Madhya Pradesh High Court
J.P.Tobacco Product Pvt. Ltd. vs Commissioner Of Income Tax, Jabalpur ... on 16 April, 2014
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I.T.R. No.183/97
16/4/2014 :
Shri A. K. Shrivastava, learned counsel for the
petitioner.
Shri S. M. Lal, learned counsel for the
respondents.
The following question has been referred by the
Income Tax Appellate Tribunal, Jabalpur under the
provisions of Section 256(1) of the Income Tax Act :-
"Whether on the facts and in the circumstances
of the case, the ITAT was justified in holding
that the assessee was not entitled to deduction
under Section 80-HHA as deduction under
Section HH was allowed to it ?"
Facts in brief go to show that the assessee herein
submitted a return of income on 28.12.89 declaring a total income of Rs.1,13,82,370/- after making certain deductions under Sections 80-G, 80-HU, 80-HH, 80- HHA and 80-I to the tune of Rs.95,47,158/-. The assessment proceedings were conducted and after the assessment was done when certain deductions under Section 80-HHA was disallowed by virtue of the provisions of sub clause 7 of Section 80HHA, the reference in question has been made. The question is as to whether the deduction is permissible in view of the statutory provisions ? Before adverting to consider the rival contentions it would be appropriate to take note of -:2:- the provisions of Section 80-HH and Section 80-HHA and sub section 7 thereto.
In Section 80-HH of the Income Tax Act certain provision is made for deduction in respect of profit and gain from newly established industrial unit situated in backward areas. This Section provides that where the gross total income of an assessee including any profits and gain derived from any industrial undertaking or business of a hotel to which the section applies there shall be permitted certain deduction equal to 20% thereof. Similarly Section 80 HHA also provide for deduction to small scale industries in certain areas. Section 80 HHA contemplates a provision for deduction to areas situated in rural places and therefore explanation is added to this section indicating the meaning of "rural areas". Thereafter, sub section 7 of 80-HHA contemplates that where deductions in relation to profit and gain of a small scale undertaking to which section 80 HH applies is claimed and allowed under that Section for any assessment year, deduction in relation to such profit and gain shall not be allowed under this Section i.e. 80 HHA for the same or any other assessment year. With regard to grant of benefit of deduction under Section 80 HHA to the petitioner the matter has been considered by the Assessing Officer and the Assessing Officer after taking note of the explanation to the word "rural area" as appearing in
-2 -:3:- Section 80 HHA explanation to sub section 8 has dealt with the matter in the following manner :-
"In this context, it is of utmost important to see if the centres where bidis are manufactures/ collected mentioned below fall within the expression "Rural Area".
i. Nagod : Municipality of Satna Distt.
ii. Maihar :
iii.Uchehra :
iv.Melapalyam : Supposed to Municipality or v. Tenkasi : notified area of Terunveli Distt. vi.Puliyanguddi:
First three Centres namely Nagod, Maihar and Unchehra are either Municipality or notified area. Even the adjacent villages are within the limits of 15 k.m. from the Municipal area. Assessee has not been able to prove from his books of account or otherwise that the above areas which he claims to be "Rural Area" are beyond 15 k.m. from the Municipal area. By this, only Sabhapur Centre will fall within the expression "Rural Area" and the profit arising on the bidi manufactured at this centre only will at the most qualify for deduction u/s 80 HHA which may be computed as under :-
Total Profit of Rural Area : Rs.97,80,720/- Total Bidis manufactured in Sabhapur centre, 1,70,01,000 Profit per 1 lac bidis - Rs.249/-
Comes to Rs.42,330/- Rs.42,330/- Bidi manufactured in other centres 3,91,10,54,000 -Rs.249/-
Rs.97,38,390/-
Admissible deduction for Sabhapur Branch on profit of Rs. 42,330/- @ 20% works out to
-3 -:4:- : Rs. 8,466/-
Inadmissible deduction for other branches on profit of 97,38,390/- @ 20% comes of : Rs.19,56,144/- only Accordingly against the claim of Rs.19,56,144/- only deduction u/s 80 HHA at Rs.8,466/- may be allowable. However, this too is disallowed for the reasons discussed in 80 HH above."
(Emphasis Supplied) The grievance of the assessee now represented by Shri A. K. Shrivastava, learned counsel is that even though for Sabhapur Branch the provision of Section 80 HHA is found to be allowable but the same has been disallowed on the ground that as the unit is in receipt of benefit under Section 80 HH by virtue of sub section 7 of 80 HHA, the same is disallowed. He invites our attention to a judgment of the Andhara Pradesh High Court in the case of Commissioner of Income Tax Vs. Visakha Industries - 2001 Vol.251 ITR 471 to say that special deduction under Section 80 HH has to be computed with reference to profit of the particular unit and not with reference to the total profit of the assessee. It is said that based on the aforesaid judgment the profit of Sabhapur Unit has to be assessed with reference to that unit and not with reference to the total profit of the assessee.
In the case of Visakha Industries (supra) the Andhara Pradesh High Court has dealt with the matter in the following manner :-
-4 -:5:- "The intention of the Legislature is not to create such a situation, but to provide the benefit of deduction from the profits and gains of an industrial undertaking, which fulfills the conditions specified in the respective provisions of the Act. The said benefit is an incentive intended to boost the industrial activity. Hence, the proper interpretation is that the deduction shall be in respect of the profits and gains of an industrial undertaking, specified in the provisions of the Act and not with reference to the total profits of the assessee."
(Emphasis Supplied) Shri S. M. Lal tried to refute the aforesaid and argued that the computation having been done properly no further indulgence into the matter is called for.
We have bestowed our anxious consideration to the issue in question and it is clear that after recording the finding as indicated herein above, the Assessing officer has simply disallowed the benefit with regard to Sabhapur unit only on the ground that once the assessee has received the benefit under Section 80 HH on the total profit of the assessee, the benefit under Section 80 HHA based on the profit earned by the Sabhapur Unit is not permissible. This in sum and substance is the import of the order. However, the Andhara Pradesh High Court has interpreted the provisions with regard to the meaning of the word "industrial undertaking" and intention of legislature. It is
-5 -:6:- clear that deduction under Section 80 HH has to be computed with reference to a particular unit i.e. undertaking and not with reference to total profit of the Assessee. If that be the import of law then the reference has to be answered by holding that in the facts and circumstances of the present case, the Income Tax Appellate Tribunal, the Commissioner, Appeals and the Assessing Officer were not justified in holding that the assessee was not entitled to deductions under Section 80HHA as deduction under Section 80 HH was allowed. In fact for the Sabhapur Unit when it has been held that it was entitled for deduction under Section 80 HHA disallowing the same on the grounds of Section 80 HH was not permissible. As the Sabhapur Unit is a separate and distinct unit, the deduction under Section 80 HH has to be computed with reference to the profit of particular unit i.e. Sabhapur Unit and not with reference to the total profit of assessee.
Accordingly, answering the question framed in favour of the assessee, the reference is answered and forwarded to the department.
Reference is accordingly disposed of.
( Rajendra Menon) ( Sushil Kumar Palo )
Judge Judge
mrs.mishra
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