Income Tax Appellate Tribunal - Mumbai
Synco Industries Ltd. vs Deputy Commissioner Of Income Tax on 20 July, 1999
Equivalent citations: [2000]73ITD339(MUM)
ORDER
M.A. Bakshi, J.M.
1. We find it convenient to dispose of these appeals of the assessee for the asst. yrs. 1990-91 and 1991-92 involving common issue, by this consolidated order.
2. Rival contentions have been heard and records perused. The relevant facts in this case are that the assessee is engaged in the business of oil and chemicals. It has a unit for oil division in Sirohi District, Rajasthan and chemicals division at Jodhpur. It had claimed deductions under s. 80HH and s. 80-I in respect of chemical division as well as oil division. The AO rejected the claim of the assessee on the ground that the gross total income of the assessee computed as per the provisions of the Act before deductions under Chapter VI-A (in view of the brought forward losses having been adjusted against income, was nil. The assessee appealed to the CIT(A). The CIT(A) has confirmed the decision of the AO.
3. The assessee is in appeal before us. The learned counsel for the assessee contended that the denial of deduction under s. 80HH and s. 80-I in respect of the chemical division is erroneous in view of the fact that the assessee had all along earned profits from the chemicals division and for the asst. yrs. 1990-91 and 1991-92 the assessee had earned profits in the said division. In respect of the oil division the assessee had carried forward losses and therefore, the learned counsel for the assessee did not press the claim under ss. 80HH and 80-I in respect of that Division. The disallowance of deduction under the aforementioned provisions of the Act in respect of the oil division for the asst. yrs. 1990-91 and 1991-92 is accordingly dismissed as not pressed.
4. With regard to the chemical division, the learned counsel for the assessee contended that ss. 80HH and 80-I provide a deduction in respect of the profits and gains of business of the undertaking. It was contended that the profits and gains of the undertaking are to be determined in accordance with the provisions of the Act as if the only source of income of the assessee is the income from that unit. The assessee had earned income from chemical division and the said income was included in the gross total income. The learned counsel for the assessee contended that the computation of income from profits and gains of business are to be made in accordance with the provisions of ss. 29 to 43D. Once the income is computed under the aforementioned provisions of the Act deduction under Chapter VI-A is to be computed. Reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of Rajasthan Petro Synthetics Ltd. vs. Dy. CIT (1997) 60 ITD 682 (Del) in support of the contention that each unit has got to be treated separately and loss suffered in one unit is not to be adjusted against the profits of another unit. Reliance was also placed on the decision of the Supreme Court in the case of CIT vs. Venkatachalam (1993) 201 ITR 737 (SC) and the Bombay Bench decision in the case of Century Textiles & Industries Ltd. (1990) 32 ITD 454 (Bom) in support of the aforementioned proposition. The learned counsel for the assessee pointed out that the Calcutta High Court in the case of CIT vs. Belliss & Morcom (I) Ltd. (1982) 136 ITR 481 (Cal) categorically held that when there is a loss in one of the units of the assessee, the same is not to be set off against the profits of the another unit. This decision of the Calcutta High Court, the learned counsel for the assessee pointed out, was approved by the Supreme Court in the case of CIT vs. Canara Workshops (P) Ltd. (1986) 161 ITR 320 (SC) Referring to the decisions cited by the CIT(A), the learned counsel for the assessee contended that these are distinguishable on facts. The decision in CIT vs. Venkateswara Transmissions Ltd. (1995) 216 ITR 510 (AP) is distinguishable as there was carried forward loss of the same unit. The other cases related to deduction on account of capital gains. The issue arising in these appeals, according to the learned counsel for the assessee, did not arise in the decisions relied on by the CIT(A). On the contrary the issue involved in these appeals is directly covered by the decision of the Supreme Court in the case of CIT vs. Canara Workshops P. Ltd. (supra).
5. It is accordingly contended that the appeals of the assessee may be allowed.
6. The learned Departmental Representative, on the other hand, contended that the deduction under Chapter VI-A is allowable out of the gross total income. Referring to the assessment orders for both the assessment years it was pointed out that the gross total income of the assessee has been computed at 'Nil'. In such circumstances deduction under s. 80HH or under s. 80-I is not allowable. In view of the facts the controversy as to whether the loss from one unit can be adjusted against the income of the other unit does not arise. Reliance was placed on the decision of the Supreme Court in the case of CIT vs. Kotagiri Industrial Co-Op. Tea Factory Ltd. (1997) 224 ITR 604 (SC) in support of the contention that deduction under Chapter VI-A is to be allowed out of the gross total income determined in accordance with the provisions of the Act. It was pointed out that the Supreme Court has categorically held that before allowing deduction under Chapter VI-A, the carried forward losses of earlier years are to be set off first and in case there is a positive income left after setting off then only deduction can be allowed.
7. We have given our careful consideration to the rival contentions. In our considered view the issue raised by the learned counsel for the assessee as to whether the loss of one industrial unit can be adjusted against another industrial unit is necessary insofar as the assessee had earned profit in the asst. yr. 1990-91 as well as in the asst. yr. 1991-92 in both the units. The assessee had suffered losses in the oil division in earlier years. But in the asst. yr. 1990-91 the annual report establishes that the oil division had been able to earn profit for the first time. Thus, there was no loss in oil division in the asst. yr. 1990-91 or in the chemical division. Similarly in the asst. yr. 1991-92 the assessee had earned profits in the chemical division as well as in the oil division. Therefore, the decision of the Supreme Court in the case of Canara Workshops (P) Ltd. (supra) is not applicable at all to the facts of this case. The AO has denied the deductions to the assessee on the ground that the gross total income is 'Nil'. The fact that the assessed income of the assessee for the asst. yrs. 1990-91 and 1991-92 is Nil in view of the carried forward losses having been adjusted is not in dispute. Sec. 80A provides that in computing the total income of an 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 ss. 80C to 80U. Sub-s. (2) of s. 80A provides that the aggregate amount of the deductions under this chapter shall not, in any case, exceed the gross total income of the assessee. When the gross total income of the assessee is 'Nil', the deduction under any of the provisions in Chapter VIA cannot be allowed at all as any deduction under the said Chapter cannot exceed the gross total income of the assessee. The gross total income of the assessee for the asst. yr. 1990-91 as well as asst. yr. 1991-92 being 'Nil', the AO in our view was justified in refusing the deductions to the assessee under s. 80HH and s. 80-I. The decision of the Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) supports this view. Their Lordships of the Supreme Court held that in view of the express proviso defining the expression 'gross total income' in cl. (5) of s. 80B of the IT Act, 1961, it is necessary to determine the gross total income in accordance with other provisions of the Act. Their Lordships of the Supreme Court further held that for the purposes of determining the gross total income the business losses of earlier years are to be set off first before allowing any deduction under Chapter VI-A. The contention on behalf of the assessee that deduction must first be allowed under s. 80HH and s. 80-I and then only the gross total income computed is not well founded. The gross total income is defined under cl. (5) of s. 80B of the IT Act, 1961 to mean the gross total income as computed under the provisions of the IT Act, 1961 before allowing deductions under Chapter VI-A. As already pointed out s. 80A provides that the deductions shall be allowed out of the gross total income and sub-s. (2) restricts the deduction to the gross total income. It is, therefore, clear that the gross total income of the assessee has got to be computed in accordance with the Act before allowing deductions under any section falling in Chapter VI-A. Sec. 80HH and s. 80-I fall under Chapter VI-A. Therefore, the gross total income of the assessee has first got to be determined. If the gross total income of the assessee so determined is positive income then deduction under s. 80HH and s. 80-I are to be worked out. Since the gross total income of the assessee is 'Nil', it is a futile exercise to compute the deduction under s. 80HH or under s. 80-I as the deduction under the said provisions cannot exceed the gross total income, which in this case is zero. In this view of the matter, the AO was justified in denying the deduction under s. 80HH and s. 80-I to the assessee.
8. The appeals of the assessee are accordingly dismissed.