Commissioner of Income Tax vs Rockweld Electrodes India Ltd.

Thanikkachalam, J.—At the instance of the Department, the Tribunal has referred the following question u/s 256(1) of the Income Tax Act,

1961, for our opinion :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the set off of deficiency u/s 80J(3) of

the Act should be made before any set off of the business loss carried forward from earlier years ?

The assessee, Rockweld Electrodes India Limited, is a company. Before the Income Tax Officer, the assessee contended that set off of

deficiency u/s 80J(3) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), should be made before any set off of the business loss

carried forward from the assessment year 1968-69. The Income Tax Officer rejected the contention put forward by the assessee. According to

the Income Tax Officer, after arriving at the gross total income in accordance with the provisions of the Act, the relief u/s 80J is to be given.

Aggrieved, the assessee filed an appeal before the Appellate Assistant Commissioner and by way of an additional ground, the assessee contended

that the assessee has got deficiency u/s 80J(3) carried forward from the assessment year 1968-69 and priority should be given to the deficiency

carried forward u/s 80J(3) instead of to the business loss. The Appellate Assistant Commissioner, however, confirmed the view taken by the

Income Tax Officer in setting off the business loss before allowing the deficiency u/s 80J(3) of the Act for the assessment year 1972-73.

Aggrieved, the assessee filed a second appeal before the Appellate Tribunal. The Appellate Tribunal, following its earlier order in North Arcot

District Co-operative Spinning Mills Ltd. v. First ITO (income tax Appeals No. 1385 and 1386/(MDS) of 1976-77) dated October 11, 1977,

held that set off of deficiency u/s 80J(3) of the Income Tax Act should be made before any set off of the business loss carried forward from earlier

years. Aggrieved by this order, the Department requested the Tribunal to refer the abovesaid question of law for our consideration.

The point for consideration is whether the set off of deficiency u/s 80J(3) of the Act should be made before any set off of the business loss

carried forward from earlier years.

At the time of hearing, none was present on behalf of the assessee. We have heard the learned standing counsel appearing for the Department

and perused the records carefully.

The decision relied upon by the Tribunal in Income Tax Appeals Nos. 1385 and 1386/(MDS) of 1976-77, dated October 11, 1977, came up

for consideration before this court, by way of reference in Commissioner of Income Tax, Tamil Nadu-II, Madras Vs. North Arcot District Co-

operative Spinning Mills Limited, , wherein this court has held as under (headnote) :

....... no distinction can be made between the current year''s depreciation and carried forward unabsorbed depreciation of the earlier years in view

of the specific provisions of section 32(2) of the Income Tax Act, 1961. Giving effect to section 32(2) which deems unabsorbed depreciation of

the earlier year as part of the current year''s depreciation, the deduction u/s 32(1) must relate to both the current year''s depreciation as well as the

depreciation of the earlier years. The deduction towards unabsorbed depreciation of the earlier years should be granted and only after that the

relief u/s 80J can be allowed.

The learned standing counsel appearing for the Department also relied upon a decision in Commissioner of Income Tax Vs. Rane Brake Linings

Ltd., wherein, while considering the provisions of sections 80B(5) and 80-I of the Income Tax Act, 1961, this court has held ""that the relief

available to an assessee u/s 80-I of the Act, will have to be computed after adjustment of the carried forward losses of the earlier years, but before

the adjustment of the deficiencies u/s 80J carried forward from the earlier years.

Learned standing counsel also brought to our notice the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. Vs. The

Commissioner of Income Tax, Gujarat-II, Ahmedabad, , wherein the Supreme Court, while considering the provisions of sections 29, 32(2),

33(2), 41(2), 72(1) and 80E (prior to amendment by the Finance (No. 2) Act, 1967), held that : ""in computing the profits of the assessee for the

purpose of the special 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 from which the eight per cent. contemplated by section 80E is to be deducted"".

This court had an occasion to consider the provisions of sections 72, 80B, 80L, 80M and 80-O of the Income Tax Act, in the case of

Commissioner of Income Tax, Tamil Nadu-III, Madras Vs. Madras Motors (P.) Ltd., , wherein this court was of the view that ""the definition of

''gross total income'' contained in section 80B(5) of the Income Tax Act, 1961, as the total income computed in accordance with the provisions of

the Act before giving deductions under Chapter VI-A, clearly shows the intention of Parliament that the deduction under Chapter VI-A is

contemplated only after the total income is computed after setting off the unabsorbed depreciation as per section 72. Section 72 comes under

Chapter VI dealing with aggregation of income. Therefore, section 72 has to be applied before the total income of an assessee is determined, that

is, before the deductions under Chapter VI-A are allowed"". The learned standing counsel brought to our notice a decision in H.H. Sir Rama

Varma Vs. Commissioner of Income Tax, Kerala, wherein, while considering the provisions of sections 14, 45, 74, 80A, 80AA, 80AB, 80B and

80T of the Income Tax Act, the Supreme Court, relying upon the earlier decision of the apex court in Distributors (Baroda) Pvt. Ltd. Vs. Union of

India (UOI) and Others, , held that ""long-term capital losses brought forward from earlier assessment years have to be first set off against the long-

term capital gains of the current assessment year before the deduction contemplated by section 80T of the Income Tax Act, 1961, is allowed. In

other words, the relief u/s 80T is to be given only for the amount of long-term capital gains of the current assessment year after the long-term

capital loss of the earlier years brought forward is set off"". In view of the decisions cited supra, the assessee is not entitled to contend that set off of

deficiency u/s 80J(3) should be made before any set off of the business loss carried forward. Therefore, the Tribunal was in error in holding that

the set off of deficiency u/s 80J should be made before any set off of the business loss carried forward. Accordingly, the order passed by the

Tribunal on this aspect is against the decisions cited supra.

In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. There will be no order as to

costs. Counsel''s fee is fixed at Rs. 1,000 (rupees one thousand).