Commissioner of Income Tax vs Rambal (P) Ltd.

Ramanujam, J.—At the instance of the revenue, the following two questions have been referred, the following two questions have been

referred to this Court for its opinion, as arising out of the order of the IT Appellate Tribunal.

(1) Whether, on the facts and circumstances of the case the assessee was entitled to development rebate at 35% on the value of machinery

installed during the relevant previous years ?

(2) Whether, on the facts and circumstances of the case, the assessee was entitled to deduction u/s. 80-I for the asst. yr. 1970-71 despite the fact

that the total income for that assessment year was determined as ''nil'' by reason of setting off, the carried forward loss and unabsorbed

depreciation of the earlier assessment years ?

The assessee is a private limited company incorporated on 16-6-1965 and is engaged in the manufacture and sale of bolts, nuts and screws for

automobile and for other machinery. During the accounting years ending with 30-6-1969 and 30-6-1970, it had installed new machinery of the

value of Rs. 1,86,189 and Rs. 2,22,369. It claimed development rebate in respect of such machinery at 35% thereof amounting to Rs. 48,840 for

the asst. yr. 1970-71 and Rs. 77,490 for the asst. yr. 1971-72 u/s. 33(1)(b)(i)(a) of the IT Act, 1961. The ITO held that the assessee would be

entitled to development rebate on such machinery at the rate of 20% only on the ground that the relevant machinery had been used not only for the

production of nuts, bolts and screws for automobiles but also for the production of other machinery. Hence, he allowed development rebate of Rs.

37,238 for the asst. yr. 1970-71 and Rs. 44,280 for the asst. yr. 1971-72. The assessee also claimed the benefit of deduction allowable u/s. 80-I

of the Act for the asst. yr. 1970-72 of a sum of Rs. 29,258. The ITO observed that from the accounts maintained by the assessee it was not

possible to separate the income from the manufacture and sale of bolts, nuts and screws for the automobile ancillaries and the income derived from

the manufacture and sale of such bolts, nuts, and screws for other machinery. Hence, he rejected the claim u/s. 80-I for the asst. yr. 1970-71 he

gave an additional reason that since the total income for that year was determined as ''nil'' deduction permissible u/s. 80-I could not be given.

Aggrieved by those assessments, the assessee preferred appeals to the AAC, who accepted the assessees claims for both the assessment years

under consideration.

Thereupon, the revenue preferred appeals to the Tribunal. Regarding the claim for allowance of development rebate at 35% on the value of the

machinery installed during the value of the machinery installed during the relevant two previous years, the Tribunal noticed that a similar claim made

by the assessee for the earlier assessment years has been upheld by its decision in I.T.A. Nos. 2755 and 2756/1973-74, dt. 14-11-1975.

Following its own earlier decision, the Tribunal upheld the order of the AAC upholding the assessee''s claim for allowance of development rebate

at 35% of the value of the machinery installed during the relevant previous assessment years. Regarding the assessee''s claim for deduction u/s. 80-

I, the Tribunal observed that the said section did not provide that the relief thereunder was to be allowed only when the income attributable to the

priority industry could be precisely ascertained and that, in any case it did not bar relief being allowed on such income if it could be reasonably

worked out. As for the asst. yr. 1970-71, the Tribunal disagreed with the reasoning of the ITO that as there was no positive income for that year,

the relief u/s. 80-I could not be given, and held that the relief u/s. 80-I was an independent relief and deduction permissible thereunder should be

made from the business income as computed before setting off the losses pertaining to the earlier years. It is against the decision of the Tribunal,

these references had been made.

We find that the first question of law stated above is covered by a decision of this court in the assessee''s own case in Additional Commissioner

of Income Tax Vs. Rambal (P.) Ltd., relating to an earlier year, which is against the revenue. Therefore, that decision rendered in the assessee''s

own case should govern the first question here. Question No. 1 is, therefore, answered against the revenue.

Coming to the second question, it has been found by the ITO, that the total income for the asst. yr. 1970-71 as computed u/s. 80(B)(5) for the

purpose of Income Tax, is ''nil'' and this finding of the ITO has not been disturbed either by the AAC or by the Tribunal. The Tribunal which

proceeded on the basis that the total income determined is ''nil'', however held against the revenue proceeding on the basis that the deduction

contemplated under Chapter VIA is independent and, therefore, even if there is no positive income, deduction contemplated under that Chapter

has to be allowed. A similar question came up for consideration before this court in T.C. No. 44 of 1977 and this court by judgment dt. 19-8-

1983 held, relying upon the provisions of ss. 80A and 80A(2) occurring in Chapter VIA, that having regard to the limitations contained in s.

80A(2) if the total income as computed u/s. 80B(5) is ''nil then, no relief could be granted by other sections in view of the limitations contained in s.

80A(2) which says that the aggregate amount of deductions under that Chapter shall not, in any case exceed the gross total income of the

assessee. If the gross total income of the assessee is determined as ''nil'' then, there is no question of any deduction being allowed on that Chapter

as that will clearly exceed the gross total income of assessee. In that case, we have answered a similar question in the negative and in favour of the

revenue.

Learned counsel for the assessee does not dispute the fact that the said decision in T.C. No. 44 of 1977 squarely applies to the facts of this

case. However, he would submit that this court has not taken note of the decision of the Supreme Court in Cloth Traders (P) Ltd. Vs. Additional

Commissioner of Income Tax , Gujarat-I, and also a subsequent decision of this court in COMMISSIONER OF Income Tax, TAMIL NADU-

III Vs. KATPADI CO-OPERATIVE TIMBER WORKS LTD., and that having regard to those two decisions, the decision in T.C. No. 44 of

1977 requires reconsideration. We have gone through the decision in Cloth Traders (P) Ltd. Vs. Additional Commissioner of Income Tax ,

Gujarat-I, and we find that in that case, the gross total income as determined u/s. 80B(5) was positive figure from which the reliefs under Chapter

VIA can be claimed. Having regard to the fact that the gross total income computed in that case was a positive figure, this court did not go into the

question as to the scope and effect of s. 80A(2) which puts a limitation on the reliefs to be granted under Chapter VI-A. As a matter of fact, in that

case the Supreme Court has specifically referred to the fact that any relief to be granted under Chapter VIA, should be subject to the limitation

contained in s. 80A(2). Therefore, the decision of this court in T.C. No. 44 of 1977 cannot be said to run counter to the decision of the Supreme

Court in Cloth Traders decision of the Supreme Court in Cloth Traders (P) Ltd. Vs. Additional Commissioner of Income Tax , Gujarat-I, . But, on

the other hand, it gives full effect to the observations of the Supreme Court that the limitation contained in s. 80A(2) should be kept in mind while

granting the reliefs under Chapter VIA.

In COMMISSIONER OF Income Tax, TAMIL NADU-III Vs. KATPADI CO-OPERATIVE TIMBER WORKS LTD., , another Division

Bench of this court has granted relief u/s. 80P on the basis that any deduction under that section will have to be on the gross income and not on the

net income. But, we find that in that case, the gross total income as computed u/s. 80B(5) extent possible relief could be granted and this was done

in that case. That case did not deal with the situation where the gross total income as determined u/s. 80B(5) was ''nil''. We do not, therefore, see

any reason for reconsidering our decision in T.C. No. 44 of 1977. Following the said decision, question No. 2 is answered in the negative and in

favour of the revenue.

Learned counsel for the revenue makes an oral application for grant of leave so far as our answer to the first question is concerned, on the

ground that leave has already been granted by Supreme Court in SLP No. 4451 of 1980. Having regard to the fact that leave has already been

granted by the Supreme Court, we grant leave to revenue for filing an appeal against the answer we have given to question No. 1 No costs.