Income Tax Appellate Tribunal - Chennai
Alstom Ltd. vs Deputy Commissioner Of Income Tax on 2 June, 2004
Equivalent citations: (2005)95TTJ(CHENNAI)139
ORDER
N.R.S. Ganesan, J.M.
1. The assessee filed this miscellaneous petition for the asst. yr. 1990-91 on the ground that the additional ground raised by the assessee was not considered by this Tribunal while disposing of the appeals.
2. Mr. K. Ravi, the learned counsel for the petitioner/assessee submitted that that the appeal was disposed of by an order dt. 26th May, 2003. The non-consideration of the additional ground is an error apparent on the face of the record. Therefore, according to the learned counsel, the order of this Tribunal dt. 26th May, 2003 is to be rectified under Section 254(2) of the IT Act.
3. This petition was originally posted for hearing on 6th April, 2004. Mr. Ravi, the learned counsel for the petitioner/assessee submitted that for the purpose of computing relief under Sections 80HH and 80-I, this Tribunal directed the AO to grant the relief without deducting benefit under Section 32AB. This direction of the Tribunal, according to the learned counsel for the petitioner/assessee is at para 7 on p. 3 of the Tribunal order dt. 26th May, 2003. For giving such direction, this Tribunal placed its reliance on the earlier order passed by the Tribunal in the assessee's own case and also the judgment of the Orissa High Court in the case of CIT v. Tarun Udyog (1991) 191 ITR 688 (Ori). After hearing the learned counsel for the petitioner/assessee, we directed the assessee to clarify when actually the additional ground of appeal was filed and whether the additional ground raised by the assessee was admitted by this Tribunal. We also find that the apex Court in the case of Motilal Pesticides India Ltd. v. CIT (2000) 243 ITR 26 (SC) held that deduction under Chapter VI-A is to be allowed only on the net income and not on the gross income. Therefore, the judgment of the Orissa High Court and the earlier order of this Tribunal may not be applicable to the facts of this case. Accordingly, we directed the assessee to show cause why the order of this Tribunal dt. 26th May, 2003 granting relief under Sections 80HH and 80-I without allowing deduction under Section 32AB should not be rectified suo motu in exercise of the power of this Tribunal under Section 254(2) of the IT Act and further hearing of the miscellaneous petition was adjourned to 7th April, 2004. On 7th April, 2004, the case was adjourned to 12th April, 2004 at the request of Mr. K. Ravi, the learned counsel for the petitioner/assessee. On 12th April, 2004, "C" Bench was not functioning. Therefore, as per the order of the Hon'ble Senior Vice President, the case was posted to 20th April, 2004. On 20th April, 2004, Mr. Ravi, the learned counsel for the petitioner/assessee submitted that he did not appear before the earlier Bench which heard the appeals. Therefore, he is not very sure whether the additional ground was admitted by the earlier Bench which heard the appeals. However, the learned counsel for the petitioner/ assessee submitted that the assessee filed the additional ground of appeal on 9th Dec., 2002 for which the petitioner/assessee has produced an acknowledgement given by the Registry of this Tribunal.
4. Mr. S. Ganapathy Iyer, the learned Departmental Representative submitted that he could not remember what had happened during the course of hearing of the appeals. Therefore, the learned Departmental Representative was not in a position to clarify whether the additional ground of appeal raised by the assessee was admitted by the earlier Bench or not.
5. Having heard the learned representatives on both sides, we also perused the material available on record. There is no material on the file of this Tribunal to suggest that the additional ground raised by the assessee was admitted by this Tribunal. However, the assessee has produced an acknowledgement to show that the additional ground was filed on 9th Dec, 2002. Admittedly, the representative who appeared for the assessee is different from the learned counsel who is appearing now. The Members who heard the case are also not available at Chennai. The only person who can assist this Tribunal is the learned Departmental Representative, Mr. S. Ganapathy Iyer. Now Mr. S. Ganapathy Iyer says that he could not remember what had actually happened. In that situation, we asked the learned Departmental Representative why the additional grounds of appeal raised by the assessee should not be taken as admitted by the earlier Bench. The learned Departmental Representative has very fairly conceded that he has no objection to treat the grounds of appeal as one admitted and argued by both the parties before the earlier Bench. In view of the above situation, we treat the additional ground raised by the assessee as admitted by the earlier Bench and it was not disposed of. Once we treat the additional ground as admitted, it has to be disposed of by this Tribunal. Admittedly, the additional ground was not dealt with in the order dt. 26th May, 2003. Therefore, in our view, the non-disposal of the additional ground is an error on the face of the record. Therefore, we dispose of the additional grounds of appeal now after hearing the same on merit.
6. Coming to the show-cause notice issued by this Tribunal regarding the grant of deduction under Sections 80HH and 80-I before allowing deduction under Section 32AB, the learned counsel for the petitioner/assessee submitted that written submission filed by the assessee may be taken as explanation to the notice issued by the Tribunal.
7. Now coming to the merit, Mr. K. Ravi, the learned counsel for the petitioner/assessee submitted that the additional ground of appeal is with respect to allocation of certain common expenses to industrial undertakings for the purpose of computing deduction under Sections 80HH and 80-I. The learned counsel for the petitioner/assessee submitted that the assessee is engaged in the business of manufacturing and sale of fuse gear, switch-gear, relay spares, control panels and electronic goods. According to the learned counsel for the petitioner/assessee, the manufactured goods were brought to Madras for the purpose of marketing the same. In the process of marketing, the assessee incurred certain common expenditure which is relatable to all the industrial units. The learned counsel further submitted that it is very difficult to identify the exact amount of expenditure incurred for each industrial undertaking. The learned counsel further submitted that when the manufactured goods were transferred from one industrial undertaking to other business of the assessee, the market value of goods should be taken as selling price for the industrial undertaking.
8. The learned counsel for the petitioner/assessee further submitted that for the asst. yrs. 1981-82 to 1984-85, this Tribunal in ITA Nos. 100, 101, 102 and 13l3/Mad/1987 and 272, 1724 and 536/Mad/1988 by an order dt. 9th Feb., 1996 discussed the issue elaborately both on facts and interpretation of provisions of Sections 80HH and 80-I with respect to allocation of common expenditure to each industrial undertaking. The learned counsel further submitted that this Tribunal recorded a finding that the common expenditure incurred by the assessee at Madras for selling the goods to various customers/dealers should not be deducted from the profit of the respective industrial undertaking. The learned counsel further submitted that no appeal was filed by the Revenue against this order of this Tribunal. Therefore, the order of this Tribunal dt. 9th Feb., 1996 would bind the assessee and also the Department. According to the learned counsel for the petitioner/assessee, on identical facts, this Tribunal recorded a categorical finding that the common expenditure should not be allocated to the industrial undertaking for the purpose of computing the profit and gains of industrial undertaking for deduction under Sections 80HH and 80-I. This finding of the Tribunal on the similar set of facts would bind this Bench also. Therefore, the common expenditure incurred by the assessee for selling the industrial products should not be taken into consideration for the purpose of computing relief under Sections 80HH and 80-I.
9. On the contrary, Mr. S. Ganapathy Iyer, the learned Departmental Representative submitted that the assessee is doing the business of manufacturing and sale of fuse gear, switch-gear, relay spares, control panels and electronic goods. Those goods were manufactured by the assessee at various industrial undertakings in Tamil Nadu and Pondicherry. All the goods manufactured by the assessee by various industrial undertakings were brought to Madras for the purpose of selling the same to various customers/dealers. The assessee brought the goods from industrial undertakings to Madras only for the purpose of marketing the same. Therefore, it cannot be construed as if the goods of the industrial undertaking was transferred to other business of the assessee. According to the learned Departmental Representative, Sub-section (6) of Section 80HH would come into operation only when the assessee holds any goods for the purpose of business of industrial undertaking or hotel and the same are taken to any other business of the assessee. In this case, the learned Departmental Representative submitted, there was no transfer of goods to any other business of the assessee. The industrial products manufactured by the assessee at various industrial units were brought to Madras for the purpose of selling the same to customers/dealers. Therefore, according to the learned Departmental Representative, there was no transfer of goods held for the purpose of business of the industrial undertaking. Therefore, the expenditure incurred by the assessee at Madras for the purpose of manufacturing goods has to be proportionately distributed to respective industrial undertaking for the purpose of computing eligible profit for deduction under Sections 80HH and 80-I.
10. The learned Departmental Representative further submitted that the earlier order of this Tribunal dt. 9th Feb., 1996 has not taken into consideration the provisions of Section 80AB of the IT Act. According to Section 80AB, the profit of the business has to be computed in accordance with other provisions of IT Act. The eligible profit for the purpose of deduction under Sections 80HH and 80-I is also required to be computed in accordance with other provisions of the IT Act notwithstanding anything contained in Chapter VI-A. Therefore, irrespective of the provisions contained in Sub-section (6) of Section 80HH, the eligible profit has to be computed in accordance with other provisions of the IT Act. In other words, the expenditure incurred by the assessee for the purpose of marketing the products manufactured by the respective industrial undertaking has to be deducted for the purpose of computing eligible profit under Sections 80HH and 80-I.
11. Now coming to the show-cause notice issued by the Tribunal suo motu in respect of deduction under Section 32AB, the learned counsel for the petitioner/assessee submitted that Section 32AB(1) says that where an assessee whose total income includes income chargeable to tax under the head "profits and gains of business or profession", has out of such income deposited any amount in an account maintained by him with the development bank before the specified period or utilised any amount during the previous year for the purpose of purchasing any new machinery or plant, then the assessee is entitled for the investment deposit allowance at the rate prescribed. The learned counsel further submitted that Section 80HH(l) says where the gross total income of the assessee includes any profits and gains derived from an industrial undertaking or business of a hotel, the assessee is entitled for deduction for computing the total income of the assessee from the profits and gains. (sic) specified percentage as prescribed. The learned counsel invited our attention to Section 80A(l) and also the provisions of Section 80-I and submitted that Section 32AB talk of the total income and the profit and gains from the business of the assessee as a whole, whereas Sections 80HH and 80-I talk of the profits and gains of the business of the assessee to the extent derived from industrial undertaking and included in the total income of the assessee. The learned counsel placed his reliance on the decision of the Delhi Bench of this Tribunal in the case of Phonix Overseas Ltd v. Assn. OFT (1996) 55 TTJ (Del) 379 : (1996) 56 ITD 274 (Del).
12. The learned counsel for the petitioner/assessee referred to Section 80A and submitted that to determine the total income, deductions specified under Sections 80C to 80U have to be first deducted. After allowing such deductions under Sections 80C to 80U, if any income chargeable to tax under profits and gains of business or profession remains, a further deduction under Section 32AB should be allowed. According to the learned counsel for the petitioner/assessee, for the purpose of deduction under Section 32AB, the profit of business of the assessee as a whole has to be considered and not the profit of each industrial undertaking of the assessee. The learned counsel further submitted that for the purpose of deduction under Section 32AB, the profit of the business has to be computed under Parts II and III of Sch. VIA of the Companies Act. Therefore, the learned counsel submitted that deduction under Sections 32AB should be granted before allowing any deduction under Chapter VI-A.
13. On the contrary, Mr. S. Ganapathy Iyer, the learned Departmental Representative submitted that Chapter VI-A is controlled by Section 80AB. Therefore, for the purpose of deduction under any of the provisions contained in Chapter VI-A, the eligible profit should be computed in accordance with other provisions of the IT Act. The learned Departmental Representative submitted that the total income for the purpose of deduction under Chapter VI-A has to be necessarily computed under other provisions of the IT Act in view of Section 80AB, Therefore, the benefit allowable under Section 32AB should be deducted before granting any deduction under Chapter VI-A. After granting deduction under Section 32AB, if the assessee has any income derived from industrial undertaking which is included in the total income, then the deduction under Chapter VI-A has to be given. The learned Departmental Representative submitted that the apex Court in the case of Motilal Pesticides India Ltd. (supra) held that the assessee is entitled for deduction under Sections 80HH and 80-I only from the net profit computed under the other provisions of the IT Act. Therefore, the total income has to be first computed under the other provisions of the IT Act by applying the provisions of Sections 32 to 43D. The learned Departmental Representative submitted that since Section 32AB comes within the Sections 32 to 43D, the deduction should be allowed under Section 32AB before allowing any deduction under any other provisions of Chapter VI-A.
14. Having heard the learned representatives on both sides, we also perused the material available on record including the written submission filed by the assessee. As we have already observed, the non-consideration of additional grounds of appeal is an error apparent on the face of the record. Therefore, we dispose of the additional grounds and also the issue relating to show-cause notice by rectifying the order under Section 254(2) as follows :
We delete the existing para 7. The following shall be incorporated as paras 7, 7A, 7B instead of the earlier para 7 :
"7. The next issue is regarding computation of profit under Sections 80HH and 80-I after allowing deduction under Section 32AB. The objection of the learned counsel for petitioner/assessee is that Section 32AB refers to the whole income of the assessee, therefore, it should be deducted only after granting deduction under Sections 80HH and 80-I. We have carefully gone through the judgment of the apex Court in the case of Motilal Pesticides India Ltd. (supra). The Supreme Court held that for the purpose of deduction under Sections 80HH and 80-I, the income should be computed under the other provisions of the IT Act and the deduction should be allowed only from the net profit and not from the gross profit. The apex Court in the case of IPCA Laboratory Ltd. v. Dy CIT (2004) 266 ITR 521 (SC) held that the entire Chapter VI-A is controlled by Section 80AB. Therefore, the total income shall be computed under the other provisions of the IT Act. The apex Court also held that the eligible profit for the purpose of deduction under Chapter VI-A should be computed under the other provisions of the IT Act. We have also carefully gone through the judgment of the Orissa High Court in the case of Tarun Udyog (supra). The Orissa High Court observed that under Section 80HH, deduction has to be allowed on the profits and gains, therefore, the gross total income as computed in accordance with the provisions contained in Sections 32 to 43D would not be relevant for the purpose. However, the Supreme Court in the case of Motilal Pesticides India Ltd. (supra) and also in the case of IPCA Laboratory Ltd. (supra) held that the income should be computed only under other provisions contained in Sections 32 to 43D. Therefore, in our view, the judgment of the Orissa High Court is not applicable to the facts of this case in view of the judgment of the Supreme Court in the case of Motilal Pesticides India Ltd. (supra) and IPCA Laboratory Ltd. (supra).
7A. The objection of the learned counsel for the petitioner/assessee is that the deduction under Section 32AB has to be computed under the provisions of Companies Act and it has to be allowed from the income of whole business. There is no dispute in respect of computation of eligible profit under Section 32AB and also allowing the same from the profit of the whole business. The only question arises for our consideration is whether the deduction under Section 32AB should be allowed before allowing deduction under Chapter VI-A. After computing eligible profit as per the provisions of Section 32AB, the investment allowance should be allowed first since the profit has to be computed under the provisions of Sections 32 to 43D. Therefore, in our view, the judgment of the Supreme Court in the case of Motilal Pesticides India Ltd. (supra) and also in the case of IPCA Laboratory Ltd. (supra) would be squarely applicable to the facts of this case. In view of the above judgment of the apex Court, the deduction under Section 32AB has to be allowed first. After allowing Section 32AB, if any profit remains in the total income, which includes profits and gains derived from the industrial undertaking, the question of further deduction under Sections 80HH and 80-I would come for consideration. Therefore, deduction under Section 32AB has to be allowed before granting deduction under Sections 80HH and 80-I. 7B. Likewise, while computing eligible profit under Sections 80HH and 80-I, the eligible deduction under Section 32AB in respect of that industrial undertaking has to be first allowed since the eligible profit has to be computed under the other provisions of the IT Act. Therefore, we do not find any infirmity in the order of the lower authority. In our view, the order of the lower authority is in conformity with the judgment of the Supreme Court in the case of Motilal Pesticides India Ltd. (supra) and also in the case of IPCA Laboratory Ltd. (supra)."
The following shall be inserted as para 7C, 7D, 7E, 7F, 7G, 7H and 7-I in the Tribunal order dt. 26th May, 2003 :
"7C. The assessee has taken an additional ground in respect of allocation of common expenditure while computing deduction under Sections 80HH and 80-I for the asst. yr. 1990-91. The case of the assessee is that the electrical and electronic goods manufactured by various industrial undertakings in the State of Tamil Nadu and Pondicherry were brought to Madras for the purpose of marketing the same. For the purpose of marketing the products manufactured by the various industrial undertakings, the assessee had incurred expenditure. According to the assessee, the expenditure incurred at Madras for selling the industrial products could not be segregated and identifiable with respect to each industrial unit. According to the learned counsel for the petitioner/ assessee, Sub-section (6) of Section 80HH would come into operation when the goods were transferred from one industrial undertaking to other business of the assessee. Therefore, the profit of the industrial undertaking should be considered by taking the market value of the goods minus the cost of production incurred by the industrial undertaking. According to the learned counsel for the petitioner/assessee, the expenditure incurred by the assessee for marketing the goods at Madras should not be included or allocated for the purpose of computing eligible profit under Sections 80HH and 80-I. The objection of the Revenue is that there was no transfer of goods from industrial undertaking to other business of the assessee. The goods manufactured at various industrial undertakings were brought to Madras for the purpose of selling the same to various customers and dealers. Therefore, there was no transfer of goods from one industrial undertaking to other business of the assessee. We have also carefully gone through the order of this Tribunal in ITA Nos. 100, 101, 102 and 1313/Mad/1987 and 2772, 1724 and 536/Mad/1988, dt. 9th Feb., 1996. This Tribunal after considering the provisions of Sections 80HH and 80-I found that the products manufactured at Hosur unit were brought to Madras for marketing. The Hosur unit was not engaged in direct selling of manufactured goods, Therefore, by applying Sub-section (6) of Section 80HH, this Tribunal found that the difference between the goods transferred at market value and the cost of production by industrial units would be taken as profit derived from the industrial units.
7D. The learned counsel for the petitioner/assessee further submitted that on identical set of facts, this Tribunal in the assessee's own case for the asst. yrs. 1981-82 to 1984-85 has decided the issue in favour of the assessee. Therefore, this Bench of the Tribunal would be binding by the decision of the earlier Bench. There is no dispute about the proposition that the decision of the coordinating Bench of this Tribunal on identical facts would be binding on the later Bench. However, when the earlier co-ordinating Bench has not considered the relevant provisions of the IT Act and the judgments of the apex Court and Gujarat High Court, in our considered opinion, the decision of the earlier Bench of this Tribunal, even though rendered on identical facts, may not be binding on later Bench. In this case, the earlier co-ordinating Bench has not considered the provisions of Section 80AB. The earlier Bench has not considered the judgment of the apex Court in the case of Motilal Pesticides India Ltd. (supra) and IPCA Laboratory Ltd (supra). Therefore, the earlier order of this Tribunal may not be any assistance to the assessee. The Gujarat High Court in the case of Alembic Chemical Works Ltd. v. Dy CIT (2004) 266 ITR 47 (Guj) had an occasion to consider a similar issue. In this case also, the Gujarat High Court examined the provisions of Sub-section (6) of Section 80HH. A similar objection . as raised by the assessee before us was also raised before the Gujarat High Court regarding segregation of expenditure relating to industrial undertaking. The Gujarat High Court has observed as follows :
"Therefore, it is not possible to accept the contention of the appellant that merely because the entire production of Panpharma division had been sold to the main division of the assessee, there could be no occasion for disturbing the figure of consideration. Various decisions cited on behalf of the appellant, especially those relating to apportionment of expenses, would not carry the case of the appellant any further, inasmuch as in none of the decisions the Court was called upon to specifically deal with the provisions of the nature of Section 80HH(6) read with the Explanation thereunder."
7E. The Gujarat High Court again referred to Sub-section (7) of Section 80HH of the IT Act and observed that the Sub-section comes into play only in a situation where there is a transaction between the assessee carrying on the business of the industrial undertaking and some other person where in the course of business between them it is so arranged that the business so transacted produces more than the ordinary profits in the hands of the assessee. The Gujarat High Court found that there was no infirmity in the order of this Tribunal in holding that the profit of Panpharma division for the purpose of computing deduction under Sections 80HH and 80-I should not be computed on the basis of the accounts submitted by the Panpharma division but after apportioning indirect expenses incurred by the assessee like commission to selling agents publicly and medical literature expenses, discount charges, interest, etc. Therefore, in our view, the earlier decision of this Tribunal is not applicable for the assessment year under . consideration. We are bound to follow the decision of the apex Court and also the judgment of the Gujarat High Court rather than the earlier order of this Tribunal. Therefore, we examined the issue in the light of the law laid down by the Supreme Court and also Gujarat High Court.
7F. As already observed, the assessee manufactured industrial goods at various industrial undertakings and that was brought to Madras for the purpose of marketing the same. The assessee has incurred certain expenditure in selling the products. The only claim of the assessee is that the expenditure incurred at Madras could not be segregated or identified with respect to each industrial undertaking. We are unable to agree with the submission of the learned counsel for the petitioner/assessee. It is not the case of the assessee that the assessee was selling the manufactured goods along with other trading goods. When the assessee was selling the manufactured goods alone, it is not very difficult to segregate or identify the expenditure relating to each industrial undertaking. There may not be any occasion for the assessee to distribute the expenditure relating to each industrial undertaking. However, that does not mean that the expenditure relating to each industrial undertaking should not be considered for computing the eligible profit under Sections 80HH and 80-I. The very same objection of the assessee was rejected by the Gujarat High Court in the case of Alembic Chemical Works Ltd. (supra). Therefore, there is no merit in the contention of the learned counsel for the petitioner/assessee that the expenditure could not be identified with respect to each industrial undertaking.
7G. We have also carefully gone through the judgment of the apex Court in the case of Motilal Pesticides India Ltd. (supra) and also in the case of IPCA Laboratory Ltd. (supra). The Supreme Court categorically held in the case of Motilal Pesticides India Ltd. (supra) that the assessee is entitled for deduction under Sections 80HH and 80-I from the net profit computed under the other provisions of the IT Act and not from the gross profit. Therefore, the common expenditure incurred by the assessee for marketing the industrial products should be proportionately distributed in respect of each industrial undertaking. The apex Court in the case of IPCA Laboratory Ltd. (supra) held that Chapter VI-A is controlled by Section 80AB. Therefore, the assessee has to necessarily compute the profit for the purpose of deduction under Sections 80HH and 80-I in accordance with the provisions of the IT Act. The total income has also necessarily to be computed in accordance with the provisions of the IT Act. Admittedly, the assessee has deducted the common expenditure while computing the total income. If the said expenditure, which is already deducted from the total income, is not allocated to respective industrial undertaking while computing profit under Sections 80HH and 80-I, in our view, that would inflate the profit of the industrial undertaking artificially. The intention of the legislature is to grant deduction from total income the profit and gain derived from the industrial undertaking which is included in the total income. Therefore, the profit and gain of industrial undertaking should be computed strictly in accordance with the provisions of the IT Act, When the assessee has deducted the common expenditure while computing the total income, the very same expenditure relating to each industrial undertaking should be deducted while computing eligible profit of each industrial undertaking. Therefore, in our view, Section 80AB mandatorily compels the assessee to compute the eligible profit after deducting all the common expenditures relating to a particular industrial undertaking so as to reflect the correct profit derived from the industrial undertaking.
7H. We find that the Supreme Court also had an occasion to consider a similar issue in the case of Distributors (Baroda) (P) Ltd. v. Union of India and Ors. (1985) 155 ITR 120 (SC). We have also carefully gone through this judgment of the Supreme Court. The question before the Supreme Court was for allowing deduction under Section 80M, whether the profit has to be computed in accordance with the provisions of the IT Act or with reference to the full amount received from the paying company.
The Supreme Court observed that :
"It is reasonable to assume that in enacting Section 80M, the legislature intended to grant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is difficult to imagine any reason why the legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount which is liable to suffer tax once again in the hands of the assessee."
In view of the above observation, once the legislature intended to deduct the common expenditure while computing the total income, there is no reason why it should not be considered while computing the profit received from the industrial undertaking for the purpose of deduction under Sections 80HH and 80-I. In our view, if the common expenditure relating to each industrial undertaking is not allocated to respective industrial unit for the purpose of computing eligible profit under Sections 80HH and 80-I, it would not reflect the correct profit.
7-I. Let's now consider a hypothetical situation for the purpose of understanding the issue in a better way. Let us assume common expenditure is Rs. 100.
I. Total net income before deducting the common expenditure Rs. 600
Profit from industrial undertaking without deducting the
common expenditure Rs. 300
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The net taxable income Rs. 300
So, if the common expenditure is not deducted from total income and also from the industrial undertaking, the taxable income would be Rs. 300.
II Total net income after deducting the common expenditure Rs. 500 Profit from industrial undertaking without deducting the common expenditure . Rs. 300 Net taxable income Rs. 200
In this illustration, expenditure is deducted from total income but not from profit of industrial undertaking. Therefore, the profit is inflated by Rs. 100 and the taxable income is reduced to Rs. 200.
III. Total net income after deducting the. common expenditure Rs. 500 Profit from industrial undertaking after deducting the common expenditure Rs. 200 Net taxable income Rs. 300
In this case, the taxable income remains at Rs. 300. Real profit is from industrial undertaking Rs. 200.
From the above example, it is very clear that once we exclude the common expenditure from the total income, the same has to be necessarily excluded from the profit of the respective industrial undertaking otherwise the profit of the industrial undertaking will be inflated to the extent of the common expenditure. Once we reduce the common expenditure from the profit of the industrial undertaking, it would reflect the correct profit from the industrial unit. The intention of the legislature is to give deduction in respect of profit derived from the industrial undertaking. Therefore, all efforts should be made to compute the eligible profit derived from the industrial undertaking which is included in the total income. Therefore, by respectfully following the judgments of the apex Court in the case of Motilal Pesticides India Ltd. (supra), IPCA Laboratory Ltd. (supra) and Distributors (Baroda) (P) Ltd. (supra) and also the judgment of the Gujarat High Court in the case of Alembic Chemical Works Ltd. (supra), we hold that the common expenditure relating to respective industrial undertaking should be reduced while computing the eligible profit for the purpose of deduction under Sections 80HH and 80-I Therefore, in our view, we do not find any merit in the contention of the learned counsel for the petitioner/assessee. Accordingly, we reject the additional ground raised by the assessee 'as devoid of merit'."
16. In the result, the miscellaneous petition filed by the assessee stands allowed. The order of the Tribunal is rectified as stated above.