Income Tax Appellate Tribunal - Kolkata
Income Tax Officer vs Kanchan Oil Industries Ltd. on 19 October, 2004
Equivalent citations: [2005]92ITD557(CAL), (2005)92TTJ(CAL)739
ORDER
C.L. Sethi, Judicial Member
1. The Revenue is in appeal against the order dated 14.5.2003 passed by the ld.CIT(A) for the assessment year 1996-97. The grounds raised by the Revenue are as under :-
i) That the ld.CIT(A) has erred in law and on facts in directing the A.O. to allow deduction Under Section 80IA before adjustment of brought forward loss.
ii) That the appellant prays that the order of ld.CIT(A) on the above grounds be set aside and that of the A.O. be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
2. In the course of assessment proceedings, it was stated by the assessee before the A.O. that the deduction Under Section 80IA should be allowed first, and thereafter, the set off of loss brought forward from earlier years should be allowed. This claim of the assessee was not accepted by the A.O. as the A.O. was of the view that first gross total income is to be computed and thereafter the deduction has to be made. It was further stated by the A.O. that while computing the gross total income, the brought forward losses has to be taken into first, and if there is any remaining profit available then the deduction Under Section 80IA has to be given. The A.O. had relied on the provisions contained in section 80AB.
3. Being aggrieved, the assessee preferred an appeal before the ld.CIT(A) which was initially dismissed because of non-compliance. Later on, the order dismissing the assessee's appeal was recalled by the ld.CIT(A) as he found that notices of hearing were not served on the assessee, and he then decided the appeal on merits vide his order dated 14.5.2003. Having considered the submission of the ld. Counsel for the assessee, the ld.CIT(A) directed the A.O. to allow deduction Under Section 801A from the whole of the profit and gains of the new Vanaspati Unit without any prior adjustment/deduction of brought forward losses of the earlier years in the old units.
4. Being aggrieved, the Department is in appeal before us.
5. The ld.D.R. has submitted that provisions contained in Section 80AB has an overriding ^ effect over all other section s contained in Chapter VI-A of the Act, and as such, the deduction Under Section 80IA is allowable to the extent of income included in gross total income of the assessee computed before any deduction available under Chapter VIA of the Act. The ld.D.R. referred to the provisions of Section 80AB, Section 80B(5) & Section 80IA of the Act to clarify the provisions of law related to the issue in hand.
6. The Id. Counsel for the assessee has reiterated the contentions and submissions that were made before the ld.CIT(A). It was vehemently contended by the Id. Counsel for the assessee that deduction Under Section 80IA should have been allowed in respect of whole of the total profit of the new Industrial Unit i.e. new Vanaspati Unit, without adjustment or set off of any brought forward losses of earlier years pertaining to the old unit of the assessee. He referred to the provisions of Sub-section (7) of Section 80IA. In support of his contention, the ld. Counsel for the assessee has placed reliance on the following decisions :-
i)CIT -v.- Vishaka Industries Ltd. (251 ITR 471)(A.P.);
ii)CIT, Central, Madras -v.- Canara Workshop Pvt. Ltd.(161 ITR 320) (SC),
iii)CIT(WB) -v.- O. Belliss and Morecom (I) Ltd. (136 ITR 481)(Cal.);
iv) Bajaj Tempo Ltd. -v.- CIT (196 ITR 188).
7. We have considered the rival contentions of both the parties and have gone through the orders of the authorities below. We have deliberated upon the decisions cited at the Bar. We have also deliberated upon the provisions of law contained in that behalf.
8. We consider it fit and proper to refer to the relevant provisions of law as stood in the assessment year 1996-97.
8.1. Section 80A stipulates as under :-
"Deductions to be made (1) in computing the total income of the assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in Sections 80C to 80U.
(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.
(3)..............................
8.2. Section 80AB of the Income Tax Act, as it stood in the assessment year 1996-97, reads as under :-
"Where any deduction is required to he 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 ".
8.3. The term "gross total income" is defined Under Section 80B(5) as under :-
"gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter.
8.4. The provisions of Section 80IA to the extent they are relevant to the issue in band, are as under :-
80-IA(1) "Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or providing telecommunication services whether basic or cellular (such business being hereinafter referred to us as the eligible business), 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 the percentage specified in Sub-section (5) and for such number of assessment years as is specified in Sub-section 6)."
80-IA(5) The amount referred to in Sub-section (1) shall be -
"(i)(a) in the case of an individual undertaking referred top in Sub-clause(a) [or Sub-clause (d)] of Clause (iv) of Sub-section (2), twenty-five percent of the profits and gains derived from such industrial undertakings;
(b) In the case of an industrial undertaking referred to in Sub-section (b) [or Sub-clause(c)] of Clause (iv) of Sub-section (2), hundred per cent of the profits and gains derived from such industrial undertaking for the initial five assessment years and thereafter twenty-five percent of the profits and gains derived from such industrial undertaking;
Provided that where the assessee is a company, the provisions of this clause shall have effect as if for the words 'twenty-five percent', the words 'thirty percent' had been substituted.
(ia) in the case of an enterprise referred to in Sub-section (4A), hundred percent of the profits and gains derived from such business for the initial five assessment years and thereafter, thirty percent of such profits and gains;
(ic) in the case of an undertaking referred to in Sub-section (4C), hundred percent of the profits and gains derived from such business for the initial five assessment years and thereafter, twenty five percent of the profits and gains derived from such business';
Provided that where the assessee is a company, the provisions of this clause shall have effect as if the words "twenty five percent, the words "thirty five percent had been substituted";
(ii) in the case of a hotel referred to Clause (iii) of Sub-section (4), fifty percent of the profits and gains derived from the business of such hotel;
Provided that the said hotel is approved by the prescribed authority for the purpose of this clause in accordance with the rules made tinder this Act;
Provided further that the said hotel approved by the prescribed authority before the 31" March, 1992, shall be deemed to have been approved by the prescribed authority for the purposes of this Section in relation to the assessment year commencing on the 1st day of April, 1991.
(iii) in the case of a hotel referred to in Clause (iv) Sub-section (4), thirty per cent of the profits and gains derived from the business of such hotel;
(iv) in the case of a ship, thirty per cent of the profits and gains derived from such ship".
80IA(7) "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of Sub-section (1) apply shall, for the purposes of determining the quantum of deduction under Sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made".
9. It is not in dispute that the assessee has two businesses during the relevant year. One business in the nature of industrial undertaking, which fulfills all the conditions laid down in Section 80-IA and is eligible for deduction in accordance with and subject to the provisions of Section 80-IA in respect of any profits and gains derived from such industrial undertaking. Another business is admittedly not eligible for deduction Under Section 80-IA. The business which is eligible for deduction Under Section 80-IA shall, in short, hereafter be referred to as the eligible business and another business which is not eligible for deduction Under Section 80-IA shall, in short, hereinafter be referred to as the non-eligible business. The assessee had brought forward unabsorbed depreciation and business loss in its non-eligible business. The submission advanced by the rival parties give rise to the following issue :-
"Whether the deduction Under Section 80-IA in respect of profits and gains derived from eligible business shall be allowed before set-off or adjustments of brought forward unabsorbed depreciation and loss of non-eligible business against the income of eligible business".
10. On reading Sub-section (1) of Section 80IA, it emerges that where gross total income of an assessee includes any profits and gains derived from any eligible business to which Section 80-IA applies, there shall, in accordance with and subject to the provisions of Section 80-IA, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in Sub-section (5) of Section 80-IA and for such number of assessment years as in specified in Sub-section (6) of Section 80-IA. The quantum of deduction from profits and gains of any eligible business is provided under Sub-section (5) of Section 80IA. For the purpose of determining the quantum of deduction Under Section (5) of Section 80-IA, the eligible business is to be treated as the only source of income of the assessee during the relevant assessment year as provided under Sub-section (7) of Section 80-IA. A careful perusal of Section 80-IA(7) shows that Section 80-IA(7) enacts provisions of overriding nature. Section 80-IA(7) is a part of Section 80IA, which was newly inserted in the Income Tax Act by the Finance (No. 2) Act, 1991 w.e.f. 1.4.1991. It starts with the words "notwithstanding anything contained in any other provisions of this Act". Thus Section 80IA(7) has been given an overriding effect over any other provisions of Income Tax Act. In other words, Section 80IA(7) provides that its provisions are to prevail over any other provisions of the Act. All other provisions of the Act would thus be applied subject to the provisions of Section 80IA(7) for the purpose of determining quantum of deduction Under Section (5) of Section 80-IA. It is seen that Section 80IA provides a special mode for computation of the profits and gains derived from eligible industrial undertaking "Under Section 80IA. According to Section 80IA(7), notwithstanding anything contained in any other provision of the Act, the profits and gains of an eligible business to which the provisions of Sub-section (1) of Section 80IA apply shall, for the purpose of determining the quantum of deduction Under Section (5) of Section 80IA for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business to which the provisions of Sub-Section (1) of Section 80IA apply were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made. In other words, for the purposes of determining the quantum of deduction under Sub-Section (5) of Section 80IA, the profits and gains of an eligible business is to be computed or determined as if such business were the only source of income of the assessee during the relevant year and the assessee had no other source of income. Consequently, the total income of the eligible business is to be computed under the provisions of the Act as if the eligible business were the only source of income of the assessee. Consequently, all the deductions, allowances and losses relating to the eligible business are only to be taken into account in determining the amount of income of that nature which is derived or received by the assessee from eligible business and which is included in his gross total income and then in determining quantum of deduction available Under Section 80IA even though the assessee may have other losses or allowances or deductions relating to some sources of income other than the eligible business. The language of the Section 80-IA(7) itself showed that there was no scope for a setting off or adjustment of expenses, deductions, losses, earlier years' losses or unabsorbed depreciation etc. arising out of other business activities or related to the other sources of income of the assessee against profits and gains of eligible business to which Section 80-IA apply before the provisions of Section 80-IA were applied, inasmuch as, it is clear from the provisions contained in Sub-section (7) of Section 80-IA that the deduction Under Section 80-IA is to be computed as if such eligible business were the only source of income of the assessee during the relevant assessment year. Thus Section 80-IA can be said to be a special provision providing a special mode of computation of deduction from the profits and gains derived from eligible business Under Section 80IA. Having regard to the cardinal principle of interpretation emerged from the maxim "generalia specialibus non derogant", the special provision of Section 80-IA(7), which is overriding in nature, must prevail over general provisions to the extent of its scope and limit. It is not in dispute that the said Maxim lays down a rule of interpretation that a special rule controls or cuts down the general provision.
11. At this stage, we should make a reference to Section 80A, 80AB and 80B(5) of the Act. Section 80AB was introduced in 1980 w.e.f. 1.4.1981. The purpose of introduction of Section 80AB was to clarify that the deductions admissible under various provisions of Part-C of Chapter-VIA will be available with reference to the amount of income of that nature as computed in accordance with the provisions of the Act (before making any deduction under chapter-VIA), which shall alone be deemed to be the amount of that nature which is derived or received by the assessee and which is included in the gross total income. In other words, according to the Section 80AB, for the purpose of computing the deduction admissible under various provisions of Part-C of Chapter-VIA, the amount of income of that nature which is included in the gross total income as computed in accordance with the provisions of the Act, shall be first arrived at before making deduction under Chapter-VIA and the same shall alone be considered for deduction. Section 80AB also provides that "notwithstanding anything contained in that Section". Thus Section 80AB has been given an overriding effect over all other section s in chapter-VI and prescribes that for the purpose of computing the allowable deductions under chapter-VTA, the income has to be calculated by applying the provisions of-the Act before making any deduction under chapter-VIA. The "gross total income" according to Section 80B(5), for the purpose of Chapter-VIA, means the total income computed in accordance with the provisions of the Act without making any deduction under Chapter-VIA. "Computed in accordance with the provisions of the Act" implies -
1) that deductions under appropriate computation section s have already been given;
2) that income of other persons, if includible under sections 60 to 64, has been included;
3) that intra-head and/or inter/head losses have been adjusted; and
4) that unabsorbed business losses, etc., unabsorbed depreciation, unabsorbed investment allowance, etc., have been set off.
Whatever is arrived at in this manner can, broadly, be termed as "gross total income". However, having regard to the overriding nature of Section 80IA(7), the computation of gross total income in the said manner, that is, in accordance with the provisions of the Act is to be made only with reference to eligible business covered by Section 80IA treating the same as only-source of income of the assessee. In other words, deductions under appropriate computation section s and set-off of losses and allowances relating to the eligible business are only to be taken into account in determining gross total income and, in turn, in determining the quantum of deduction Under Section 80IA. Consequently, the deduction, expenses and losses etc. and the unabsorbed losses, unabsorbed depreciation, etc. relating to other non-eligible business or any other source of income cannot be taken into account in computing the "Gross Total Income" for the purpose of computing the quantum of deduction admissible under Section 80IA. The provisions of Section 80 A, 80 AB and 80B(5) are, therefore, be read and applied, for the purpose of computing deduction Under Section 80IA, in such a manner as the assessee had only one source of income from eligible business in respect of which the assessee is entitled to get deduction Under Section 80IA. In other words, the provisions contained in Sections 80A, 80AB and 80B(5) are to be read subject to the provisions contained in Section 80IA(7) of the Act. It is well known that a non-obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactments, that is to say, to avoid the operation and effect of all contrary provisions. The Section 80IA(7) has been given by the legislature an overriding effect to any other provisions of Income Tax Act, and it is not subject to Section 80A, 80AB, 80B(5) or any other provisions of I.T.Act. It is pertinent to note that Section 80IA(7) was inserted in the statute w.e.f. 1.4.1991 when Section 80A, 80AB and 80B(5) were already part of I.T.Act, and even then the legislature in all its wisdom has enacted the special provision of Section 80A(7) giving the same an overriding effect over any other provisions of the Act meaning thereby that the legislature in all clear terms has given to special provisions of Section 80IA(7) an overriding effect over Section 80A, 80AB and 80B(5) to the extent of its scope. Here, in inserting Section 80-IA(7) what the legislature has intended to do is to compute the deduction admissible Under Section 80-IA by treating the eligible business as the only source of income of the assessee during the relevant assessment year. It, therefore, emerges that scope of Section 80A, 80AB and 80B(5) are subject to the provisions contained in Section 80IA(7) of the Act, Thus, the computation of income of eligible business to which Section 80IA apply is to be made in accordance with the provisions of the Act as if such eligible business were the only source of income of the assessee during the relevant assessment year for which the determination of quantum of deduction under Section 80IA(5) is to be made and consequently the "Gross Total Income" and deduction admissible Under Section 80-IA is to be computed accordingly.
12. In other words, if in the eligible business, there is a brought forward loss or unabsorbed depreciation or any other allowances or deductions or any admissible expenditure are incurred for the purpose of carrying the eligible business, the profits and gains derived from said eligible business is to computed taking into account only all such brought forward loss or unabsorbed depreciation or any other allowances or deductions or expenses relating to said eligible business in the manner provided under the Act, and such profit or gains alone would be deemed to be amount of income of that nature which is derived or received by the assessee from eligible business and which is included in his gross total income, and deduction Under Section 80-IA would be thus available to the assessee to that amount of income of eligible business as so computed. The computation of total income or the gross total income and the amount of deduction available Under Section 80-IA has to be made only in respect of eligible business, de-hors the profits or loss of the non-eligible business or any other source. Therefore, for an income of the nature described in Section 80-IA, it is first of all necessary that it should be included as component of the gross total income. The inclusion has to be of the amount of income which is computed in accordance with the provisions of the Act in respect of eligible business only by treating the said eligible business as the only source of income of the assessee during the relevant assessment year for which the determination of deduction available Under Section 80-IA is to be made. The gross total income within, the meaning of Section 80A, 80AB and 80B(5) read with Section 80-IA(7) is, therefore, to be computed, for the purpose of determining the amount of deduction allowable Under Section 80-IA of the Act, in accordance with the provisions of the Act with reference to the eligible business only to which Section 80-IA apply. In other words, all losses or allowances or deductions relating to non-eligible business or any other sources of income except the losses or allowances or deductions relating to eligible business to which Section 80IA apply are to be ignored to determine the amount of deduction allowable Under Section 80-IA and which is included in the gross total income. In other words, for the purpose of determining the amount of deduction Under Section 80-IA, the taxable income of the eligible business is to be ascertained and computed as if such eligible business were an independent business owned by the assessee and the assessee had no other source of income. Conversally, the unabsorbed losses, unabsorbed depreciation etc. relating to the eligible business are to be taken into account in determining the quantum of deduction admissible Under Section 80-IA even though these unabsorbed losses, unabsorbed depreciation etc. relating to the eligible business may actually have been set off against the profits of the assessee from non-eligible business or other sources. Thus, the gross total income referred to in Section 80A(1) and (2), 80AB and 80B(5), for the purpose of determining the quantum of deduction available Under Section 80-IA for the relevant assessment year, would mean the total income computed in accordance with the provisions of the Act, before making any-deduction under Chapter-VI-A, with reference to the profits and gains of an eligible business only to which Section 80-IA apply as if such eligible business were the only source of income of the assessee during that assessment year. This is what which can be reasonably and harmoniously emerged from and derived out on conjoint reading of Section 80IA(7), 80A, 80AB and 80B(5) of the Act.
13. In the view, we have taken for the reasons mentioned herein before, we are of the opinion that the deduction Under Section 80-IA in respect of profits and gains derived by the assessee from the eligible business to which Section 80-IA apply, shall be allowed with reference to the amount of income derived from said eligible business as computed in accordance with the provisions of the Act and which is included in the gross total income without the same being set-off or adjusted by the losses or deductions or expenses or allowances etc. or brought forward losses or unabsorbed depreciation, as the case may be, relating to non-eligible business or any other source of income except the same being set-off or adjusted by the losses or deductions or expenses or allowances etc. or any brought forward losses or unabsorbed depreciation allowance or other allowances, as the case may be, relating to the eligible business. The A.O. shall reframe the assessment accordingly. The matter is thus restored back, to the 'file of A.O. to reframe the assessment in the light of our decision given above after ascertaining, examining and verifying the facts of the case. The A.O. shall provide adequate opportunity of being heard to the assessee. We order accordingly.
14. In the result, the appeal filed by the Revenue stands dismissed in the manner as indicated above.