Madras High Court
Commissioner Of Income-Tax vs Coromandal Prodorite Private Ltd. on 18 April, 1977
JUDGMENT Sethuraman, J.
1. In this reference filed at the instance of the Com-
missioner of Income-tax, Madras-1, the question that has been referred, to this court is as follows :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee-company was entitled to the deduction of Rs. 19,419 from its total income under Section 80E of the Income-tax Act, 1961, for the assessment year 1967-68 ?" The assessee is a company engaged in the manufacture of prodorite. (acid resisting cement) which is a priority industry specified in the Fifth Schedule to the Income-tax Act, 1961. In addition, it undertakes contracts for laying acid resisting floors and other constructions in factories and also deals in acid resisting bricks. The company was entitled to relief under Section 80E, as it was then in force, in respect of its industrial profits for the assessment year 1967-68. The profits attributable to the manufacture and production of prodorite amounted to Rs. 2,42,732. In the return filed for the assessment year 1967-68 the assessee-company claimed a deduction at 8 per cent. of the said profits under Section 80E amounting Rs. 19,419.
2. Due to losses in the other activities of the assessee, as distinguished from the manufacture of prodorite, the total income finally computed by the Income-tax Officer was Rs. 77,308. The Income-tax Officer accepted that the assessee was entitled to a deduction under Section 80E in respect of the profits from the manufacturing business in prodorite. He, however, worked out the deduction due under the provisions at 8 per cent. of Rs. 77,308 being the net total income. This amount came to Rs. 6,184 as against Rs. 19,149 claimed by the assessee. According to the Income-tax Officer, the assessee was entitled to relief under Section 80E only on the adjusted total income and not on the income from the manufacturing operations of prodorite alone.
3. The assessee appealed to the Appellate Assistant Commissioner who allowed the appeal holding that the assessee was entitled to a deduction of Rs. 19,149. The Appellate Assistant Commissioner was of the view that the language of Section 80E envisaged the deduction at 8 per cent. on the profits from the specified industries included in the total income. Against this order, the department filed an appeal to the Appellate Tribunal. The Appellate Tribunal dismissed the appeal and confirmed the Appellate Assistant Commissioner's order and observed in doing so as follows :
"The language of Section 80E speaks of a deduction at 8 per cent. of 'any profits and gains attributable to the business' of the priority industry and not 8 per cent. of the total income or of the business income. No doubt the relief is admissible when the total income of the company includes such profits. But it does not mean that the profits are to be reduced or increased by the interplay of adjustments which arise at the stage of the determination of the total income."
4. It is this order of the Tribunal that is challenged in the present reference. Section 80E(1) which was in force at the relevant time ran as follows :
"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. " (Underlining* ours).
5. The section uses the expression "such profits and gains" which shows that the profits and gains of the particular industry specified in the Fifth Schedule are to be taken into account for the purpose of arriving at the percentage of deduction spoken of in Section 80E. This aspect of the construction of this provision is covered by two decisions of this court in Commissioner of Income-tax v. L. M. Van Moppes Diamond Tools (India) Ltd. and in Commissioner of Income-tax v. Lucas-TVS Ltd. to which one of us was a party. Following the said decisions, we answer the question in the affirmative and in favour of the assessee. No costs.