Ajit Kumar Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1972-73, the following question of law has been referred to this court:
'Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 2(45), Section 80B(5) and Section 80A(2) of the Income-tax Act, 1961, the Tribunal was correct in holding that for the purpose of rebate under Section 80G and relief under Section 80M of the said Act, the total income and gross total income should be computed without setting off brought forward losses and unabsorbed depreciation of the earlier years ?'
2. The facts leading to this reference are stated hereafter:
3. The assessee claimed deductions under Section 80G and Section 80M of the Income-tax Act, 1961, but these claims of the assessee were negatived by the Income-tax Officer since he found the assessable income for the year under consideration after setting off of losses and unabsorbed depreciation of the earlier year came to a nil figure. The assessee appealed to the Appellate Assistant Commissioner who allowed those claims of the assessee following the orders of the Tribunal on this point in various cases. Against that order of the Appellate Assistant Commissioner, the Department preferred an appeal before the Tribunal and it was contended on behalf of the Department that in accordance with the provisions of Sections 80B(5) and 80A(2) of the Act which came into force with effect from April 1, 1968, the assessee was not entitled to the deductions claimed under Sections 80G and 80M of the Act because the assessee's income for the purpose of income-tax assessment came to a nil figure, and that the term 'gross total income' meant the total income as computed after considering the provisions of Sections 71 and 72 of the Act, but before making any deductions under Chapter VI-A and under Section 280C of the Act. It was submitted that on the aforesaid basis, the income of the assessee came to a nil figure and, consequently, the deductions claimed by the assessee should not have been allowed by the Appellate Assistant Commissioner. It was, however, claimed on behalf of the assessee that the Appellate Assistant Commissioner was justified in allowing the claims of the assessee in view of the decision of the Income-tax Appellate Tribunal, Bombay Bench. Reference was also made to the language employed in Section 2(45) of the Act.
4. The Tribunal, after considering the submissions made by both the parties before it as also considering the decisions of the various Benches of the Income-tax Appellate Tribunal on this point, held that the set off under Section 71 or under Section 72 was not part of the process of computation of the total income, and that such set off was to be made after the computation of total income. The Tribunal further held that for the purpose of assessment to tax and for any relief thereunder, it was only the income, profits and gains of the year under consideration that had to be considered, unless there is any specific provision laying down that income, profits and gains of any other years were to be taken into consideration. Consequently, the Tribunal concluded that the deductions contemplated in Sections 80G and 80M were to be allowed in the first instance if there was positive income before setting off brought forward losses and unabsorbed depreciation of the earlier years.
5. It is contended on behalf of the assessee that the assessee is entitled to relief under the provisions of Sections 80G and 80M before setting off of brought forward losses and unabsorbed depreciation of earlier years. Reliance has been placed on the decision of this court in the case of CIT v. Orient Paper Mills Ltd. : [1983]139ITR763(Cal) . There, the question was whether the assessee is entitled to relief under Section 80-1 of the Income-tax Act, 1961, on the profits of the priority industry before setting off of the unabsorbed development rebate of the priority industry itself. There, this court, after considering the judgment in the case of Cloth Traders (P.) Ltd. : [1979]118ITR243(SC) as well as the amendment made by the Finance (No. 2) Act, 1980, held as follows (at page 790):
'Therefore, in our opinion, on the ratio of the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT : [1979]118ITR243(SC) , as to the relevant assessment year with which we are concerned, the assessee was entitled to a deduction of 8 per cent, as contemplated by Section 80E(1) without deduction of the unabsorbed depreciation and development rebate in the priority industry.'
6. On the other hand, Mr. Bhattacharjee, the learned advocate appearing for the Commissioner, has drawn our attention to the judgment of this court in the case of CIT v. Mcleod & Co. Ltd. : [1982]134ITR674(Cal) . One of the questions in the said case was (at p. 675):
'(1) Whether, on the facts and in the circumstances of the case, and on a proper interpretation of Section 2(45), Section 80B(5) and section 80A(2) of the Income-tax Act, 1961, the Tribunal was correct in holding that the deduction under Section 80M of the said Act should be calculated with reference to the total income and gross total income as they stood before setting off the losses under Section 71 or Section 72 of the Act ?'
7. The court answered the question in the following manner (at page 675):
'So far as the first question is concerned, in view of the ratio of the decision of this court in the case of National Engineering Industries Ltd. v. CIT : [1978]113ITR252(Cal) and the ratio of the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT : [1979]118ITR243(SC) , the question is answered in the negative and in favour of the Revenue.'
8. Mr. Bhattacharjee has relied on a news item which appeared in the Statesman to the effect that the Supreme Court had overruled its decision in the case of Cloth Traders (P.) Ltd. : [1979]118ITR243(SC) and reaffirmed its decision in the case of Cambay Electric Supply Industrial Company Ltd. v. CIT : [1978]113ITR84(SC) . The said judgment is in the case of Distributors (Baroda) P. Ltd. v. Union of India : [1985]155ITR120(SC) .
9. There, the Supreme Court held (at pp. 137 to 140):
'It is, therefore, clear that whatever might have been the interpretation placed on clause (iv) of Sub-section (1) of Section 99 and Section 85A, the correctness of which is not in issue before us, so far as Sub-section (1) of Section 80M is concerned, the deduction required to be allowed under that provision is liable to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee.
This view which we are taking in regard to the construction of Sub-section (1) of Section 80M is also supported by the decision of a Bench of this court consisting of one of us, Chandrachud C.J. and Tulzapurkar J., in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) . This decision was rendered by the court on April 11, 1978, at least a year before the decision in Cloth Traders' case : [1979]118ITR243(SC) , but unfortunately, it appears, it was not brought to the attention of the court when the Cloth Traders' case : [1979]118ITR243(SC) was argued, because we have no doubt that if it had been cited, the court would have certainly made a reference to it in the judgment in Cloth Traders' case : [1979]118ITR243(SC) . The section which came up for consideration before the court in Cambay Electric Supply Co.'s case : [1978]113ITR84(SC) was undoubtedly a different one, namely, Section 80E, but the reasoning which prevailed with the court in placing a particular interpretation on Sub-section (1) of section 80E would equally be applicable to the interpretation of Sub-section (1) of Section 80M.....
The question which arose in Cambay Electric Supply Co.'s case : [1978]113ITR84(SC) , was whether unabsorbed depreciation and unabsorbed development rebate were liable to be deducted in arriving at the figure of profits and gains exigible to deduction of 8% contemplated in Sub-section (1) of Section 80E. The argument of the assessee was precisely the same as the one advanced in the present case, namely, that the words 'such profits and and gains' in the latter part of Sub-section (1) of Section 80E were intended to refer only to the category of profits and gains referred to in the earlier part of that provision, namely, 'profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule' and not to the quantum of the profits and gains included in the total income, so that the profits and gains exigible to the deduction of 8% were the profits and gains attributable to the specified business in their entirety and not the profits and gains as computed in accordance with the provisions of the Act. The assessee contended that, in the circumstances, unabsorbed depreciation and unabsorbed development rebate were not liable to be deducted from the profits and gains attributable to the specified business for arriving at the figure exigible to the deduction of 8%. This argument of the assessee was rejected by the court and the court held that the profits and gains exigible to the deduction of 8% were profits and gains computed in accordance with the provisions of the Act and forming part of the total income and hence unabsorbed depreciation and unabsorbed development rebate were liable to be excluded from the profits and gains attributable to the specified business in arriving at the figure exigible to 8% deduction. Tulzapurkar J., speaking on behalf of the court, analysed the provisions of Sub-section (1) of Section 80E in the following words (p. 91) :
'On reading Sub-section (1), it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i. e., in accordance with all the provisions except Section 80E; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified industry (here generation and distribution of electricity); and, thirdly, if there be profits and gains so attributable, deduct 8% thereof from such profits and gains and then arrive at the net total income exigible to tax.'
The learned judge then proceeded to apply this interpretation of subsection (1) of Section 80E to the facts of the case before him and observed (p. 94) :
'As indicated earlier, Sub-section (1) contemplates three steps being taken for computing the special deduction permissible thereunder and arriving at the net income exigible to tax and the first two steps read together contain the legislative mandate as to how the total income--of which the profits and gains attributable to the business of the specified industry forms a part--of the concerned assessee is to be computed and according to the parenthetical clause, which contains the key words, the same is to be computed in accordance with the provisions of the Act except Section 80E and since in this case it is income from business, the same will have to be computed in accordance with Sections 30 to 43A which would include Section 32(2) (which provides for carry forward of depreciation) and Section 33(2) (which provides for carry forward of development rebate for eight years). In other words, in computing the total income of the concerned assessee, items of unabsorbed depreciation and unabsorbed development rebate will have to be deducted before arriving at the figure that will become exigible to the deduction of 8% contemplated by Section 80E(1).'
It will thus be seen that, according to this decision, the words 'such profits and gains' in the latter part of Sub-section (1) of Section 80E were referable to the quantum of the profits and gains attributable to the specified business included in the total income as referred to in the earlier part of the provision. If this decision lays down the correct interpretation of subsection (1) of Section 80E, the same interpretation must also govern the language of Sub-section (1) of Section 80M, Structurally, there is hardly any difference between Section 80E, Sub-section (1), and Section 80M, Sub-section (1), and the reasoning which appealed to the court in the interpretation of subsection (1) of Section 80E must apply equally in the interpretation of subsection (1) of Section 80M. We find ourselves wholly in agreement with the view taken by this court in Cambay Electric Supply Co.'s case : [1978]113ITR84(SC) and we must, therefore, dissent from the interpretation placed on Sub-section (1) of Section 80M by the decision in Cloth Traders' case.' (underlined* by us)
10. The decision in the case of Cambay Electric Supply Industrial Company Limited : [1978]113ITR84(SC) would clearly show that the total income of the assessee has to be computed in accordance with the provisions of the Act except Section 80M or Section 80G, as the case may be. In computing the total income, the Income-tax Officer has to take into account the provisions of Section 71 providing set off of loss from one head against income from the other and Section 72 providing for carry forward and set off of business losses. Section 32(2) of the Act makes provision for carry forward and set off of the unabsorbed depreciation of a particular year. The effect of the provisions contained in Section 32(2) is that unabsorbed depreciation for a particular year, becomes, by legal fiction, part of the depreciation allowance for the succeeding year. The unabsorbed depreciation is carried forward and added to the depreciation for the following year. The total amount of depreciation thus arrived at is deemed to be the depreciation of the following year. Accordingly, in computing the total income, the unabsorbed depreciation of the earlier years has to be deducted. In the case of CIT v. Mcleod & Co. Ltd. : [1982]134ITR674(Cal) , this court held that deduction under Section 80M is to be made after setting off of losses under Sections 71 and 72 of the Act. The setting off of unabsorbed depreciation and development rebate comes under Chapter IV, i. e., computation of total income, whereas setting off of carried forward losses comes under Chapter VI which is 'aggregation of income'. If carried forward losses have to be set off first before allowing deduction under Chapter VI-A, then it logically follows that deduction of unabsorbed depreciation and development rebate must also be made before allowing any relief under that Chapter. The Tribunal fell in error in holding that set off under Section 71 or Section 72 was not part of the process of the computation of the total income and that such set off was to be made after the computation of the total income. Chapter VI of the Act relates to the aggregation of income and set off of loss and accordingly in computing the total income, provisions of Chapter VI cannot be ignored and must have to be taken into account. The Tribunal also fell in error in holding that the deductions contemplated in Section 80G and under Section 80M of the Act were to be allowed in the first instance if there were positive income before setting off of brought forward losses and unabsorbed depreciation for the earlier years. In our view, the decision in the case of Distributors (Baroda) Private Ltd. : [1985]155ITR120(SC) sets the controversy at rest.
11. For the reasons aforesaid, we answer the question in this reference in the negative and in favour of the Revenue. There will be no order as to costs.
Dipak Kumar Sen, J.
12. I agree.