Modi Nagar Paper Mills Ltd. vs Deputy Commissioner of Income Tax and Another

Prakash Krishna, J.—Raising a short controversy, the present appeal u/s 260A of the Income Tax Act, 1961 has been preferred by the Assessee against the order dated April 18, 2000 passed by the Income Tax Appellate Tribunal, Delhi Bench "A", New Delhi in I.T.A No. 4950/Del/93 relating to the assessment year 1987-88.

On June 18, 1987 the Assessee, a private limited company, engaged in manufacture of corrugated papers and craft papers, filed Income Tax return declaring loss of Rs. 77,63,880. The business income relating to the accounting period relevant to the assessment year 1987-88 has been disclosed at Rs. 17,51,602. In the assessment proceedings the Assessee claimed deductions under Sections 80HH and 80-I and submitted that these deductions should be allowed at the total income of the Assessee on the profits of the industrial undertaking and the brought forward losses be adjusted/set off thereafter. The said plea has not found favour with any of the Income Tax authorities or with the Income Tax Appellate Tribunal. Hence the present appeal.

The appeal was admitted on the substantial questions of law numbered as 1 and 2, framed in the memo of appeal which are as follows:

Whether the Income Tax Appellate Tribunal is justified in upholding that the brought forward unabsorbed losses and deficiencies of earlier years are to be adjusted first against the current year''s profits and gains of an industrial undertaking before granting of deduction under Sections 80-I and 80HH of the Income Tax Act, 1961 ?

Whether the Income Tax Appellate Tribunal is justified in interpreting and holding that the gross total income in Section 80B(5) means total income of the Assessee arrived at after setting off the brought forward losses and deficiencies of earlier years against the income of the current year ?

As a matter of fact, both the questions referred to above, raise only one issue as to whether the brought forward unabsorbed loss and deficiencies of earlier years are to be adjusted first against the current profits and gains of an industrial undertaking before granting deduction under Sections 80-I and 80HH of the Income Tax Act, 1961.

Sri Rakesh Ranjan Agrawal, learned Counsel for the Assessee, submits that in view of the provisions of Sections 80-I and 80HH of the Act, the Assessee is entitled to claim the deductions first before giving the allowance for brought forward losses.

Reiterating the stand which was taken by the Assessee, the learned Counsel has placed strong reliance upon Commissioner of Income Tax Vs. Tarun Udyog, It was submitted that the Tribunal has wrongly preferred to place reliance upon the judgment of the apex court in the case of Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, The said case was u/s 80P(2) of the Income Tax Act and is, therefore, not applicable to the controversy involved herein. On the other hand, Sri A. N. Mahajan, learned standing counsel, submits that the controversy is covered by the decision of the apex court in the case of Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai and Another,

Considered respective submissions of the learned Counsel for the parties and perused the record.

Section 80B(5) defines "gross total income". It means the total income computed in accordance with the provisions of the Income Tax Act before making any deduction under Chapter VI-A. The said provision has been the subject-matter of interpretation by the apex court in the case of Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai and Another, It has been held by the apex court that if gross total income of the Assessee is determined as "nil", then there is no question of any deduction being allowed under Chapter VI-A in computing the total income. The Assessing Officer has to take into account the provisions of Section 71 providing for set off of loss from one head against income from another and Section 72 providing for carry forward and set off of the business loss. Section 32(2) makes provision for carry forward and set off of the unabsorbed depreciation of a particular year. The effect of the abovementioned provisions is that while computing the total income, the losses carried forward and depreciation have to be adjusted and thereafter the Assessing Officer has to work out the gross total income of the asses-see. Sub-section (2) of Section 80A specifically enacts that the aggregate of deductions under Chapter VI-A should not exceed the gross total income of the Assessee. If the gross total income is found to be a net loss on account of the adjustment of losses of the earlier years or "nil", no deduction under this Chapter can be allowed. As noticed earlier Clause (5) of Section 80B defines the expression "gross total income" to mean the total income computed in accordance with the provisions of the Act without making any deductions under Chapter VI-A. The effect of Clause (5) of Section 80B of the Act is that "gross total income" will be arrived at after making the computation as follows:

(i) making deductions under the appropriate computation provisions ;

(ii) including the incomes, if any, under Sections 60 to 64 in the total income of the individual ;

(iii) adjusting intra-head and/or inter-head losses ; and

(iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc.

In this case, the Supreme Court has relied upon its earlier decision in the case of Commissioner of Income Tax, Tamil Nadu-V, Madras Vs. Kotagiri Industrial Co-operative Tea Factory Ltd., Kotagiri, which has also been relied upon by the Tribunal in the order under appeal.

The Supreme Court has noticed that the predominant majority of the High Courts have taken the view that deduction under Chapter VI-A of the Act would be available only if the computation of gross total income as per the provisions of the Income Tax Act after setting off the carried forward loss and unabsorbed depreciation of earlier year, is not nil. The relevant paragraph is reproduced below (page 451 of 299 ITR):

This Court further notices that the predominant majority of the High Courts have taken the view that deductions under Chapter VI-A of the Act would be available only if the computation of gross total income as per the provisions of the Act after setting off carried forward loss and unabsorbed depreciation of earlier years is not ''nil''. In Commissioner of Income Tax, Tamil Nadu-III, Madras Vs. Madras Motors (P.) Ltd., after noticing the definition of ''gross total income'' the Madras High Court has held that the intention of Parliament, that the deduction under Chapter VI-A is contemplated only after the total income is computed after setting off of the unabsorbed depreciation as per Section 72 is evident and, therefore, Section 72 has to be applied before the total income of an Assessee is determined, i.e., before the deductions under Chapter VI-A are allowed.

In view of the above authoritative pronouncements of the apex court, we find that the order of the Tribunal is on terra firma and calls for no interference in the present appeal.

So far as the case of Commissioner of Income Tax Vs. Tarun Udyog, (Orissa) heavily relied upon by the Assessee is concerned, the said decision has to be read subject to the subsequent decision of the apex court in the case of Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai and Another, Even otherwise also, on a plain and meaningful reading of the judgment in the case of Commissioner of Income Tax Vs. Tarun Udyog, we find that it was not a case of nil income or of loss. Even in this case also, the High Court has interpreted Section 80B(5) in a manner in which it has been subsequently interpreted by the apex court in the case of Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai and Another, In that case the High Court held that as u/s 80HH deductions have to be allowed on the profits and gains, the gross total income computed in accordance with the provisions contained in Sections 30 to 43A would not be relevant for the purpose.

In any event, if there is any conflict, the judgment of the apex court given in the case of Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai and Another, will have precedence. For the same reason, we are not inclined to discuss the other decision in Commissioner of Income Tax Vs. Amod Stamping,

Viewed as above, we do not find any merit in the appeal. The appeal is devoid of substance and it is dismissed accordingly.