only. As regards, comparison with the deduction allowable under Section 80-IA, the same is different in the context that those deductions are available on the total income under Chapter VI-A. However, the deduction under Section 35D is simply an expenditure which is to be allowed for the purpose of computation of profit from business and profession. Hence, the meaning of an industrial undertaking imparted in Explanation 1 to Section 10(15) and Section 80-IA bear different context and significance. The distinction between these various sections will have to be understood in its correct perspective as to while Chapter III (for Section 10) excludes certain income from the total income. Chapter VI-A (section 80-IA) provides certain deductions to be made in computing total income. Section 35D is part of the scheme as to how to compute the total income. The purport of the different sections of the Act are different and so the intention of the Legislature should be read.
11. The assessee preferred an appeal before the Commissioner (Appeals) and reiterated its contentions but the Commissioner (Appeals) relying upon the judgment of the Madras High Court has confirmed the disallowance. Now the assessee has preferred an appeal before the Tribunal.
12. The learned Counsel for the assessee, besides reiterating the submissions raised before the lower authorities, has invited our attention to the provisions of Sections 33AB, 80-IA, 80-IB and Explanation 1 to Section 10(15)(iv) with the submission that industrial undertaking has not been defined in Section 35D. As such its real meaning should be understood in the light of the definition of industrial undertaking given in other provisions of the Act. Through Explanation 1 to Section 10(15) industrial undertaking is defined and according to it industrial undertaking means any undertaking which is engaged in different type of activities including the operation of ships or aircrafts or construction or operation of rail system. The learned Counsel for the assessee has also placed reliance upon D the following decisions:
(i) CIT v. J.B. Kharwar & Sons
(ii) Ship Scrap Traders v. CIT (2001) 251 ITR 8062 (Bom.)
(iii) CIT v. Textile Machinery Corporation
(iv) CWT v. C.S. Rao (1988) 174 ITR 6123 (AP)
(v) Ujjagar Prints v. Union of India .
13. The learned DR, on the other hand, submitted that definition of industrial undertaking given in Explanation 1 to Section 10(15) of the Act has its restrictive meaning only for the purposes of the Sub-clause (15). Explanation 1 starts with the words "for the purpose of this clause" meaning thereby Industrial undertaking is defined only for the purpose of Section 10(15) and its meaning cannot be stretched or extended to define the words 'industrial undertaking' for the purpose of other sections of the statute. The learned DR has invited our attention to provisions of Section 80-IA in which Legislature has allowed deduction not only to industrial undertakings but also to hotels, operation of ships or developing, maintaining and operations infrastructural facilities or scientific and industrial research and development or providing telecommunication services. Had the definition of industrial undertaking include the operation of ships, there would have been no need to include 'operation of ships' while allowing deduction under Section 80-IA. Business of operation of ships was considered to be independent business excluding industrial undertaking. The learned DR further invited our attention to Sub-section (12) of Section 80-IA which defines the industrial undertaking. It has adopted the meaning of industrial undertaking as defined in Explanation to Section 33B. As per Explanation 33B industrial undertaking means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. The learned DR further contended that since the operation of ships does not fall within the definition of industrial undertaking, deduction under Section 35D was rightly denied by the lower authorities.
14. Having heard the rival submissions and from a careful perusal of the orders of the lower authorities and documents placed on record we find that the claim of deduction under Section 35D was denied to the assessee for the reasons that operation of ships does not fall within the definition of industrial undertaking. Undisputedly, the words 'industrial undertaking' has not been defined in Section 35D. Whatever reference was made by the learned Counsel for the assessee for definition of industrial undertaking, it was only for the purpose of particular section. General definition of industrial undertaking has not been given any where in the Act. Though as per Explanation J to Section 10(15) of the Act operation of ships falls within the definition of industrial undertaking but it has been mentioned in this Explanation that this definition of industrial undertaking is only for the purpose of this clause, i.e., Clause (4) of Sub-section (15) to Section 10. Even this definition of industrial undertaking is not extended to other clauses of Sub-section (15) of Section 10. It has restricted meaning and as such this definition cannot be extended or stretched to other provisions of the Act. We have also examined provisions of Section 80-IA and we find that deduction under Section 80-IA was eligible to profits and gains derived from any business of industrial undertaking or a hotel or operation of ships or developing, maintaining and operating any infrastructural facilities or scientific and industrial research and development or providing telecommunication services, etc. Had the industrial undertaking meant any undertaking engaged in operation of ships there would have no need for the legislation to have separate categories of undertaking as operation of ships while allowing deduction of profit derived from that undertaking. If every time the meaning of industrial undertaking is the same, the Legislature could have defined industrial undertaking at one place in the Act and thereafter they simply used the words 'industrial undertaking' in any of the section where they want to give the benefit to industrial undertaking. But that is not the case. In the absence of specific definition of industrial undertaking we have to go with the plain definition of industrial undertaking. Under Section 80-IA(12) industrial undertaking has not been specifically defined but it has adopted the meaning assigned to it in Explanation to Section 33B of the Act. In Explanation to Section 33B industrial undertaking is defined and it means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. This definition of industrial undertaking is adopted by other provisions of the Act where deductions are allowable to the assessee under Sections 80-I, 80HH, 80-IA and 80-IB. In a common parlance the industrial undertaking means an undertaking engaged in the business of manufacture or processing of goods. The words 'industrial undertaking' has been defined by the Calcutta High Court in the case of CIT v. Textile Machinery Corporation in which they have held that the words "industrial undertaking" in the Income Tax Act, 1922 should be interpreted to mean any venture or enterprise which a person undertakes to do which has relation to some industry or has some industrial consequences. The notion of any undertaking basically means that it has got complete, concrete and tangible nature in the part of industry to make it industrial undertaking.
15. We have also examined the judgment referred by the assessee in the case of CIT v. J.B. Kharwar & Sons in which no general definition of industrial undertaking was giventhe Lordship simply held that dyeing and printing of gray cloths amounted to manufacture or production for the purpose of Section 80J(4)(iii) of the Act. The dispute was whether there was manufacture or production of new article. Definition of industrial undertaking was not in dispute. As such this judgment would not render any assistance. In the case of Ujjagar Prints v. Union of India the Lordship of the Apex court has simply defined the word 'manufacture' but here the issue in dispute is with regard to general definition of industrial undertaking, "whether operation of ships falls with within the definition of industrial undertaking?". Again in the case of Ship Scrap Traders v. CIT (2001) 251 ITR 8062 (Bom.), the issue in dispute was whether ship breaking amounts to manufacture or production of things or articles within the meaning of Sections 80HH and 80-I. Again the definition of industrial undertaking was not in dispute. Whatever judgments are referred to by the assessee, they are not at all relevant to the present controversy. To understand the real meaning of Industrial Undertaking one should go either to the plain or general meaning or the meaning adopted in various provisions of the Act. As per plain and general meaning, industrial undertaking should be an undertaking engaged in the manufacture or processing of goods. The similar definition is also in Explanation 1 to Section 33B, according to which industrial undertaking means any undertaking which is mainly engaged in the business of generation of or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. We, therefore, do not find any merit in the arguments of the assessee.
16. We, however, carefully examined the order of the lower authorities in this regard and we find that they have given valid reasons for treating business of operation of ships not to be an industrial undertaking. We therefore find no infirmity in the order of the Commissioner (Appeals) and we confirm the same.
17. Next issue relates to deduction under Section 80-1A or 80-IB in the light of deduction claimed under Section 33AC of the Act. The assessee has claimed deduction under Section 80-IA or 80-IB in respect of those barges for which separate profitability statement was filed. Assessing Officer disallowed the claim of the assessee and according to him deduction under Section 80-IB is governed by provisions of Section 80AB and therefore while computing deduction under Section 80-IB deductions falling under Chapter IV-D would be first deducted to arrive at the gross total income and thereafter deduction under Section 80-IB would be computed which will be restricted to the gross total income. The assessee preferred an appeal before the Commissioner (Appeals) and placed reliance upon the judgment of the Apex court in the case of CIT v. Canara Workshops (P) Ltd. (1986) 161 ITR 3201 in support of his contentions that the profits and gains of independent barges eligible for deduction be computed independently and deduction be allowed without reducing it from the loss suffered by other barges. He has also contended that deduction under Section 80-IB is to be computed independently without reducing it by the deduction claimed under Section 30AC of the Act and the deduction should not be restricted to the total income of the assessee. He has also placed reliance upon CIT v. Shirke Construction Equipments Ltd. and CIT v. Thomas & Co. Ltd. (1997) 225 ITR 293 (Ker.). The Commissioner (Appeals) re-examined the issue but was not convinced with the contentions of the assessee and he accordingly confirmed the computation worked out by the assessing officer. Relevant observations of the Commissioner (Appeals) is extracted as under for the sake of reference:
3.6 I have gone through the contention of the appellant as well that of the assessing officer and do not find any merit in the appellant's case. It is amply clear that the words used in Sub-section 80-IB refers to computing the deduction from gross total income of the assessee. Further provisions of Section 80AB contains the non obstante clause and governs all the deduction under Chapter VI-A. The provisions of Section 80AB reads as under:
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 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.
3.7 Considering the aforesaid provisions it is amply clear that while computing the deduction under this Chapter (VI-A) the amount of income should be first computed in accordance with the provisions of the Act before allowing the deduction under this chapter and balance income would only be entitled to be considered for allowing the deduction under this chapter. In view of overriding clause in terms of Section 80AB, the deduction under Section 80-IB income should be first computed as per the provisions of the Act and after computing the income as per the provisions of the Act (Before allowing deduction under Chapter VI-A) the deduction under Chapter VI-A should be computed. Thus considering this fact I am not inclined to accept the argument of the appellant. As regards the judgments relied upon they are not of any avail to the Dappellant. The judgment of Apex court relied upon is distinguishable of facts whereas the judgments of Bombay and Kerala High Courts relied upon are in respect of Section 80HHC where it has been held that the provisions of Section 80HHC is a different code by itself and as such the provisions of Section 80AB would not be applicable, more particularly because the language used in Section 80HHC does not include deduction from gross total income. However the Bombay High Court while dealing with provisions of Section 80HH has held that the provisions of Section 80HH analogous to Section 80-IA (now 80-IB) are governed by provisions of Section 80ABCIT v. Albright Morarji & Pandit Limited 236 ITR 914. Thus considering the proposition of the Bombay High Court which is on direct subject I am not inclined to accept the argument of the appellant and hence I do not find any reason to interfere with the order of the assessing officer in this regard.
18. Now the assessee is before us and has invited our attention to the judgment of CIT v. Canara Workshops (P) Ltd. (1986) 161 ITR 3201 in which it has been held that the profits of the priority industry be considered independently without reducing it by the loss suffered by other priority industry or non-eligible unit. The learned Counsel for the assessee has also placed reliance upon the case of Shirke Construction Equipments Ltd. (supra) in support of his contention with the deduction claimed under Section 80-IB should not be restricted to the gross total income of the assessee.
19. The learned DR, on the other hand, has placed heavy reliance upon the orders of the lower authorities.
20. Having given a thoughtful consideration to the rival submissions and the factual matrix of the case we find that the deduction under Section 80-IB is claimed on the barges for which separate profitability statement was filed. In the case of Canara Workshops (P) Ltd. (supra) the Lordship of the Apex court have categorically held that when the assessee had more than one priority industry loss in one need not be set off against the profit of another for the purpose of granting relief under Section 80-IB of the Act. In the light of this judgment if the assessee is maintaining separate set of accounts of different barges the loss suffered by other barges will not be set off against those barges which have earned profit and are eligible for deduction. While computing the deduction under Section 80-IB on individual barges, computation is to be made as per Chapter VI-A of the Act. As per Section 80AB the amount of income of a barge is to be computed in accordance with the provisions of the Act before making any deduction under this chapter and that 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. If that be the case, deduction under Section 33AC is to be allowed first and deduction under Section 80-IB is to be computed on the reminder. The judgment of the jurisdictional High Court in the case of Shirke Construction Equipments Ltd. (supra) referred by the assessee has been overruled by the Apex court in CIT v. Shirke Construction Equipments Ltd. (2007) 291 ITR 3801 and also in the case of Ipca Laboratory Ltd. v. Dy. CIT(2004) 266 ITR 521 in which it has been held that the provision of Section 80HH is also governed by other provisions of Chapter VI-A, i.e., Sections 80A and 80AB. In the light of the judgment of the Apex court deductions are to be computed as per Chapter VI-A of the Act. In the light of these judgments we do not find any infirmity in the mode of computation adopted by the lower authorities. We, however, of the view that loss suffered by any of the barge will not be adjusted/set off against the profit earned by other barges which is eligible for deduction under Section 80-IB if the accounts are separately maintained but total deduction under this chapter should not exceed the gross total income of the assessee as field in Synco Industries Ltd. v. Assessing Officer (2002) 254 ITR 6083 (Bom.) by the jurisdictional High Court. We, therefore, restore the matter to the file, the assessing officer to recompute deduction in terms indicated above.
ITA No. 53/M/200421. This appeal by the revenue is preferred against the order of the Commissioner (Appeals) on a solitary ground that the Commissioner (Appeals) has erred in directing the assessing officer to allow entire commission paid of Rs. 12,50,835 to M/s. Muthu & Co. and also allow the depreciation on labour charges capitalized against the Ship M.T. Richa of Rs. 16,70,000 ignoring the detailed reasoning made by the assessing officer.
22. Assessee has claimed the payment of labour charges and commission at Rs. 12,50,835 for cargo bookings to M/s. Muthu & Co. Assessing Officer has disallowed the claim only for the reason that Muthu & Co. is not assessed to tax and no details were furnished. Before the Commissioner (Appeals) assessee produced bank statements, sale registers and its ledger account. The payments were made through cheques which were duly credited to the accounts of Muthu & Co. Mr. Raja of Muthu & Co. was examined and he admitted the receipt of payment. The Commissioner (Appeals) re-examined all these evidences and being convinced with it he allowed the payment of commission and has also allowed the depreciation on labour charges capitalized against the ship M.T. Richa. Since the Commissioner (Appeals) has properly examined the issue and no specific defects are pointed by the learned DR we find ourselves in agreement with it. We therefore confirm the order of the Commissioner (Appeals).
23. In the result, appeals of the assessee are partly allowed for statistical purpose and that of the revenue is dismissed.