Commissioner of Income Tax vs Rane Brake Linings Ltd.

Sethuraman, J.—The following question has been referred u/s 256(1) of the I.T. Act, 1961, at the instance of the Commissioner of Income

Tax, Madras :

Whether, on the facts and in the circumstances of the case, it has been rightly held that the assessee would be entitled to relief u/s 80I of the

Income Tax Act, 1961, on the gross income before adjustment of carried forward losses of the earlier years as well as set off of deficiencies u/s

80J carried forward from the earlier years ?

The assessment years under consideration are 1970-71 and 1971-72, The assessee-company made a claim u/s 80I for relief of a sum of Rs.

61,659 for 1970-71 and Rs. 13,90,885 for 1971-72. The ITO negatived the claim for 1970-71, as according to him the total income of the

company was nil after considering the losses of the earlier years. For the assessment year 1971-72, he restricted the claim for relief u/s 80I only in

respect of a sum of Rs. 2,81,015 being the profits and gains of the assessee from business after setting off the losses as well as deficiencies u/s 80J

brought forward from the earlier year and adjusted against the sum of Rs. 13,90,885. The AAC, on appeal, held that for the assessment year

1971-72 the relief should be granted before the deduction of the business losses brought forward from the earlier years but after the deduction of

the unabsorbed depreciation of the prior years. For the assessment year 1971-72 also, the AAC accepted the assessee''s contention that the

amount of relief u/s 80I should be computed with reference to the profits and gains of the priority industry before setting off the losses and

deficiencies u/s 80J carried forward from the earlier years. The department appealed against these orders before the Tribunal and the Tribunal held

that the AAC was right in directing that the relief u/s 80I should be worked out before setting off the losses brought forward from earlier years and

also the deficiencies u/s 80J brought forward from the earlier years. It is this order of the Tribunal that has given rise to the present reference.

Unfortunately, the question, as framed, appears to be erroneous as far as the assessment year 1970-71 is concerned. For that year, the only

relief that is liable to be considered is the relief u/s 80I. The Supreme Court in Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner

of Income Tax, Gujarat-II, Ahmedabad, considered the claim for computation of the relief u/s 80E, which corresponds to Section 80I. It was held

that in computing profits of the assessee for the purpose of the deduction provided u/s 80E, items of unabsorbed depreciation and unabsorbed

development rebate carried forward from earlier years will have to be deducted before arriving at the figure on which the percentage contemplated

by Section 80E is to be computed. Applying this judgment of the Supreme Court, the question has to be answered as follows : The assessee

would be entitled to relief u/s 80I only on the income after adjustment of carried forward losses of the earlier years.

With reference to the assessment year 1971-72, apart from the adjustment of the carried forward losses, there is also the question as to the

admissibility of the relief u/s 80J before arriving at the quantum for application of Section 80I, Section 80B(5) defines gross total income as

meaning the total income computed in accordance with the provisions of this Act before making any deduction under this Chapter or u/s 280-O.

Section 80J falls within the Chapter and, therefore, the relief u/s 80J cannot be adjusted before arriving at the income on the basis of which Section

80I has to be worked out. In this view, the question for the assessment year 1971-72 has to be answered as follows! The assessee would be

entitled for relief u/s 80I on the gross total income after adjustment of carried forward losses of the earlier years but before the adjustment of the

deficiencies u/s 80J carried forward from the earlier years. There will be no order as to costs.