Income Tax Appellate Tribunal - Bangalore
Himatsingika Seida Ltd. vs Assistant Commissioner Of Income-Tax on 19 May, 1997
Equivalent citations: [1997]63ITD290(BANG)
ORDER
Bandyopadhyay, AM
1. This is an appeal by the assessee against the order passed by the CIT under section 263 on 25-3-1996.
2. According to the statement of facts made before us, the assessee is a hundred per cent export-oriented industrial unit in terms of the provisions of section 10B and hence, any profits and gains derived by it from the said export-oriented undertaking are not liable to be included in the total income of the assessee. Although the industrial operations are stated to have been commenced in assessment year 1988-89, the assessee however, did not claim the benefits under section 10B in assessment years 1988-89, 1989-90 and 1990-91. On the other hand, it claimed the said benefits for a consecutive period of 5 years starting from assessment year 1992-93. In assessment year 1994-95, the assessee is stated to be having some income from other sources which are beyond the profits and gains of the export-oriented industrial unit. Unabsorbed depreciation available to the assessee in assessment year 1988-89 was carried forward to this years and was claimed by the assessee to be adjustable against the income from other sources, thereby reducing the total income of the assessee for assessment purpose at nil. Assessing Officer, in the assessment order passed on 17-3-1995 accepted the above claim of the assessee and assessed the total income at nil. The CIT, however, exercised his powers under section 263 of the Act and passed an order on 25-3-1996 in which he considered the above action on the part of the Assessing Officer of adjusting the brought forward unabsorbed depreciation against the income from other sources of the assessee to be wrong and bad in law and causing loss to the revenue. Ultimately he directed that the unabsorbed depreciation and unabsorbed investment allowance should be adjusted against the income of the export-oriented business undertaking and the total income of the assessee sold accordingly be recomputed afresh.
According to the CIT, since by virtue of the provisions of section 32(2), unabsorbed depreciation forms a part of the current year's depreciation, it would be required to adjust the same first against the business income of the assessee from the industrial undertaking. In the instant case, in computing the total income of the assessee from the industrial undertaking, the assessee adjusted the current year's depreciation under section 32(1), although it did not adjust the unabsorbed depreciation and investment allowance brought forward from earlier years against the said income.
3. In his impugned order under section 263, the CIT firstly discusses the decision of Allahabad High Court in the case of Ascharajlal Ram Prakash v. CIT [1973] 90 ITR 477 in accordance with which even if an assessee does not claim depreciation in the assessment, the Assessing Officer is obliged to allow the depreciation on the basis of the facts of the case. Thereafter, the learned CIT has placed reliance on the following decisions of Supreme Court to argue that the unabsorbed depreciation in respect of the industrial undertaking of the assessee is required to be adjusted against the income from the said undertaking only :
(i) CIT v. Virmani Industries (P.) Ltd. [1995] 216 ITR 607/83 Taxman 343 (SC).
(ii) Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) and
(iii) Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777/ [1979] 1 Taxman 40 (SC).
4. The contention of the assessee in this regard, as put forward through the representation made by Shri S. Parthasarathi, learned counsel for the assessee before us is that in accordance with the provisions of section 10B, it is the profits and gains of the industrial undertaking (as against the income required to be computed for the purpose of Income-tax Act) derived from the Export Oriented Undertaking, which are not liable to be included in the total income of the assessee. It is argued that the expression "profits and gains" has got a much wider connotation than income to be computed for "income-tax" purpose and that such profits and gains are required to be computed in accordance with the ordinary commercial principles. It is contended that although depreciation for the current year is required to be taken into account in computing the profits and gains of a business, even according to the ordinary commercial principles, there is no scope for taking into account unabsorbed depreciation of earlier years in the said computation. On the other hand, it is furthermore contended by Shri Parthasarathi that special provisions of the Income-tax Act like section 32(2) enable the assessees to get the benefit of carry forward of the unabsorbed depreciation to subsequent years and adjustment of the same against the profits of such subsequent years. It is also contended that the provisions relating to treatment of the unabsorbed depreciation of earlier year at par with the current year's depreciation as envisaged in section 32(2) is applicable to the process of computing income of the undertaking for income-tax purpose and not for arriving at its profits and gains in accordance with the ordinary commercial principles.
It is also argued by Shri Parthasarathi that the Karnataka High Court has held in the case of CIT v. H. M. T. Ltd. [1993] 199 ITR 235 that a new undertaking (on the profits of which deduction is required to be allowed under section 80J) is not to be treated as a compartment by itself while computing its profits and gains for the purpose of section 80J and that on the other hand, section 80J is a beneficial provision intended to encourage establishment of new industrial undertaking as a means of accelerating economic growth and hence such beneficial provision should not be interpreted in a restrictive manner. Shri Parthasarathi furthermore argues that the Karnataka High Court has held in the said decision that section 80J nowhere compels the computation of profits and gains apart from an industrial undertaking by treating it as a separate entity for all purposes without reference to commercial expediency and practice. It is also contended that in that particular case, the High Court upheld the action of the ITAT in upholding the order of the first appellate authority of not taking into consideration the depreciation allowed under section 32 and investment allowance allowed under section 32A against the income of the new industrial unit alone.
Further reliance in this connection has also been placed by the learned counsel for the assessee on the following decisions in support of his contention that it is not necessary to allow brought forward depreciation against the profits and gains of the industrial unit while other income was available for absorption of such brought forward depreciation allowance etc. :
CIT v. Siddaganga Oil Extractions (P.) Ltd. [1993] 201 ITR 968/67 Taxman 426 (Kar.) and CIT v. Patiala Flour Mills Co. (P.) Ltd. [1981] 127 ITR 301 (Punj. & Har.).
4.1 Shri Parthasarathi has furthermore argued that section 10B is a beneficial section allowing certain special benefits to 100% export-oriented industrial unit and hence, allowance of such benefits should not be restricted by a very rigid consideration of the different provisions of the Act. On the other hand, it is contended that for allowing such benefit, liberal construction is necessary. In this connection, reliance has been placed on the judgment of the Supreme Court in the case of CIT v. U. P. Cooperative Federation Ltd. [1989] 176 ITR 435/43 Taxman 20 in which case, the Supreme Court made the following comment at page 441 of the aforesaid reported judgment :
"We would like to point out that under section 14(3), provision has to be made to extend certain advantages to co-operative societies in order that the legislative purpose of providing incentives to the co-operative movement may be fulfilled. The High Court was right in holding that the provisions contained in section 14(3) should be liberally construed."
The learned DR has, on the other hand, strongly contended that it is wrong on the part of the assessee to ask for deduction under section 32(1) in respect of current year while computing the income of the export oriented industrial unit and at the same time to contend that unabsorbed depreciation of earlier years would not have to be adjusted against the profits of the said industrial units in accordance with the provisions of section 32(2).
It is further more contended that while dealing with the different heads of income in section 14 of the Income-tax Act, the Legislature used the expression "profits and gains of business or profession" denoting that the income to be computed for Income-tax Act is income from business or profession and that in that way, income from such business or profession and profits and gains are the same and would become synonymous. It is also argued by the learned DR that each year's income in respect of the industrial unit under consideration is required to be computed separately and that in doing so, all the relevant provisions of the Income-tax Act will have to be taken into account and the income finally computed would only be exempt under section 10B. In support of this contention, reliance has been placed on the discussions made by the Madras High Court at page 241 of its reported judgment in the case of Addl CIT v. Aditanar Educational Institution [1979] 118 ITR 235. It may be mentioned in this connection that not only the aforesaid decision of the Madras High Court but also the discussion made in the said judgment as referred to by the learned DR have been approved of by the Supreme Court in that case as reported at Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310/90 Taxman 528.
5. The learned DR has furthermore argued very strongly that in accordance with the provisions of section 10B, only the total income of the export-oriented industrial unit is exempt and that what the assessee claims in this regard is exemption in respect of its income from other sources also, which is not the intention of the Legislature. By relying on the following two judgments, the learned DR argues that a liberal construction is required to be made where no ambiguity arises in the language used by the Legislature :
V. Guruviah Naidu & Sons v. CIT [1995] 216 ITR 156 (Mad.) and Lally Jacob v. ITO [1992] 197 ITR 439 (Ker.) (FB).
The learned DR also relies on the decision of the Supreme Court in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 and argues that in accordance with the said judgment also, unabsorbed depreciation will have to be treated at par with the current year's depreciation for the purpose of absorption against business profits of the assessee.
6. We find that there is no direct decision of any Court on this particular issue and that, on the other hand, all the decisions relied upon by the Department and most of the decisions relied upon by the learned counsel for the assessee also relate to computation of deduction to be allowed from the profits and gains of industrial undertakings under section 80J or 80-I. It is required to be mentioned in this connection that but for the existence of the provisions contained in section 80B(5), perhaps the entire gross profits of such industrial undertaking would have been allowable and that the said sub-section alone restricts the allowance of deduction on the basis of income to be computed in accordance with the different provisions of the Income-tax Act. However, no such provision exists in respect of the exemption allowed under section 10B. We also find much force in the argument of the learned counsel for the assessee that whereas the different sections like 80J and 80-I contained in Chapter VI-A relate to deductions, out of the total income already computed, section 10B on the other hand, allows complete exemption in respect of the profits and gains derived by an assessee from 100% export-oriented undertaking. Hence, we are of the opinion that the reliance placed by both the sides on the different decisions of the different courts with regard to deductions allowable under Chapter VI-A will not be applicable to the present case.
On the other hand, it will be necessary for us to study the wording used in sub-section (2) of section 32, which reads as below :
"32(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years."
It is clear from above that the depreciation allowance whether in respect of the current year or in respect of the earlier year and carried forward to a subsequent year, is required to be adjusted against the profits and gains of the business chargeable for that year. It thus appears that the expression "profits and gains" has been used in the sense of gross or total income of the assessee before allowance of either current year's or earlier year's depreciation brought forward to the current year. Hence, we find much substance in the argument of the learned counsel for the assessee that in the instant case, while using the expression "profits and gains derived by the assessee from an 100 per cent export-oriented undertaking", it has meant the gross profits and gains of the undertaking before allowing depreciation. We feel that there is no scope for calculating the total income of the assessee in respect of the export-oriented undertaking as per the different provisions of the Income-tax Act for allowing exemption under this particular section. We also find sufficient strength in the argument of the learned counsel for the assessee that this section would grant exemption to the assessee in respect of the entire export turnover of the assessee, if there be no expenses attached to earning of such turnover. Even if the assessee had not charged the current year's depreciation to its accounts for computing the profits and gains of the export-oriented undertaking for this year, the gross profits without allowance of the depreciation would also have been exempted 100 per cent. Hence, there is no force in the argument that while other income is available for absorption of earlier year's depreciation brought forward to this year, the said depreciation will have to be adjusted against the profits and gains of the export-oriented undertaking for allowing exemption in respect of such profits and gains.
7. As regards the question of interpretation of statutes, we are of the view that the interpretation as contended by the assessee and as given by us as above is also a very plausible interpretation of the expression "profits and gains derived by an assessee from an 100 per cent export-oriented undertaking". As contended by the learned DR, this is not a case where plain and simple language is used to mean that such profits and gains actually denote income required to be computed under the different provisions of the Income-tax Act. Hence, all the decisions as relied upon by the learned DR in support of his claim of a literal interpretation to be made would be irrelevant in the present circumstances. Furthermore, the Supreme Court has also held in the case of Jaipuria China Clay Mines (P.) Ltd. (supra) that unabsorbed depreciation brought forward from earlier years need not be treated exactly at par with current year's depreciation inasmuch as while current year's depreciation is required to be allowed first, business loss for the current year will take precedence over allowance of unabsorbed depreciation.
Even if it be that two different interpretations equal in force are available with regard to the meaning of a particular section appearing in the statute, in accordance with the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, the interpretation which is more favorable to the assessee will have to be taken recourse to. In the instant case, therefore, we are of the opinion that the interpretation as given by us as above which actually favours the case of the assessee will have to be taken into account in preference to the Departmental interpretation restricting the claim of the assessee.
8. Finally therefore, in view of above discussions, we come to the conclusion that the assessment order passed by the Assessing Officer allowing the claim of the assessee of adjustment of the unabsorbed depreciation against the income of the assessee from other sources was in order and does not and cannot be considered to be either erroneous or prejudicial to the interests of revenue. Hence, the said order does not require any revision. The impugned order passed by the CIT under section 263 is hence, bad in law and is therefore being cancelled.
9. In the result, the appeal filed by the assessee is allowed.