Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income-Tax vs Parle Biscuits (P.) Ltd. on 12 July, 1999
Equivalent citations: [2000]74ITD148(MUM)
ORDER
Bakshi, J.M.
1. The only ground raised by the revenue, for assessment year 1988-89, is as under :-
"On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that before reducing deduction under section 32AB from the total income the relief under section 80-I should be worked out."
2. Rival contentions have been heard and records perused. The only issue involved in this appeal is relating to the computation of deduction under section 80-I. It is not disputed that the assessee is entitled to deduction under section 80-I. Apart from deduction under section 80-I, the assessee has also claimed deduction under section 32AB. Deduction under section 80-I is permissible at 20% of the profits and gains of the industrial undertaking. In computing the eligible profits for deduction under section 80-I the Assessing Officer first allowed the deduction under section 32AB and thereafter calculated the deduction under section 80-I on the reduced income. The Commissioner of Income-tax (Appeals) has held that deduction under section 80-I is allowable to the extent of 20% of the profits and gains of the assessee and that profits and gains have to be taken in the literal sense, i.e., in the commercial sense. He also held that deduction under section 32AB is an incentive to the assessee upon fulfilment of certain conditions as laid down under the Income-tax Act and that the deduction under section 80-I is allowed with reference to the profits. The CIT (A) has further held that deduction under section 32AB is not debited to the Profit & Loss Account and therefore the deduction under section 32AB should not be reduced from the profits of new undertaking for computing deduction under section 80-I. Reference has also been made to the decision of the Calcutta Bench of the Tribunal in the case of Bihar Mercantile Union (P.) Ltd. v. ITO [1984] 10 ITD 887 (Cal.) and the decision of the Bombay Bench of the Tribunal in the case of Universal Ferro & Allied Chemicals Ltd. BCAJ April 1989, where it has been held that deduction under section 32AB is not to be reduced in computing the profits derived from industrial unit eligible for deduction under section 80-I.
3. The revenue is aggrieved. The learned Departmental Representative contended that deduction under section 80-I is permissible on the income as computed under the Act. In computing the income deduction under section 32AB is taken into account and therefore the CIT (A) was not justified in giving the direction that the profits for purposes of section 80-I be computed without making any deduction under section 32AB.
4. The learned counsel for the assessee, on the other hand, sought to support the order of the CIT (A). It was contended that a similar issue had come up before the Ahmedabad Bench of the Tribunal in the case of Samir Diamond Mfg. (P.) Ltd. v. Dy. CIT [1998] 61 TTJ (Ahd.) 413 and the same was decided in favour of the assessee.
5. We have given our careful consideration to the rival contentions. For appreciating the rival contentions it will be useful to reproduce the relevant provisions of the Act.
6. Section 80-I of the Income-tax Act, 1961 reads as under :-
"80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from Such profits and gains of an amount equal to twenty per cent thereof :
Provided ......
(6) Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the Assessment year immediately succeeding the initial Assessment year or any subsequent Assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years relevant to the initial Assessment year and to every subsequent Assessment year up to and including the Assessment year for which the determination is to be made."
7. Section 80B defines the 'gross total income' as under :-
"gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under Chapter VIA."
8. Section 80AB reads as under :-
"80AB. Where any deduction is required to be made or allowed under any section (except section 80M) included in this Chapter under the heading "C-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income."
9. A perusal of section 80-I reveals that the first step to be taken for applying this section is to find out as to whether the profits and gains derived from an industrial undertaking etc. are included in the gross total income of the assessee. It may be pertinent to mention that section 80B defines gross total income to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. So the profits and gains derived from an industrial undertaking as computed in accordance with the provisions of the Act should be included in the gross total income for application of section 80-I. This is the first step to be taken for determination of deduction under section 80-I. Section 80-I provides a deduction from such profits and gains of an amount equivalent to twenty per cent thereof. The crucial words used in section 80-I are 'such profits and gains'. The expression such profits and gains refers to the profits and gains derived from an industrial undertaking which is included in the gross total income. The language of section 80-I does not leave us in doubt that the 20% of deduction is to be computed with reference to the profits and gains derived from an industrial undertaking which is included in the gross total income. The profits and gains derived from an industrial undertaking that is included in the gross total income is the profits and gains as computed under the provisions of the Act. In this connection it may be relevant to refer to section 28 and section 29, which are relevant in computation of income of profits and gains of the industrial undertaking under the Act.
10. Section 28 of the Act reads as under :-
The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession" -
(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;
(ii) any compensation or other payment due to or received by -
".............."
11. Section 29 of the Act reads as under :-
"29. The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D."
12. Now the controversy in this case is as to whether deduction under section 32AB is to be taken into account for computation of profits and gains of business which is included in the gross total income of the assessee. The answer to the issue is not in terms of yes or no. Whether the deduction under section 32AB is to be deducted in computing the profits and gains derived from the industrial undertaking would depend on the source of specified investment for purposes of section 32AB. We have referred to section 29 of the Act which provides that income from profits and gains of business shall be computed in. accordance with sections 30 to 43D. Section 32AB falls within the sections 30 to 43D. Therefore, when we are computing the profits and gains of business for inclusion in the gross total income the effect has got to be given to section 32AB also. At this stage it would be necessary to keep in mind sub-section (6) of section 80-I. We have reproduced this sub-section in Para No. 6 of this order. It provides that for computation of deduction under section 80-I it is to be presumed that the assessee's only source of income is the income from the industrial undertaking eligible for deduction under section 80-I. Therefore, care has got to be taken as to whether deduction under section 32AB is claimed out of the income derived from such an industrial undertaking. Section 32AB provides for a deduction if assessee has made certain deposits in accordance with the section or utilised any amount for the purpose of any new machinery or plant etc. It is therefore necessary to find out as to whether the investment under section 32AB has been made out of the profits and gains of business of the industrial undertaking eligible for deduction under section 80-I. If deduction has been claimed from the income of the industrial undertaking then the claim under section 32AB has got to be deducted from the profits and gains of business derived from the industrial undertaking which is included in the gross total income for purposes of deduction under section 80-I. On the other hand, if the assessee makes investment specified under section 32AB out of the income from business other than the profits and gains of business from the industrial undertaking eligible for deduction under section 80-I, then the amount of deduction is not to be reduced from the profits and gains of business derived from the industrial undertaking eligible for deduction under section 80-I. The view that deduction under section 32AB is to be made before computation of deduction under section 80-I is supported by the decision of the Madhya Pradesh High Court in the case of CIT v. Rajaram Maize Products [1998] 143 Taxation 319, 325 (MP). The decisions of the Tribunal cited on behalf of the assessee most likely fall under the second category i.e. where the investment qualifying for deduction under section 32AB is made out of the business income other than the profits and gains of business derived from the industrial undertaking. In such cases we have also held that deduction under section 32AB is not to be made from the income derived from the industrial undertaking eligible for deduction under section 80-I.
13. In this case there is no information about the income from which deduction under section 32AB has been claimed. If deduction under section 32AB has been claimed out of the income derived from the industrial undertaking eligible for deduction under section 80-I, then the same has got to be reduced from the profits and gains of business of such undertaking before computing the deduction under section 80-I. However, if the investment qualifying for deduction under section 32AB has been made out of the profits and gains of business other than the business of the industrial undertaking eligible for deduction under section 80-I, then deduction under section 32AB is not to be made for the purpose of determination of the profits and gains derived from the industrial undertaking and the deduction under section 80-I shall have to be computed on the profits and gains of the industrial undertaking without reducing it by the deduction under section 32AB. For this purpose we restore the issue to the file of the CIT(A), who will decide the issue afresh in accordance with our decision after doing necessary verification.
14. For statistical purposes the appeal of the revenue is allowed.