Commissioner of Income Tax vs Madhu Silk Textiles

K.A. Puj, J.—At the instance of the revenue, the following questions of law have been referred to by the Tribunal, Ahmedabad Bench ''B�1/2 for assessment year 1989-90 for the opinion of this Court by drawing a statement of case u/s 256(1) of the Income Tax Act, 1961:

Whether the Tribunal is right in law and on facts in confirming the order passed by the Commissioner (Appeals) directing assessing officer to allow the claim under Sections 80HHA and 80I of the Act from the profits of the Unit I without considering the loss of Unit II ?

Whether the Tribunal is right in law and on facts in confirming the order passed by the Commissioner (Appeals) directing the assessing officer to consider the deduction u/s 32AB after allowing deduction under Sections 80HHA and 80I of the Act as aforesaid ?

The brief facts giving rise to the present reference are that the assessee being an industrial undertaking claimed deduction under Sections 80HHA and 80I of the Act besides deduction u/s 32AB. The assessee was running two industrial undertakings as Unit I and Unit II and separate books of accounts in respect of two units were maintained. In respect of unit No. 1, the assessee declared gross income of Rs. 8,55,755 and in respect of Unit II, the assessee declared loss amounting to Rs. 1,47,292. The dispute regarding computation of deduction under Sections 80HHA and 80I related to Unit I. While granting deduction under these sections in respect of Unit I, the assessing officer deducted the business loss of Unit II and made further deduction u/s 32AB at Rs. 1,33,169. The resultant amount came to Rs. 5,85,296 and thereon the assessing officer allowed deductions under Sections 80HHA and 80-1 at Rs. 2,84,118 on the ground that both the units are integral parts of the same undertaking and deductions under Sections 80HHA and 80I have to be allowed after allowance of deduction u/s 32AB.

Being aggrieved by the said order of the Income Tax Officer, the assessee preferred an appeal before the Commissioner (Appeals) who agreed with the assessee that the deductions under both sections are to be allowed from the gross total income of Unit I before the adjustment of loss of Unit II and before deduction u/s 32AB.

Being aggrieved by this order of learned Commissioner (Appeals), the revenue took up the matter before the Tribunal and the Tribunal after considering the decision of the Hon''ble Supreme Court in the case of Commissioner of Income Tax (Central), Madras Vs. Canara Workshops (P) Ltd., Kodialball, Mangalore, took the view that the learned Commissioner (Appeals) has rightly allowed deduction under Sections 80HHA and 80I from the gross total income of the Unit I.

As regards the question whether deduction under Sections 80HHA and 80I should be allowed before deducting claim u/s 32AB or after deduction thereof, the Tribunal has followed the decision of the Orissa High Court in the case of Commissioner of Income Tax Vs. Tarun Udyog, wherein it was held that deduction u/s 80HHA has to be allowed on the profit of the industrial undertaking before deducting investment allowance claimed u/s 32AB of the Act.

It is this order of the Tribunal which is under challenge in the present reference.

Mr. Manish R. Bhatt, learned senior standing counsel appearing for the revenue, has submitted that so far as question (1) is concerned, reliance placed by the Tribunal on the decision of CIT v. Canara Workshops (P) Ltd. (supra) is uncalled for as in that case, the assessee had two units, one manufacturing automobile ancillaries and other manufacturing alloy steel. There was profit in automobile ancillaries unit whereas alloys steel unit had a loss. The assessee claimed deduction u/s 80E from profit of automobile ancillaries unit being corporate industry. On these facts, the Hon''ble Apex Court held that the assessee was entitled to deduction u/s 80E from the entire profit of automobile ancillaries unit included in the total income without deducting therefrom the loss in the alloys steel unit. He has, however, submitted that in the present case, there is nothing on record to suggest that Units I and II are separate manufacturing units. The only thing which is borne out from the statement of case is that the assessee was running two industrial undertakings as Units I and II and separate books of accounts in respect of two units were maintained. These facts by itself would not entitle the assessee to claim deduction under Sections 80HHA and 80I only from the gross total income of the Unit I, without deducting the loss of Unit II.

So far as Question (2) is concerned, Mr. Bhatt has submitted that the issue is squarely covered in favour of the revenue by the decision of the Hon''ble Supreme Court in the case of Motilal Pesticides (I.) Pvt. Ltd. Vs. Commissioner of Income Tax, wherein it is held that the special deduction u/s 80HH is allowable on the net income and not the gross income.

He further relied on the decision of the Rajasthan High Court in the case of Vijay Industries Vs. Commissioner of Income Tax, wherein it is held that deduction u/s 80HH of the Income Tax Act, 1961 would be available out of income as computed under the Income Tax Act and not out of the profits and gains of the industrial undertaking. In allowing deduction u/s 80HH the profits and gains of an industrial undertaking should be computed by taking into consideration unabsorbed depreciation, current depreciation and investment allowance.

On behalf of the respondent assessee, despite service, nobody appears on behalf of the assessee.

Having heard Mr. Manish R. Bhatt, learned senior standing counsel appearing for the revenue and having gone through the orders passed by the authorities below and having considered the authorities cited before the court, we are of the view that the Tribunal is not justified in taking the view that the claim under Sections 80HHA and 80I of the Act is allowable from the profits of Unit I without considering the loss of Unit II, simply relying on the decision of the Hon''ble Supreme Court in the case of CIT v. Canctra Workshops (P) Ltd. (supra) as the facts of the assessee''s case are not similar to the facts of that case. It has to be ascertained as to whether the assessee is running both the units separately and manufacturing activities are also separately carried out by the assessee. Unless and until these facts are properly brought on record, the claim cannot be allowed. We, therefore, decline to give answer to Question (1) referred to us and direct the Tribunal to ascertain the facts of the present case and adjust its decision in light of the observations made by us as well as in light of the decision of the Hon''ble Supreme Court in the case of CIT v. Canara Workshops (P) Ltd. (supra).

So far as Question (2) is concerned, we are of the view that the issue is squarely covered by the later decision of the Hon''ble Supreme Court in the case of Motilal Pesticides (I) (P) Ltd. v. CIT (supra) which is followed by the Rajasthan High Court in the case of Vijay Industries v. CIT (supra). We, therefore, answer the Question (2) in negative, i.e., in favour of the revenue and against the assessee.

This reference is disposed of accordingly without any order as to costs.