1. Revenue is before this Court challenging the order dtd 26-2-2001 passed in ITA No. 1039/Bang/1998 for the assessment year 1994-95.
2. Assessee carried on the business of manufacturing and sale of telecommunication cables. In respect of the assessment year 1994-95 return of income was filed by the assessee showing a total income of Rs. 8,43,81,674/- on 28-11-1994. The assessing officer in computing the relief under Section 8 of the Act. Assessee had considered only business income from Tele Cables and the assessee did not take into account the loss on account of lease business. The assessing officer concluded that the net income has to be based on the income of the manufacturing business and also the lease business in the light of the judgment of the Supreme Court in : [1990]181ITR79(SC) . Aggrieved by the order of the assessing authority an appeal was filed before the appellate commissioner. The appellate commissioner ruled that the assessing authority is not justified in reducing the eligible profits on which deduction under Section 80I is to be given by the loss incurred by the appellant in its leasing business. He allowed the appeal. Aggrieved by the same, an appeal was filed by the revenue before the tribunal. Both the assessee as well as the revenue filed two appeal before the tribunal. The tribunal rejected the appeal of the revenue. Revenue aggrieved by the order of the tribunal is before us in this appeal.
The following question of law is raised;
Whether the assessee is entitled to deduction under Section 80I out of the gross total income computed from the manufacturing business of the assessee or the entire and the loss incurred in the leasing business should be taken into consideration for the purpose of computation of deduction.
3. Sri Seshachala, learned Counsel would invite our attention to the material produced namely 80I and 80AB has to be given an higher status other than Section 80I of the Act. He says Section 80AB would provide in terms of the material placed in the case on hand. According to him, if Section 80AB is understood in a proper way the loss is also to be considered for the purpose of deduction in terms of the Income Tax laws. He would rely on the Constitutional Bench Judgment of the Supreme Court in Distributors (Baroda) P Ltd. v. Union of India : [1985]155ITR120(SC) and also the judgment of the Supreme Court in IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax : [2004]266ITR521(SC) . He would also rely on Motilal Pesticides (I) Pvt Ltd. v. CIT : [2000]243ITR26(SC) . He would invite our attention to the judgment of this Court in ITA 86/99 dtd 12-7-2006. While concluding he would invite our attention to a judgment of the Bombay High Court reported in Synco Industries Ltd v. AOIT : [2002]254ITR608(Bom) in which the Bombay High Court has considered CIT v. Canara Workshops Pvt., Ltd. : [1986]161ITR320(SC) for the purpose of consideration of Section 80AB of the Income Tax Act. Be would say that the Commissioner has committed a legal error in granting the relief, which is confirmed by the tribunal. He would request us to answer the question of law in favour of the revenue.
4. Per contra, learned Counsel Sri Parthasarathi appearing for the assessee would support the order of the tribunal, in addition he would invite our attention to the judgment of the Supreme Court in : [1986]161ITR320(SC) and also : [1993]201ITR968(KAR) and : [1993]199ITR235(KAR) and also : [1984]150ITR292(KAR) . He would also argue that even assuming that Section 80AB is applicable it has to be understood in a reasonable manner and the words 'of that nature' has to be understood with reference to the activity of the industry.
5. After hearing, we have carefully perused the material on record.
6. The assessing officer has chosen to say that in computing the base figure of business income, assessee has considered only business income from tele cables. The loss on account of lease business is not taken into account in arriving at the above base figure. It has not netted the business income figure. This method is fairly wrong because for the computation of Section 80I deduction, net income of all the types of income whether manufacturing business or lease business should be taken. He has noticed the judgment of the Supreme Court in : [1990]181ITR79(SC) . This order was challenged before the appellate commissioner. Assessee filed written statement in the course of hearing before the commissioner. The Appellate Commissioner would say that though for the purpose of considering deductions, the entire income has to be reckoned, for the purpose of claiming relief under Section 80I, it is only income of that undertaking that has to be considered for the purpose of Section 80I of the Act in the light of Section 80Ab of the Act. The Commissioner without taking note of the impact of Section 80AB to our surprise has chosen to say that the assessing officer is not justified in reducing the eligible profit on which deduction under Section 80I of the Act is to be given by loss incurred by the appellant in its lease business. The Commissioner has noticed the judgment of the Supreme Court in : [1986]161ITR320(SC) . When this order was challenged before the tribunal, the tribunal has chosen to hold in favour of the assessee by saying that the Supreme Court has itself taken a different view and that it is clear that two views are possible on this issue. The tribunal was of the view that when two views are possible on an issue, one which is beneficial to the taxpayer has to be taken. The tribunal therefore has upheld the order of the Commissioner in its order. The tribunal has chosen to notice : [1985]155ITR120(SC) and : [1986]161ITR320(SC) . Let me see as to whether the commissioner is justified in granting relief in terms of Section 80I of the Act without considering the loss suffered in lease business by the very assessee.
7. Before we touch upon the merits of the matter, we have considered the legal provisions which have some impact on the facts of this case. Section 80I provides for deduction in respect of profits and gains from industrial undertaking. After certain date Section 80AB has been introduced retrospectively. Courts have considered the impact of Section 80AB in the matter of deduction in terms of Chapter VI-A of the Act. The Supreme Court in : [2004]266ITR521(SC) has referred to Section 80HHC and thereafter the Supreme Court at page 530 has chosen to notice the profit and loss of an undertaking for the purpose of deduction in terms of Chapter VI-A of the Income Tax Act. The Supreme Court has ruled as under;
Section 80AB is also in Chapter VI-A. It starts with the words where any deduction is required to be made or allowed under any section of the chapter. This would include Section 80HHC. Section 80AB further provides that 'notwithstanding anything contained in that section'. Thus Section 80AB has been given an overriding effect over all other sections in Chapter-VIA. Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.
8. The Supreme Court in a judgment reported in : [2000]243ITR26(SC) has chosen to notice its earlier judgment in : [1979]118ITR243(SC) and : [1985]155ITR120(SC) and thereafter the Supreme Court has chosen to say at page 27 reading as under;
Both Sections 80HH and 80M fall in Chapter VI-A relating to deductions to be made in confuting total income. It will be seen that the language of Sections 80HH and 80M is the same. It was held in Cloth Traders (P) Ltd.,'s case : [1979]118ITR243(SC) that deduction is to be allowed on the gross total income and not on the net income. But when the decision in Cloth Traders (P) Ltd. : [1979]118ITR243(SC) was overruled in Distributors (Baroda) Pvt Ltd. v. Union of India : [1985]155ITR120(SC) . After the decision in Cloth Traders (P) Ltd.'s case : [1979]118ITR243(SC) , two Sections 80AA and 80AB were introduced by the Finance (No. 2) Act, 1980. While Section 80AA was to have retrospective effect with effect from April 1, 1981. Section 80-AA had the effect of effacing the decision of this Court in Cloth Traders (P) Ltd's case : [1979]118ITR243(SC) , which had interpreted Section 80M. Section 80Ab was made applicable to all the sections in Chapter VI-A except Section 80M. In Distributors (Baroda) P Ltd.'s case (185) 155 ITR 120, however, this Court specifically overturned its earlier decision in Cloth Traders (P) Ltd.'s case : [1979]118ITR243(SC) , and held that deduction is to be allowed only on the net income and not on the gross income. With reference to Section 80AB, this Court said it was merely of a clarificatory nature and the decision of this Court in Distributors (Baroda) P. Ltd's case : [1985]155ITR120(SC) is thus irrespective of Section 80AB of the Act. The High Court, therefore, relying on the decision of this Court in Distributors (Baroda) P., Ltd., case : [1985]155ITR120(SC) answered the question in favour of the revenue and against the assessee.
9. These two judgments make it very clear that Section 80AB would over ride all other sections for the purpose of deduction in Chapter 6A of the Income Tax Act.
10. In fact this very issue has been considered by various courts.
11. In CIT v. Chemical and Metallurgical Designs Co. Ltd. : [2001]247ITR749(Delhi) and a Full Bench judgment of the Delhi High court has chosen to ray that in terms of the stipulation contained in Section 80AB of the Act one thing which emerges clearly is that the mode of computation as indicated in Section 80AB has full application to the case relating to Section 80O.
12. The Calcutta High Court in (2000) 243 ITR 10 has chosen to take a similar view.
13. A Division Bench of this Court consisting one of us (RGRJ) in ITA No. 86/1999 after noticing all these judgments, have chosen to hold that Section 80AB has over riding effect on all the deduction in terms of Chapter VI-A of the Income Tax Act. Having come to this conclusion, we are of the view that the tribunal is not justified in giving relief to the assessee.
14. The tribunal has chosen to place reliance on the Commissioner of Income Tax : [1986]161ITR320(SC) . In the said judgment, there is no reference to Section 80AB of the Act. Therefore the tribunal is not justified in placing reliance on the said judgment and the said judgment is totally inapplicable and it is distinguishable on facts. The Bombay High Court in : [2002]254ITR608(Bom) has chosen to notice the judgment of the Supreme Court in 161 ITR 230 and thereafter the Bombay High Court would say that the judgment of the Supreme Court on the facts would not apply to the present case. Bombay High Court has noticed in detail the effect of Section 80A2 and 80B5 in the light of Section 80(I)(6) in the said judgment. This is what the Bombay High Court would say;
That, while calculating the gross total income of the company, one has to adjust the losses from one priority unit against the profits of the other priority unit and if the resultant gross total income is 'nil' then the assessee cannot claim deduction under Chapter VI-A.
We are in full agreement with the views expressed by the Bombay High Court.
15. Learned Counsel for the assessee would place reliance on a judgment of this Court in Commissioner of Income Tax v. Siddaganga Oil Extraction Pvt Ltd. : [1993]201ITR968(KAR) . In the said judgment, the two other judgments of this has been noticed CIT v. HMT : [1993]199ITR235(KAR) and Sterling Foods v. CIT : [1984]150ITR292(KAR) . A careful reading of the said judgment would show that the said Division Bench of this Court has not taken into consideration the impact of Section 80AB of the Act. In the light of the subsequent judgment of the Supreme Court these judgments are of no assistance to the assessee. In the given circumstances, we deem it proper not to place reliance on this judgment for the purpose of consideration of Section 80AB and that too in the light of the subsequent judgment of the supreme Court which is binding on us.
16. Lastly, with regard to the contention with regard to Section 80AB of the Act, learned Counsel would say that the wordings in Section 80AB would indicate that the deduction has to be with reference to total income of the assessee and for the purpose of computing deduction in that section the amount of income of that nature as computed in accordance with the provisions of this Act has to be taken note of. According to the learned Counsel, the word 'of that nature' has to be with reference to the activity of the telecables and not with reference to lease business. We are not prepared to accept this submission. Section 80AB has been introduced with the laudable object of considering deduction with reference to gross total income. Any acceptance of the argument of the assessee, would result in out diluting the words 'gross total income'.
17. Before concluding, we are slightly disturbed by the order of the tribunal. Section 80AB has been considered by the Apex Court with reference to deduction in the light of the other provisions of Chapter VI-A of the Act. The Apex Court in unmistakable terms has stated that Section 80AB over rides Chapter VI-A in two judgments. Even the assessee before the Commissioner has chosen to probably directly or indirectly accept that the income from lease business also to be included. A reference is also made to Section 80AB in the written statement as we see from the order of the Appellate commissioner at page 56 of the paper book. The commissioner to our surprise has not even chosen to refer to Section 80AB in granting relief in para 5.2 of the order of the Commissioner. When this order was challenged before the tribunal, it is rather un-understandable as to why the assessee as well as department have not chosen to invite the attention of the tribunal with regard to applicability of Section 80AB despite argument before the commissioner. We would be failing in our duty, if we do not remind the parties with regard to placing all case laws supporting or opposing their stand for a decision before the judicial forum.
In the case on hand, unfortunately both the parties have not chosen to refer to the tribunal the impact of Section 80AB. If only the department had invited the attention of the tribunal to the impact of Section 80AB, the tribunal would not have passed this order. We express our displeasure in the matter. To avoid such recurring instances, in future, the income tax department is well advised to engage competent legal counsel, before the tribunal, whenever large sums of money are involved with complicated questions of law. Income tax provides revenue to the Government. If the department is not properly defended, it would result in unnecessary references to this Court and loss of time of every body concerned including the time of this Court. We deem it proper to direct the learned Counsel to place our order before the Commissioner for proper remedical action in future cases.
18. In the result, this appeal is accepted. The order of the tribunal in so far as this issue is concerned, is set aside. No costs.