Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs Gogineni Tobacco Limited on 16 October, 1998
Equivalent citations: [1999]238ITR970(AP)
Author: T. Ranga Rao
Bench: T. Ranga Rao
JUDGMENT S.V. Maruthi, J.
1. This petition is filed by the Revenue under Sec-tion 256(2) of the Income tax Act, 1961.
2. The facts in brief are as follows :
The assessee derived income from tobacco trade. For the assessment year 1992-93, it has filed return of income on December 30, 1992, admit ting a loss of Rs. 8,55,137 after deducting the carry forward loss of Rs. 42,59,952 from the income of Rs. 34,27,372. While filing the return, the assessee has not quantified the deductions under Section 80HHC of the Income-tax Act, because of the loss admitted by the company. Subsequently, it has filed a revised return claiming deduction of Rs. 34,14,814 under Section 80HHC of the Income-tax Act from the current year's income and requested that the unabsorbed business loss of Rs. 20,45,751 and the unabsorbed depreciation of Rs. 21,16,890 be carried forward to the subsequent years. While processing the return of income, no deduction under Section 80HHC was allowed as after the setting off of the unabsorbed business loss of Rs. 20,45,751 and the unabsorbed depreciation of Rs. 13,81,611 from the total income of Rs. 34,27,372, the gross total income was nil.
3. Aggrieved by the disallowance, the assessee has filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) vide his order dated December 23, 1994, held that there were conflicting decisions in regard to the income against which the deduction under Section 80HHC was to be allowed and, as such, the issue was debatable in nature. The Commissioner further held that as the issue was debatable in nature, it does not fall under prima facie adjustments. The Commissioner relied on the judgment of the Bombay High Court in the case of Khatau Junhar Ltd. v. K. S. Pathania . The controversy was whether deductions enumerated in Chapter VIA are to be allowed from the current year's profit before adjusting unabsorbed depreciation and unabsorbed business loss carried forward from earlier years or they are to be allowed from the current year's profit after adjustment of the unabsorbed business loss, etc.
4. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue carried the matter in appeal to the Appellate Tribunal. The Tribunal dismissed the appeal and also refused to refer the case for the opinion of this court. Hence, the Revenue is before us under Section 256(2) of the Income tax Act.
5. The Commissioner of Income-tax held that there is a difference of opinion between the judgments of the Gujarat High Court and the Orissa High Court. The Gujarat High Court in the case of Paushak Ltd. v. CIT , held that unabsorbed losses and unabsorbed depreciation would have to be deducted before arriving at the figures that would be exigible for the purpose of deduction under Section 80HH of the Act. On the other hand, the Orissa High Court in CIT v. Tarun Vdyog , held that gross total income computed in accordance with the provisions contained in Sections 30 to 43A would not be relevant for the purpose of deduction under Section 80HH and that the relief under Section 80HH was to be allowed on the profits of the industrial undertaking before deducting the investment allowance allowed under Section 32A.
6. At the outset, we would like to point out that the Gujarat High Court and the Orissa High Court were dealing with the deductions under Section 80HH of the Act whereas in the present case we are concerned with the deductions permissible under Section 80HHC of the Act. Therefore, the view expressed by the Commissioner of Income-tax (Appeals) that in view of the difference of opinion between the Gujarat High Court and the Orissa High Court, the issue is debatable issue and, therefore, there cannot be any prima facie adjustments under Section 145(1)(a) with regard to Section 80HHC, is not correct. Similarly, the Tribunal is also not correct in holding that there is debatable issue with regard to the deductions under Section 80HHC as the Tribunal also was referring to the judgments of the Orissa High Court in Tarun Udyog's case and the Andhra Pradesh High Court in CIT v. Venkateswara Transmission Ltd. , which have dealt with the deductions under Section 80HH of the Act. The reason being that the language used in Section 80HH and Section 80HHC is different.
7. Section 80HH as it stood during the relevant period reads as follows : "80HH. (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, 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 twenty per cent, thereof."
8. The expression "gross total income" is defined under Section 80B. It says :
" 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter."
9. Therefore, the deductions permissible under Section 80HH are from the gross total income which are to be arrived at by computing the total income in accordance with the provisions of the Act. In other words, income has to be computed in accordance with the other provisions of the Act and arrive at the gross total income and from that gross total income, the deductions permissible under Section 80HH are to be allowed.
10. Whereas, the language used in Section 80HHC is entirely different. It says :
"80HHC. (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 . . . ." (rest of the Section is not relevant).
11. Therefore, Section 80HHC says that in computing the total income of the assessee, deductions of the profits derived by the assessee are to be allowed in accordance with and subject to the provisions of this Section. The expression used is "this Section" that means Section 80HHC. It does not say that the deduction is to be allowed from the gross total income. Therefore, the interpretation applicable to Section 80HH is not relevant to Section 80HHC.
12. In the light of the above, both the Commissioner of Income-tax (Appeals) and the Tribunal are not correct in holding as to how the deduction is to be allowed under Section 80HHC is debatable.
13. The next question is as to how to compute the total income under Section 80HHC of the Act. The Section itself says, as indicated in the above paragraphs, that the deduction of profits derived by the assessee from the export of goods or merchandise shall be in accordance with and subject to the provisions of this Section, viz., Section 80HHC, in computing the total income of the assessee. In other words, in computing the total income of the assessee, the deduction of profits shall be in accordance with and subject to the provisions of Section 80HHC thereby meaning that from out of the income declared, the deductions under Section 80HHC are to be allowed first. Therefore, the deductions under Section 80HHC are to be allowed first as we have to give a meaning to the language used in the Section, viz., "in accordance with and subject to the provisions of this Section".
14. Learned counsel appearing for the Revenue relying on Cambay Electric Supply Industrial Co. Ltd. v. CIT , wherein while interpreting Section 80E(1), the Supreme Court held that (page 91) ;
"On reading Sub-section (1) it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except Section 80E ; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) ; and, thirdly, if there be profits and gains so attributable, deduct 8 per cent. thereof from such profits and gains and then arrive at the net total income exigible to tax. As regards the first step mentioned above, the important words in Sub-section (1) are those that appear in parenthesis, namely, 'as computed in accordance with the other provisions of this Act' and these words clearly contain a mandate that the total income of the concerned assessee must be computed in accordance with the other provisions of the Act without reference to Section 80E and since in the instant case it is income from business the same as per Section 29 will have to be computed in accordance with Sections 30 to 43A which would include Section 41(2). It is also clear that under the second step the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) forms a component of the total income spoken of in the first step. Reading these two steps together, therefore, it is obvious that in computing the total income of the concerned assessee the balancing charge arising as a result of the sale of old machinery and buildings and worked out as per Section 41(2), irrespective of its real character, will have to be taken into account and included as income of the business. In other words, the balancing charge as worked out under Section 41(2) will have to be taken into account before computing the deduction of 8 per cent. under the third step. . ."
contended that from the total income of the assessee, the unabsorbed loss and the unabsorbed depreciation of the previous year is to be worked out and thereafter the deduction under Section 80HHC is to be allowed.
15. The contention of learned counsel for the Revenue cannot be accepted as the language used in Section 80E(1) and the language used in Section 80HHC is different. Section 80E reads as follows :
"80E. Deduction in respect of profits and gains from specified industries in the case of certain companies.--(1) In the case of a company to which this Section applies, where the total income (as computed in accordance with the other provisions of this Act), includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company."
16. From a reading of the Section, it is clear that the total income is to be computed in accordance with the provisions of the Act first. Thereafter, the deduction under Section 80E is to be allowed. Whereas, under Section 80HHC which we have already extracted in the earlier paragraphs, the deduction under that Section is to be allowed before working out the income under the other provisions of the Act. Section 80HHC does not use the words "as computed in accordance with the other provisions of this Act." The Section itself says there shall, in accordance with and subject to the provisions of this Section, be allowed a deduction of the profits derived by the assessee in computing the total income of the assessee.
17. Since the language used in Section 80HHC is different from the language used in Section 80E, the principle laid down by the Supreme Court in Cambay Electric Supply Industrial Co. Lid. v. CIT , is not applicable to the interpretation of the Section 80HHC of the Act.
18. In the light of the above, we are of the view that the questions sought to be referred do not arise for consideration in this case. The income tax case is accordingly dismissed. No costs.