Judgment:
ORDER
Prakash Shrivastava, J.
1. The Tribunal, Indore has referred the following question of law to this Court:
Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the allowance of deduction under Section 80-I keeping in view the provisions of Section 80B and Section 80A of the IT Act?
2. The matter relates to the asst. yrs. 1987-88, 1988-89 and 1989-90. The facts relating to the issue are that the assessee owns two units, one is old and the other is new. The new unit falls within the category of priority industry. The assessee computed the deduction under Section 80-I of the Act in respect of new unit treating it as an independent unit. For this purpose the assessee calculated the gross total income of new unit after considering brought forward losses, unabsorbed depreciation and investment allowance of new unit alone. From the gross total income of the new unit so arrived at, the assessee claimed deduction under Section 80-I. The remaining net income of the new unit was thereafter set off against losses of old unit and carry forward of resultant unabsorbed losses, unabsorbed depreciation and investment allowance was claimed. This claim of the assessee was disallowed by the AO because he was of the view that gross total income of both the units taken together should be first determined and if the resultant gross total income is a minus figure no deduction under Section 80-I can be allowed. Against the disallowance, the assessee carried the matter before the CIT(A). The CIT(A) relying upon the judgment of Supreme Court in CIT v. Canara Workshops (P) Ltd. : (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) case held that new unit is to be considered in isolation and deduction under Section 80-I is to be allowed in each year where there are some profits from the new unit after considering brought forward losses and unabsorbed depreciation of such unit alone from earlier year. Similar losses etc. of other unit of earlier year as well as current year is not to be considered for this purpose. The Tribunal affirmed the order of CIT(A) by dismissing the appeals of the Revenue.
3. The Revenue made application under Section 256(1) of the Act before the Tribunal for making reference to this Court which was initialy rejected against which Revenue had approached the High Court and on being directed the Tribunal, referred the above question of law.
4. Learned Counsel appearing for the Revenue submitted that while computing the deduction under Section 80-I of the Act, the gross income of the assessee from both the units should be computed first and if the resultant is a minus figure, no deduction under Section 80-I can be allowed.
5. Learned Counsel appearing for the assessee submitted that for the purpose of computing deduction under Section 80-I of the Act, the new and old units of the petitioner are to be treated separately and carried forward the unabsorbed losses and depreciation of old unit should not be adjusted against the profits of the new unit. In support of his submission, he referred to Sub-section (6) of Section 80-I of the Act.
6. We have heard learned Counsel for the parties and perused record of the case
7. The AO while framing the assessment had disallowed the deduction under Section 80-I of the Act. For the assessment period 1989-90 in the assessment order dt. 30th March, 1990, he gave following reasoning to disallow the claim.
10. Disallowance of claims under Sections 80G and 80-I:
The assessee company has claimed deduction under Sections 80G and 80-I. By question No. 4 of notice under Sections 143(2) and 142(1) dt. 2nd Feb., 1990 the assessee company was required to justify its claim in view of the fact that after considering the carry forward of losses or allowances for earlier years the gross total income of the assessee is reduced to nil and therefore having regard to the provisions of S.80A the deductions under Sections 89G and 80-I as claimed by the assessee at Rs. 1,78,500 and Rs. 1,01,32,012 are not admissible. It has been submitted by the assessee that the expression 'gross total income' used in Sections 80-I(i) and 80A(i) refers to the gross total income of the year and not the income after adjustment of losses and allowance or earlier years. It is further stated that the provisions of Section 80A(2) also do not come in the way of the assessee's claim since the deductions under Sections 80G and 80-I do not exceed the gross total income and therefore assessee's claim is allowable. The submissions made by the assessee on this issue have been considered and are not found to contain any substance whatsoever. In fact there is absolutely no ambiguity in the definition, 'gross total income'. For the purpose of deductions under Chapter VI-A the expression gross total income has been defined by Sub-section 5 of Section 80B which reads as under:
80B. Definitions-In this chapter:
(5) gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter.
(Emphasis, italicized in print, added by the undersigned)
11. Thus the gross total income has been specifically defined to mean that without considering the provisions of Chapter VI-A first of all the total income of the assessee is to be computed as per the provisions of the IT Act. There is no doubt on the above fact that the provisions of IT Act include the provisions relating to carry forward of deductions and allowances and set off thereof. Accordingly the effect has to be given to all the provisions of the Act except the provisions of Chapter VI-A and while doing so what we arrived at is the gross total income. Necessarily, therefore, the carry forward allowances and deductions have to be considered and set off before arriving at the gross total income. The prescribed form under the IT Act in which return of income is to file also provides column for set off of carry forward losses and allowances before arriving at the gross total income. After giving effect to the provisions relating to carry forward and set off of losses and allowances, the gross total income of the assessee is reduced to nil. Thus in fact the gross total income of the assessee is nil within the meaning of Section 80B(5) reproduced above. Therefore the provisions of Section 80A(2) have to be taken into account which provide the aggregate amount under Chapter VI-A shall not exceed gross total income of the assessee. Gross total income being all the deductions under Chapter VI-A cannot exceed that amount and therefore no deduction under Sections 80G and 80-I is allowable to the assessee. Further the provisions of Sections 80-I and 80G do not separately provide for carry forward of amounts computed under the said sections. In view of this position of law the claims of the assessee to the extent of Rs. 1,78,500 and Rs. 1,01,32,012 under Sections 80G and 80-I respectively are not allowed.
For other assessment years under consideration also the deduction under Section 80-I was disallowed by the AO.
8. In the appeals preferred by the assessee against the order of assessment, the CIT(A) accepted the plea of assessee to treat the new unit in isolation and allowed the deductions under Section 80-I of the Act. The Tribunal placing reliance upon the judgment of Supreme Court in the matter of CIT v. Canara Workshops (P) Ltd. (supra) affirmed the view of the CIT(A) to treat the new unit in isolation and dismissed the appeal of the Revenue.
9. The question which has been referred by Tribunal to this Court needs to be examined in the light of following provisions falling under Chapter VI-A of the IT Act:
80A. (1) : In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this chapter; the deductions specified in Sections 80C to 80U
(2) The aggregate amount of the deductions under this chapter shall not, in any case, exceed the gross total income of the assessee
80B(5) : 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter
80-I(1) : Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel [or the business of repairs to ocean-going vessels or other powered craft] to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof:
2. This section applies to any industrial undertaking which fulfils all the following conditions, namely;
(i) it is not formed 'by the splitting up' or the 'reconstruction' of a business already in existence;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of (ten) years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette specify such reference to any particular industrial undertaking;
(iv) in a case where the industrial undertaking manufactures or produce articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
80-I(6) : Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of Sub-section (1) apply shall, for the purposes of determining the quantum of deduction under Sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repair to ocean-going vessels or other powered craft where the only source of the income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made.
10. Sub-section (2) of Section 80-I, in clear terms provides that the aggregate amount of deductions under the chapter will in no case exceed the gross total income of the assessee. Under Section 80B(5), gross total income has been defined to mean the total income computed in accordance with the provisions of the Act before making any deduction under the chapter. Thus a combined reading of Sub-section (2) of Section 80A and Sub-section (5) of Section 80B makes it clear that the gross total income of the assessee is to be computed in accordance with the Act without giving effect to the provisions of Section 80-I contained in Chapter VI-A and if the resultant is positive then the deduction under Section 80-I would be available to the assessee and not otherwise
11. The same issue which is involved in the present reference had come up before the Supreme Court in the matter of Synco Industries Ltd. v. AO and Anr. : (2008) 215 CTR (SC) 385 : (2008) 4 DTR (SC) 203 : (2008) 299 ITR 444 (SC) where in the Supreme Court after taking note of the judgments of Madras, Kolkata, Bombay and Delhi held that:
The above discussion makes it very evident that predominant majority of the High Courts have taken the view that while working out the gross total income of the assessee the losses suffered have to be adjusted and if the gross total income of the assessee is 'nil' the assessee will not be entitled to deduction under Chapter VI-A of the Act. It is well settled that where the predominant majority of the High Courts have taken a certain view on the interpretation of certain provisions, the Supreme Court would lean in favour of the predominant view. Therefore, this Court is of the opinion that the High Court was justified in holding that the gross total income must be determined, by setting off against the income, the business losses of earlier years, before allowing deduction under Chapter VI-A and if the resultant income is 'nil', then the assessee cannot claim deduction under Chapter VI-A
12. Thus from the aforesaid judgment of the Supreme Court it has been settled that deduction under Section 80-I cannot be allowed before computing the gross total income of the assessee meaning thereby at first the gross total income of the assessee is to be computed in accordance with the provisions of the Act after adjusting losses etc. and ignoring provisions of Chapter IV-A and if the gross total income is positive the deduction under Section 80-I will be allowed
13. In the present matter reliance has also been placed by the assessee on Section 80-I(6) of the Act in support of plea to treat the new unit as independent unit, because Section 80-I(6) starts with non obstante clause. The Supreme Court in the matter of Synco Industries (supra) has held that non obstante clause appearing in Section 80-I(6) of the Act is applicable only to the quantum of deduction, whereas, the gross total income under Section 80B(5) r/w Section 80A(1) is required to be computed in the manner provided under the Act which presupposes that gross total income shall be arrived at after adjusting the losses of other division against the profit derived from industrial undertaking and Sections 80A(2) and 80B(5) are declaratory in nature applicable to all sections falling in Chapter VI-A imposing a ceiling on a total amount of deduction therefore, non obstante clause in Section 80-I(6) will not restrict the operation of Section 80A(2) and Section 80B (5) of the Act. The Supreme Court while considering Section 80-I(6) in the matter of Synco Industries ( supra) held that:
13. The contention that under Section 80-I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merit. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand, Section 80-I(6) deals with determination of the quantum of deduction. Section 80-I(6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to Section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which Section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words 'includes any profits' used by the legislature in Section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under Section 80-I(6), the AO, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deductions under Chapter VI-A. However, this Court finds that the non obstante clause appearing in Section 80-I(6) of the Act is applicable only to the quantum of deduction, whereas, the gross total income under Section 80B(5) which is also referred to in Section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of Section 80A(2) of the Act nugatory and, therefore, the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under Section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because Sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, Section 80A(2) and Section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore, the non obstante clause in Section 80-I(6) cannot restrict the operation of Sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier, Section 80-I(6) deals with actual computation of deduction whereas Section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and, therefore, while interpreting Section 80-I(1), which also refers to gross total income one has to read the expression 'gross total income' as defined in Section 80B(5). Therefore this Court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was 'nil' the assessee was not entitled to claim deduction under Chapter VI-A which includes Section 80-I also.
14. Thus in view of the judgment of Supreme Court in Synco Industries, the view taken by the CIT(A) as affirmed by the Tribunal that new unit of the assessee is to be treated in isolation is not correct.
15. The Tribunal while upholding the order of CIT(A) has placed reliance upon the judgment in the matter of Canara Workshops, (supra) wherein Supreme Court while considering the issue of deduction under Section 80E of the Act as it stood, had taken the view that the co-existing of two industries in common ownership was not intended by the Parliament to result in the misfortune of one being vested on the other. The Supreme Court held that in the application of Section 80E, the profits and gains earned by the industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.
16. The view which has been taken by the Supreme Court in the matter of Synco Industries (supra) is different. The two judgments of the Supreme Court are by the equal strength of Judges. We are bound to follow the judgment which is later in point of time on the same issue by equal strength of Hon'ble Judges. The judgment in the matter of Synco Industries (supra) is a later judgment on the same issue where the effect of Sections 80-I, 80B and 80A have been considered
17. Thus, following the judgment of Supreme Court in Synco Industries, (supra) we answer the reference holding that in the facts of the case, the Tribunal was not justified in law in upholding the allowance of deduction under Section 80-I in view of the provisions contained in Section 80A(2) and Section 80B(5)of the IT Act.
The reference is answered accordingly.