Income Tax Appellate Tribunal - Delhi
Century Iron And Steel Ltd. vs Income-Tax Officer on 19 October, 1989
Equivalent citations: [1989]31ITD117(DELHI)
ORDER
G. Krishnamurthy, President
1. These two appeals filed by the assessee, arise out of the orders dated 4-8-1983 and 11-2-1985 of the learned Commissioner of Income-tax (Appeals)-XII, New Delhi for the assessment years 1980-81 and 1981-82.
2. They were heard by the Special Bench on account of conflicting views of different Division Benches of the Appellate Tribunal in the following cases, on the point whether the deduction under Section 80HH is to be allowed before or after setting off of the brought forward losses of the earlier years.
(i) Yenpeyees Rubber (P.) Ltd. v. First ITO [1983] 5 ITD 605 (Mad.); and
(ii) in the case of Premier Industrial Drives (P.) Ltd. v. ITO [1984] 7 ITD 800 (Mad.)
3. The assessee is a limited company engaged in the manufacture and sale of billets (steel ingots, etc.) out of iron scrap. It was incorporated on 30-7-1973 and commenced its business in 1977. The first ground common for both the years relates to the deduction claimed under Section 80HH. The relevant details of the claims etc. are the following:
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Asst. Deduction claimed Net profits Total income Brought forward
Year under Section 80HH of the year of the year loss of the
earlier years
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1980-81 10,28,005 51,5l, 446 (-) 82,52,620 51,51,446 1981-82 14,17,779 72,09,236, (-) 42,47,444 46,80,109
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The assessee claimed deduction Under Section 80HH on the net profits before set off of brought forward loss. The Income-tax Officer took the view that the deduction @ 20% under Section 80HH was to be allowed only after setting off of the brought forward losses of the earlier years from the net income. Since the net income for the assessment year 1980-81 was Rs. 51,51,446 equal to the figure of brought forward loss after wholly setting off, of which there was no income, the Income-tax Officer held that no deduction was allowable under Section 80HH. For the assessment year 1981-82, the Income-tax Officer proceeding on the same premises, set off the brought forward loss and held that the deduction allowable under Section 80HH was only Rs. 5,05,825 (i.e. 20% of Rs. 72,09,236 - Rs. 46,80,109). Thus the controversy developed as to whether the deduction under Section 80HH was allowable after or before set off of brought forward losses.
4. Before the learned Commissioner of Income-tax (Appeals) the assessee placed reliance on the decision of Madras Bench 'A' of the Appellate Tribunal in the case of Yenpeyees Rubber (P.) Ltd. (supra) as also on the expression "the amount of income .of that nature..." used in Section 80AB which was inserted by the Finance (No. 2) Act, 1980 with effect from 1-4-1981. However, the learned Commissioner of Income-tax (Appeals) relied upon the subsequent decision of Madras Bench 'A' in the case of Premier Industrial Drives (P.) Ltd. (supra) wherein the earlier decision had been considered along with another decision of Madras Bench 'B' dated 30-11-1981 in the case of Veera Raghave Textiles (P.) Ltd. in IT Appeal Nos. 67 to 70 (Mad.) of 1981. The learned Commissioner of Income-tax (Appeals) held that Section 80AB did not help the assessee as it is intended to clarify a situation where the taxpayer may have an income of a nature other than that on which deduction is admissible. He also held that even Section 80AB provides that income (on which deduction is admissible) had to be computed in accordance with the provisions of the Act i.e. in accordance with, among others, Section 4 (Charging Section), Section 14 (heads of income), Sections 28 to 43 (Computation of business income) and Section 72 (set off and carry forward of business losses). He preferred the view taken in the case of Premier Industrial Drives (P.) Ltd. (supra) as it considered the relevant provisions of Section 80A(2), 80B(5) and 80HH as well as the decisions of the Supreme Court in the cases of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 and Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 which according to him were directly on the point. He, therefore, upheld the orders of the Income-tax Officer.
5. Before us, on behalf of the assessee the contentions put forward before the Income-tax authorities were reiterated by Shri C.S. Agarwal with great emphasis. Reliance was placed by him on the marginal heading of Section 80HH as also on the following decisions: -
(i) in the case of Yenpeyees Rubber (P.) Ltd. (supra);
(ii) CIT v. L.M. Van Moppes Diamond Tools (India) Ltd. [1977] 107 ITR 386 (Mad.); and
(iii) CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320/27 Taxman 262 (SC).
His main submission was that the loss which was brought forward loses its character and identity and ceased to be of that nature as belonging to that particular industry from which it arose, and consequently the brought forward loss should not be considered for deduction. In this context he referred to the provisions of Section 80-I(6). Finally he submitted that if two views are possible, the view in favour of the assessee has to prevail. On the other hand, Shri Amitabh Kumar, the learned Departmental Representative sought to rely strongly on the orders of the Income-tax authorities. He pointed out that the assessee was one unit, and the income has to be computed in accordance with the provisions of the Income-tax Act which is also the mandate of Section 80AB and as such there cannot be any escape from considering the brought forward losses for deductions before the total income is arrived at. He also pointed out that the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. (supra) was not good law as it did not notice the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra). In any case, the Supreme Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120/22 Taxman 49 the case of Cloth Traders (P.) Ltd. (supra) was overruled and the decision in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) was affirmed. Reliance was also placed by him on the decision of the Bombay High Court in the case of CIT v. Mercantile Bank Ltd. [1988] 169 ITR 44 and of the Madras High Court in the case of CIT v. Rambal (P.) Ltd. [1988] 169 ITR 50. He also pointed out that Section 80-I(6) came in 1982 and stood on a separate footing. Distinguishing the decisions relied upon on behalf of the assessee, Shri Amitabh Kumar submitted that the decision in the case of Yenpeyees Rubber (P.) Ltd. (supra) had been explained and not followed by the Tribunal in the subsequent decision in the case of Premier Industrial Drives (P) Ltd. (supra); that the correctness of the decision of the Madras High Court in the case of L.M. Van Moppes Diamond Tools (India) Ltd. (supra) was doubted by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) and that the decision of the Supreme Court in the case of Canara Workshops (P.) Ltd. (supra) dealt with two priority industries. He, therefore, submitted that the question of there being two opinions did not arise.
6. We have considered the rival submissions as also the decisions referred to above. We notice that the question whether deduction under Section 80-I would be computed on profits and gains arrived at after deducting depreciation and development rebate admissible for that year came up for consideration before a Special Bench of the Tribunal which, vide its order dated 29-5-1978 in Orissa Cement Ltd. v. ITO [1983] 3 SOT 79 (Delhi) had answered the question in the affirmative. It was held therein that the expression "Profits & gains attributable to any priority industry" to be understood in the sense the expression "Profits and gains of business or profession" was used in Sections 28 & 29 and that this was because, for the purposes of inclusion in the "gross total income" as defined in Section 80B(5), such profits and gains would necessarily have to be computed in accordance with the provisions of sections 30 to 43A. In coming to this decision the Appellate Tribunal had followed the decision of the Gujarat High Court in the case of CIT v. Cambay Electric Supply Industrial Co. Ltd. [1976] 104 ITR 744 which decision came to be affirmed by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. In the case of Distributors (Baroda) (P.) Ltd. (supra), the Supreme Court had affirmed the decision in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) and had overruled its earlier decision in the case of Cloth Traders (P.) Ltd. (supra) which had not considered the decision in the case of Cambay Electric Supply Industrial Co. Ltd. (supra). In this decision also, it was held that Section 80AA (dealing with the computation of deduction under Section 80M) in its retrospective operation, was merely declaratory of the law as it always was. The decision of the Bombay High Court in the case of Mercantile Bank Ltd. (supra) had held on the basis of the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) that the deductions under sections 80L and 80M are to be made from the balance of income, if any.
Section 80A(1) empowers the taxing authorities, in computing the total income of an assessee to allow deductions specified in Chapter VIA from the assessee's gross total income and Section 80A(2) provides that the aggregate amount of deductions under Chapter VIA should not, in any case exceed the gross total income of the assessee. The gross total income defined by Section 80B(5) is the total income computed under the provisions of the Act but before making any deduction under Chapter VIA or under Section 280-O of the Act. It is only if the gross total income as computed under the provisions of the Act is found to be a positive figure that the deductions permissible under Chapter VIA can be given to the same effect was the decision of the Madras High Court in the case of Rambal (P.) Ltd. (supra). It was considering the grant of deduction under Section 80-I. The learned Departmental Representative is right in pointing out that the decision of the Madras High Court in the case of L.M. Van Moppes Diamond Tools (India) Ltd. (supra) was doubted by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra). The learned Departmental representative is also right in pointing out that in the case of Canara Workshops (P.) Ltd. (supra) the Supreme Court was considering the case of an assessee carrying on two priority industries and, therefore, that decision cannot assist us. The substance of Section 80HH is that there must be a gross total income and it must include any profits and gains derived from an industrial undertaking to which that section applies and the deduction allowable would be of an amount equal to 20% of such income. Section 80HH is made, subject to the provisions of Section 80AB and does not operate in isolation or independent of that section. Section 80AB provided that:
80AB. Where any deduction is required to be 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.) Thus Section 80AB provided in clear terms, that notwithstanding anything contained in those sections providing for the deductions, the amount of income for the purpose of computing the deduction, of that nature, meaning the income derived from the industrial undertaking as described Under Section 80HH must be computed in accordance with the provisions of this Act before making any deduction under this Chapter, and that amount of income alone (i.e.) as computed in accordance with the provisions of this Act be deemed to be the "amount of income of that nature" derived or received by the assessee and is deemed to have been included in his gross total income. That amount of income alone is eligible for computing the deduction. Section 80AB has the specific object of defining what the "amount of income" that could be said to be derived or received by an assessee entitled to the deduction and which is said to be included in the gross total income. When Section 80AB was so specific in defining what should be regarded as the income included in the gross total income, the interpretation sought to be placed upon Section 80HH by the learned counsel for the assessee could be the very negation of the very object of enacting Section 80AB of the Income-tax Act. The Supreme Court in the aforesaid decisions clearly pointed out the legal position. In order to remove doubts, Section 80B(5) defined what the gross total income should mean. Thus there is no escape in computing the gross total income in accordance with the provisions of the Act and only if some balance of income is left after computing in the manner provided in the Act, the deduction of 20% can be considered and not otherwise. Here a question may arise as to once the gross total income is computed and if a positive figure results whether the deduction of 20% allowable should be on the gross total income before computing it as per the provision of the Income-tax Act or on the profit shown by the profit and loss account before making any adjustments under the Act. Even this position is clarified by the categorical provisions made in Section 80AB that the deduction should be with reference to the balance of income. Now since the mandate of Section 80AB was to compute the income under the provisions of the Income-tax Act, one has to look to the provisions relating to the set off of carried forward and set off of losses, as they are material and form part of computation of income. Section 72(1) provided for the carry forward and set off of business losses. It stipulated that where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession is a loss' not being a loss in speculation business and such loss cannot be or is not wholly set off against income under any head of income, so much of the loss as has not been so set off, shall subject to the other provisions of that Chapter be carried forward to the following assessment year and shall be set off against the profits and gains, if any, of any, business or profession carried on by him and assessable for that assessment year and if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. Therefore, in this case, there was undisputably a loss of Rs. 51,51,446 for the assessment year 1980-81 and Rs. 46,80,109 for the assessment year 1981-82. These losses have to be set off against the incomes shown of the future years to arrive at the total income that is defined in Section 80B(5). The argument advanced on behalf of the assessee that the loss loses its identity once it is computed and ordered to be set off and carried forward is an argument which we confess, we are unable to comprehend because the loss computed in a business continues to be the loss eligible for being set off against the business income of the future years and that loss cannot be ignored for the purpose of Section 80HH read with Section 80AB. Where the gross total income computed as stated in Section 80B(5) is a 'Nil' figure or a loss, the question of deduction under any or all of the sections in Chapter VIA will not arise even though 20% of the profits and gains in respect of the specified industrial undertaking as contemplated in Section 80HH may be a positive figure, however large it be. One of the reasons referred to in the decision of Madras Bench in Yenpeyees Rubber (P.) Ltd. 's case (supra) for holding that the deduction under Section 80HH will have to take precedence is that if the deduction under the various sections are intended to grant benefit of tax holiday, it will be defeated if the unabsorbed depreciation, which has no time limit, is to be deducted first. However, more or less a similar reasoning of the Kerala High Court in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 was examined by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) and rejected. It is well settled that considerations stemming from legislative history cannot be allowed to override plain words of the statute as held by the Supreme Court in the case of CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 and it is impossible to read into a taxing provision any words which are not there or exclude words which are there and the words found in the provisions must be given their natural meaning- CED v. R. Kanakasabai [1973] 89 ITR 251 (SC). We are, therefore, of the view that the Income-tax authorities were quite justified in holding that the deduction under Section 80HH is to be allowed after setting off the brought forward losses of the earlier years. This ground of the assessee, therefore, fails.
7. The next common ground relates to the deduction under Section 80J. Finance (No. 2) Act, 1980 has inserted a new Sub-section (1 A) to Section 80J to provide for the method of determining the capital employed in the industrial undertaking. This provision has been inserted retrospectively from 1-4-1972. According to this provision, the capital employed in the business of the industrial undertaking has to be computed by taking the aggregate of the value of the liabilities from the aggregate of the value of assets employed in the industrial undertaking on the first day of the computation period. The Income-tax Officer determined the deduction under Section 80J in accordance with the provisions of Section 80J(1A) by excluding long-term loans and other borrowings from the capital base. The learned Commissioner of Income-tax (Appeals) therefore, upheld his order.
8. After hearing the learned representatives on both the sides, we find that in the light of the provisions of Section 80J(1A) which were operative for the assessment year in question, no exception can be taken to the order of the Income-tax Officer. This ground, therefore, also fails.
9. For the assessment year 1980-81 there is no other ground of the assessee. For the assessment year 1981-82 the assessee did not press the following grounds which, therefore, do not survive for our consideration:
(i) Ground No. 1 relating to the determination of the income at Rs. 13,86,005.
(ii) Ground No. 15 relating to the charge of interest under Sections 139(8) and 217.
10. The next ground i.e. ground No. 2 for assessment year 1981-82 related to the disallowance of Rs. 15,360 from the total "Mess/Guest house expenses" claimed at Rs 30,720. This expenditure had been claimed in respect of a guest house maintained in the factory premises at Sherpur Road, Malarkotla in Punjab (a backward area). The contention of the assessee was that the provisions of Section 37(4) were not attracted as the assessee was not maintaining any residential accommodation as such. The Income-tax Officer disallowed 50% of the expenses for non-business purposes on the ground that there was every possibility that the element of inadmissible expenses such as share in expenses by Directors and their relatives and other persons not connected with the business, was included therein. The details of the expenses appeared at pages 29 to 36 of the assessee's paper book which showed that the expenditure was incurred on items like vegetable, sugar, namkin, ghee, sweets, bread, butter, tea, pickle, oil, soap, etc.
11. In appeal, the learned Commissioner of Income-tax (Appeals) inferred from the details that a regular mess-was being run where meals including breakfast were regularly provided. He did not accept the assessee's submission that the entire expenditure was on staff messing. In the absence of any evidence to support the assessee's case, the learned Commissioner of Income-tax (Appeals) confirmed the disallowance.
12. Before us on behalf of the assessee, reliance was placed on the decision of the Calcutta High Court in the case of CIT v. Parshva Properties Ltd. [1987] 164 ITR 671 wherein it was held that a bungalow in a place situated in a remote corner of a District in Bihar where the employees of the company, auditors, engineers and Government officials were going on duty and staying temporarily for doing their work, could not be treated as a guest house. On the other hand, on behalf of the department, reliance was placed on the provisions of Section 37(5) according to which, any accommodation (by whatever name called), maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guest house within the meaning of Sub-section (4).
13. We have considered the rival submissions. The inference drawn by the learned Commissioner of Income-tax (Appeals) from the details of the expenses namely that a guest house was being maintained in the factory premises at which meals including breakfast were regularly provided, cannot be said to be wrong. The facts of the present case are not the same as the facts in the case of Parshva Properties Ltd. (supra) relied upon on behalf of the assessee. Therefore in terms of Section 37(5), whatever be the name by which the accommodation may be called, such a Mess/Guest House, was rightly treated by the Income-tax authorities as such and in the absence of any evidence to support the contention raised on behalf of the assessee, the disallowance of 50% of the expenses was quite justified. The same is upheld.
14. The next ground namely ground Nos. 3 to 5 relate to the non-allowance of rent expenses amounting to Rs. 59,400 claimed by the assessee in respect of the premises situated at B-9, Maharani Bagh, New Delhi which are said to have been taken on rent for the purposes of business of the assessee. The case of the assessee was that this was the registered office of the assessee. The Income-tax Officer made personal enquiries and found that this was being maintained as a guest house. He did not find any evidence for establishing that it had been taken on rent for holding meetings of the Board. He, therefore, disallowed Rs. 59,400.
15. In appeal, the learned Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer in terms of Sub-sections (4) and (5) of Section 37 particularly in the light of the extract of the Meeting of the Board of Directors, held on 12-6-1984 which read as follows:
Resolved that keeping of a Guest House of the company at B-9, Maharani Bagh, New Delhi on a monthly rent of Rs. 11,000 per month for a period of thirty months be and is hereby approved.
16. After hearing the learned representatives on both the sides, though the resolution mentioned that the above premises would be kept as a guest house, the fact that it continued to be the registered office of the assessee company and that the Board's Meetings were being held there, could not be ruled out. Keeping in view this fact that it was declared as a registered office of the assessee, we think the entire purpose of taking on rent this premises could not be regarded as for a guest house even though it was so described in the Minutes. We think allowance of 50% thereof for the purpose of business other than as guest house appears to be reasonable. We direct accordingly.
17. In the result, the appeals filed by the assessee are partly allowed.