Commissioner Of Income Tax v. M/S Kelvinator Of India Ltd. …Respondentthrough Mr. Ajay Vohra, Sr. Advocate With Ms. Kavita Jha And Mr. Vaibhav Kulkarni, Advocates. Ita

* IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No. 165/2001Reserved on:13[th] October, 2014 % Date of Decision: 19[th] January, 2015 COMMISSIONER OF INCOME TAX ....Appellant ThroughMr. N.P. Sahni, Sr. Standing Counsel and Mr. Nitin Gulati, Jr. Standing Counsel. Versus M/S KELVINATOR OF INDIA LTD. …RespondentThrough Mr. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates. ITA No. 170/2001 COMMISSIONER OF INCOME TAX ....Appellant ThroughMr. N.P. Sahni, Sr. Standing Counsel and Mr. Nitin Gulati, Jr. Standing Counsel. Versus …Respondent M/S KELVINATOR OF INDIA LTD. Through Mr. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates. CORAM: HON’BLEMR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J. Revenue has preferred these two appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) in the case of Kelvinator of India Ltd. (now known as Whirlpool India Ltd.). These appeals pertain to assessment years 1989-90 and 1990-91. The orderimpugned, common to both appeals, passed by the Income Tax Appellate Tribunal (Tribunal, for short) is dated 30[th] August, 2000. ITA No. 170 & 165/2001 Page 1 of 25 2. By order dated 6[th] December, 2001, the following substantial questions of law were framed:- -ITA 170/2001 (Assessment Year 198990) “(A) Whether ITAT is correct in law in deleting the addition of Rs.7,28,400/- being the guest house expenses relying on its earlier order when the same are not accepted by the Department and the same expenditure is clearly disallowable u/s 37(4) of the Act? (B) Whether ITAT was correct in law in taking into consideration interest on FDR, Misc. Receipts and interest from customers on delayed payments for the purpose of Section 80-I of the Act? (C) Whether ITAT was correct in law in holding that the deduction u/s. 32AB was available on the profits of industrial undertaking and not on the aggregate profit of the assessee?" -ITA 165/2001 (Assessment Year 199091) “(A) Whether ITAT is correct in law in deleting the addition of Rs.51655/- being the depreciation on guest house when the same is clearly disallowable u/s 37(4) of the Act? (B) Whether ITAT is correct in confirming the order of CIT(A) and thereby allowing the expenditure of Rs.1,88,610/- incurred by the assessee on rent and repairs of the Guest House when the same is clearly disallowable u/s 37(4) of the Act? (C) Whether ITAT is correct in law in taking into consideration interest on FDRs. Misc. Receipts, interest from customers on delayed payments and dividend for the purpose of Section 80-I of the Act? (D) Whether ITAT was correct in law in taking into consideration amount of interest on debentures, loans and inter corporate deposits and dividend for the purpose of computing the deduction u/s. 32AB?" 3. Questions no. (A) and (B) in ITA 170/2001 and question (A), (B) and (C) in ITA 165/2001 were disposed of and decided by order dated 14[th] February, 2014, in the following manner:- “The learned counsel for the parties submits that the first two questions framed in the present appeals are covered. So far as question No.1 i.e. the deductibility of guest house expenses under Section 37(4) is concerned it is not disputed that the matter is covered by the decision of the Supreme Court in Britannia Industries Ltd. vs. CIT and Ors., (2005) 278 ITR 546 (SC). The question is accordingly answered in terms of the said decision, in favour of the revenue and against the assessee. 3. Questions no. (A) and (B) in ITA 170/2001 and question (A), (B) and (C) in ITA 165/2001 were disposed of and decided by order dated 14[th] February, 2014, in the following manner:- “The learned counsel for the parties submits that the first two questions framed in the present appeals are covered. So far as question No.1 i.e. the deductibility of guest house expenses under Section 37(4) is concerned it is not disputed that the matter is covered by the decision of the Supreme Court in Britannia Industries Ltd. vs. CIT and Ors., (2005) 278 ITR 546 (SC). The question is accordingly answered in terms of the said decision, in favour of the revenue and against the assessee. Question No.3 in ITA 165/2001 corresponds to question No.2 in ITA 170/2001. This pertains to permissibility of interest on FDR, on miscellaneous interest, on delayed payments and their eligibility under section 80I of the Act. It is not disputed that so far as the first limb i.e. interest received from customers on account of late payment beyond the credit period goes, the matter is covered against the revenue in the decisions of this Court reported as CIT V. Advance Detergents Ltd., (2011) 339 ITR 81 and CIT V. Jackson Engineers Ltd., (2012) 341 ITR 518. Accordingly, it is held in favour of the assessee that such interest received from customers due to late payment beyond credit period is permissible as a business income and entitled to benefit under section 80(I). As far as the second limb i.e. interest on FDR, bank guarantees, deposits and miscellaneous receipts are concerned, the benefit of section 80I would be not available in view of the conclusion in CIT V. Shri Ram Honda Power Equipment and Ors., (2007) 289 ITR 475. The assessee would be entitled to clam a limited benefit of the expenditure of net interest by application of principles/conclusions No.s 8 and 9 in Shri Ram Honda Power Equipment and Ors. (supra). The matter is remitted to the AO to this limited extent to enable the assessee to prove the nexus as stipulated in Shri Ram Honda Power Equipment and Ors. (supra). The question of law is accordingly answered in favour of the revenue but partly granting the relief to the extent indicated to the assessee by limited remand. The surviving question for consideration is as to the permission of deduction under section 32AB to the assessee in this case.” ITA No. 170 & 165/2001 Page 3 of 25 4. In terms of the aforesaid order, question A in ITA 170/2001 and questions A & B in ITA No. 165/2001 have been decided in favour of the appellant Revenue and against the respondent assessee. Question B in ITA 170/2001 and question C in ITA No. 165/2001 have been partly decided in favour of the respondent assessee but by observing that assessee would be entitled to netting of the interest paid from interest accrued on application of principles/conclusions nos. 8 and 9 in the case of CIT versus Shri Ram Honda Power Equipment &Ors., (2007) 289 ITR 475. An order of remand stands passed. 5. Thus, what remains to be examined and decided is question C in ITA No. 170/2001 relating to assessment year 1989-90 and question D, in ITA No. 165/2001 relating to assessment year 1990-91. However, we notice that question C in ITA 170/2001 also arises for consideration in ITA 165/2001 and it appears that by mistake the said question has not been framed in the latter ITA. Accordingly, we deem it appropriate to frame fourth substantial question in ITA 165/2001 relating to assessment year 1989-90 which will read as under: “(E) Whether ITAT was correct in law in taking into consideration amount of interest on debentures, loans and inter corporate deposits and dividend for the purpose of computing the deduction u/s. 32AB?" 5. Thus, what remains to be examined and decided is question C in ITA No. 170/2001 relating to assessment year 1989-90 and question D, in ITA No. 165/2001 relating to assessment year 1990-91. However, we notice that question C in ITA 170/2001 also arises for consideration in ITA 165/2001 and it appears that by mistake the said question has not been framed in the latter ITA. Accordingly, we deem it appropriate to frame fourth substantial question in ITA 165/2001 relating to assessment year 1989-90 which will read as under: “(E) Whether ITAT was correct in law in taking into consideration amount of interest on debentures, loans and inter corporate deposits and dividend for the purpose of computing the deduction u/s. 32AB?" 6. The questions of law which have to be answered relate to interpretation under Section 32AB of the Act as it then existed. For the sake of convenience, we are reproducing the relevant portion of the said provisions as it was applicable in the assessment year 1989- ITA No. 170 & 165/2001 Page 4 of 25 “32AB. Investment deposit account.--(1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head "Profits and gains of business or profession", has, out of such income,-- (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deductrion being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of-- (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty percent. of the profits of eligiblebusiness or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less. Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or, as the case may be, any member, of such firm, association of persons or body of indiviudals. (2) For the purposes of this section,-- (i) "eligible business or profession" shall mean business or profession, other than-- (a) the business of construction, manufacture or ITA No. 170 & 165/2001 Page 5 of 25 production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small-scale industrial undertaking as defined in section 80HHA; (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small-scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule; (ii) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India ; production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small-scale industrial undertaking as defined in section 80HHA; (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small-scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule; (ii) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India ; (iii) "new machinery or plant" includes machinery or plant which before the installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely:- - (a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India ; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee ; (iv) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953) ; (3) [The profits of eligible business or profession of an assessee for the purposes of sub-section (1) shall,-- (a) in a case where separate accounts in respect of such ITA No. 170 & 165/2001 Page 6 of 25 eligible business or profession are maintained][1], be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956), as —increased by the aggregate of (i) the amount of depreciation ; (ii) the amount of income-tax paid or payable, and provision therefor ; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964) ; (iv) the amounts carried to any reserves, by whatever names called ; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; (vi) the amount by way of provision for losses of subsidiary companies ; and (vii) the amount or amounts of dividends paid or proposed if any debited to the profit and loss account ; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account ; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on by the assessee. xxxxxxxxx 1Substituted by the Finance Act, 1989 w.e.f. 1.4.1991 with the following: - “The profit of business or profession of an assessee for the purpose of sub-section (1) shall”;profit of business or profession of an assessee for the purpose of sub-section (1) shall”; ITA No. 170 & 165/2001 Page 7 of 25 xxxxxxxxx 1Substituted by the Finance Act, 1989 w.e.f. 1.4.1991 with the following: - “The profit of business or profession of an assessee for the purpose of sub-section (1) shall”;profit of business or profession of an assessee for the purpose of sub-section (1) shall”; ITA No. 170 & 165/2001 Page 7 of 25 (5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section. xxxxxxxxx" 7. Sub-section (1) of Section 32AB of the Act, stipulates the conditions when benefit of the said Section is available to the assessee; (i) the assessee should have income chargeable under the head “profits and gains from business or profession” and out of such income should have (a) deposited an amount in an account maintained with the development Bank within the stipulated time; or (b) utilized an amount during the previous year for purchasing new ship, aircraft or machinery and plant without depositing any amount under clause (a). The said sub-section, thus, prescribes pre-conditions for claiming the deduction under Section 32AB of the Act. Sub-section (1) of Section 32AB, then stipulates that the deduction allowed would be equal to (i) the sum or aggregate thereof so deposited or the amount so utilized; or (ii) equal to 20% of profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less. Therefore, quantum under (i) and (ii) have to be quantified and the deduction under section 32AB is allowed on lower of the two ITA No. 170 & 165/2001 Page 8 of 25 amounts. The latter portion, therefore, quantifies the amount of deduction to be claimed under Section 32AB of the Act. Sequitur, is that quantum of deduction under the section would never exceed 20% of the profits of eligible business or profession. 8. In the present case, we are concerned with clause (ii) of Section 32AB(1),i.e. computation of 20% of the profits of eligible business or profession and the said profits audited in accordance with sub-section (5). The expression „eligible business or profession‟ has been defined in sub-section (2) to Section 32AB, to exclude businesses mentioned in sub-clauses (a) and (b) to sub-section(2). 9. There is no dispute that the assessee was engaged in eligible business. In fact the respondent assessee was a multi-product company, having following separate divisions:- 1. Refrigeration 2. Compressor 3. lamination 4. control 5. control tool room 6. scooter 7. moped 8. pressing 9. cash register The cash register business/division was not an eligible business under section 32AB, thus, profits from the said business would not be eligible for the purposes of computation of deduction.Other divisions/businesses were eligible businesses. ITA No. 170 & 165/2001 Page 9 of 25 9. There is no dispute that the assessee was engaged in eligible business. In fact the respondent assessee was a multi-product company, having following separate divisions:- 1. Refrigeration 2. Compressor 3. lamination 4. control 5. control tool room 6. scooter 7. moped 8. pressing 9. cash register The cash register business/division was not an eligible business under section 32AB, thus, profits from the said business would not be eligible for the purposes of computation of deduction.Other divisions/businesses were eligible businesses. ITA No. 170 & 165/2001 Page 9 of 25 10. In the assessment year 1989-90, the assessee had claimed deduction under Section 32AB at Rs.3,95,85,158/- as the sum equivalent to 20% of profits earned from the eligible business. The aforesaid computation was made after taking into account only four eligible business units which had earned profits; the eligible businesses, which had suffered losses, were ignored and profits and losses were not aggregated. The Assessing Officer recomputed the deduction under Section 32AB to Rs.2,15,83,649/- by taking into account aggregate of profits earned by all businesses units, thus meaning that losses suffered in five other business units including the non-eligible business unit, i.e. cash register unit, were also taken into consideration. The Assessing Officer held that the losses suffered in the five unit including cash register division should be also set off and reduced from the profits earned from the four eligible units for computing the deduction. 11. Similarly, in the assessment year 1990-91, deduction under Section 32AB of the Act had been claimed at Rs.2,97,37,455/- being 20% of the profit of Rs.14,86,87,276/- earned in three units and ignoring the losses suffered in the remaining five eligible divisions. The Assessing officer, disagreeing, held that the aggregate of all the eligible businesses should be taken into consideration and, therefore, losses suffered in the five divisions (he excluded cash register division) should be reduced from the profits earned by the three eligible divisions. He recomputed the deduction claimed under Section 32AB of the Act at Rs.1,20,53,907/. 12. In the first appeal, the assessee succeeded on the question of aggregation of profits. Appropriate in this regard would be to ITA No. 170 & 165/2001 Page 10 of 25 reproduce the findings recorded by Commissioner of Income Tax (Appeals) in respect of assessment year 1989-90, which reads: “9.3I have carefully considered the submissionsmade on behalf of the appellant. I find considerable merit in the arguments raised 12. In the first appeal, the assessee succeeded on the question of aggregation of profits. Appropriate in this regard would be to ITA No. 170 & 165/2001 Page 10 of 25 reproduce the findings recorded by Commissioner of Income Tax (Appeals) in respect of assessment year 1989-90, which reads: “9.3I have carefully considered the submissionsmade on behalf of the appellant. I find considerable merit in the arguments raised Sub-section (1) of section 32AB clearly specifies that the deduction to be allowed will either be of a sum equal to the amount or the aggregate of the amounts deposited with I.D.B.I. and utilised for purchase of new machinery etc. or a sum equal to 20% of the profits of eligible business or profession as computed in the accounts of the assesses. Sub-section (3) as existed before its amendment by Finance Act, 1989, w.e.f. 1.4.1991 provides as to how the profits of eligible business or profession have to be arrived at in a situation where separate accounts in respect of such eligible business are maintained as well as a case where separate accounts are not maintained or are not available. It would thus be seen that the quantification of the deduction has to be done with reference to the profits of eligible business or profession. It logically follows that no deduction u/s 32AB is to be allowed where there is no profit in an eligible business or there is a loss. It will be clear from the language of section 32AB that there is no warrant for aggregating the profits and losses of different businesses carried on by an appellant, as has been done by the assessing officer. The issue presently in appeal before us actually covered by clarifications issued by the Senior Departmental Officers in a session with ASSOCHAM. It will be useful to quote the relevant question and the answer:- Q. Where an aisessee operates a single business, 32AB deduction is available in a year in which profit ie earned. No allowance is made in a year of loss. In other words, the worst that can happen to an industry is a zero allowance in year of loss. In case of a multibusiness industry where profits are earned in some businesses and losses in others, the profits of eligible business would be entitled to the allowance while the losing businesses will be denied the incentive. Thisshould be made abundantly clear, sothat there is no attempt at aggregating and offsetting profits and losses of different businesses carried on by the same assesses. ANS. In case of so multi business assesses, bothprofits and losses in different units are to be considered to ensure that the claim made by the aseessee in ITA No. 170 & 165/2001 Page 11 of 25 respect of the profit earning unit is limited to and is not in excess of the overall profits of the business. If there r.re two units of businesses A & B run by an aseessee, A earning a profit of Rs.100 and B incurring loss of Rs.85, the maximum amount of claim that can be made by the assessee will be limited to Rs.15/-(100 - 85) , notwithstanding a A's entitlement to 20 (20% of 100)." 9.3 It will be observed from a perusal of theabove clarification that if the view taken by the assessing officer was to be accepted than the permissible deduction u/s 32AB would have been stated to be 20% of Rs.15 [.]tm the abovementioned illustruation.” 9.4 having regard to the aforementioned facts and circumstances I hold that that the assessing officer was not justified in his action in restricting the deduction u/s 32AB at 2,15,83,649 by taking the aggregate of profits/losses for all businesses including the non-eligible business of cash register division. He is directed to work out the deduction u/s 32AB with reference to the profits of eligible business on the lines mentioned in the preceding paragraphs.” 13. The Tribunal in the impugned order has affirmed the said findings. 9.3 It will be observed from a perusal of theabove clarification that if the view taken by the assessing officer was to be accepted than the permissible deduction u/s 32AB would have been stated to be 20% of Rs.15 [.]tm the abovementioned illustruation.” 9.4 having regard to the aforementioned facts and circumstances I hold that that the assessing officer was not justified in his action in restricting the deduction u/s 32AB at 2,15,83,649 by taking the aggregate of profits/losses for all businesses including the non-eligible business of cash register division. He is directed to work out the deduction u/s 32AB with reference to the profits of eligible business on the lines mentioned in the preceding paragraphs.” 13. The Tribunal in the impugned order has affirmed the said findings. 14. We are in agreement with the aforesaid finding and would like to come back to the legal provision i.e. section 32AB of the Act, as it then existed. Reference to sub-section (3) to Section 32AB would be illuminating. The said sub-section uncertainly and clearly postulates that profits of eligible business of respondent assessee should be separately computed. In case separate accounts in respect of eligible business were maintained, clause (a) to Section 32AB(3) was applicable and clause (b) to Section 32AB(3) was applicable when independent accounts were not maintained. The present case, it is not disputed that separate accounts for each eligible business was maintained. In sub-section (3) to Section 32AB, the Legislature had consciously and deliberately used the expression „profits of eligible ITA No. 170 & 165/2001 Page 12 of 25 business or profession‟ and clause (a) or (b) would apply to compute such eligible profit.The expression „eligible business or profession‟ was defined in sub-section (2). Under sub-section (5) to Section 32AB, the assessee was required to get the accounts audited by an accountant defined in Explanation below Section 288(2) and furnishes a report of audit in the prescribed form and verified by the accountant. 15. When we collate and harmoniously read different sub-sections, it is clear that special deduction under Section 32AB has to be quantified under sub-section (1) clause (b)(ii) on a sum equal to 20% of the profits of eligible business. The assessee entitled to compute the deduction under the said clause with reference to the profits earned by the eligible business. The section did not have any reference to the losses suffered or aggregation of profits and losses from distinct and separate eligible businesses. We have already interpreted sub-section (1) and observed that it consists of two parts. First part relates to eligibility requirement that an assessee must have income chargeable under the head „income from profits and gains from business or profession‟ and from the said income, the assessee should have under clause (b) purchased any new ship, new aircraft, new machinery or plant. Quantum of the said deduction was dependent upon the amount spent on purchase of new ship, new aircraft, new machinery or plant, but the quantum could not exceed 20% of the profits from the eligible business or profession. The quantum of profits refers to the specific eligible business and profession and did not postulate aggregation or setting off of losses in the eligible business or profession. ITA No. 170 & 165/2001 Page 13 of 25 ITA No. 170 & 165/2001 Page 13 of 25 16. Similar issue and contention was examined by the Supreme Court in CIT vs. Canara Workshops (P) Ltd. (1986) 161 ITR 320 (SC). In the said case, the assessee had claimed deduction under Section 80E of the Act on manufacture of springs at Mangalore and Nagpur plant and manufacture unit of hubs and brake drums. However, the assessee had not taken into account,the losses suffered in the alloy steel industry. The question of aggregation or setting off of losses suffered in the alloy steel industry from the profits of spring units and manufacture of hubs and brake drums, came up for consideration before the Supreme Court. The issue was decided in favour of the assessee, in the following words: “It is obvious from the object underlying the enactment of section 80E and the terms in which it provides relief that the intention of Parliamentin enacting the provision was to encourage the setting up of industries concerned with the generation or distribution of electrical or any other energyand the construction, manufacture or production of articles or thingsspecified in the list in the Fifth Schedule. The intention goes further. Bymaking a provision for a rebate year after year on the industry makingprofits and gains during the year, the intention also was to provide anincentive for promoting efficiency in the industry. It is clear that thebenefit was directed to the setting up and also the efficient working of thepriority industries. How is the benefit to be worked out ? First, it mustbe a company to which section 80E applies, that is to say, a companywhich satisfies the requirements of sub-section (2) of section 80E. Second,the total income as computed in accordance with the Income-tax Act,1961, without taking into regard the provisions of section 80E, shouldinclude profits and gains attributable to the business or the industry mentioned in the section. Third, from the profits and gains attributable tosuch business or industry, a deduction has to be allowed of an amount equalto eight per cent. of such profits and gains and effect must be given to thisdeduction when computing the total income of the company. The assessee in this case carries on two industries, both of which findplaces in the list in the Fifth Schedule and can, therefore, be described aspriority industries. It is ITA No. 170 & 165/2001 Page 14 of 25 The assessee in this case carries on two industries, both of which findplaces in the list in the Fifth Schedule and can, therefore, be described aspriority industries. It is ITA No. 170 & 165/2001 Page 14 of 25 urged by the learned Additional Solicitor-General, appearing for the Revenue, that on a true application of section 80E, the profit in the industry of automobile ancillaries must bereduced by the loss suffered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presentlyrefer. After giving the matter careful consideration, we do not find itpossible to accept the contention. It seems to us that the object in enactingsection 80E is properly served only by confining the application of theprovisions of that section to the profits and gains of a single industry.The deduction of eight per cent.is intended to be an index of recognition,that a priority industry has been set up and is functioning efficiently. Itwas never intended that the merit earned by such industry should be lostor diminished because of a loss suffered by some other industry. It makes no difference that the other industry is also a priority industry. The co-existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other. The legislative intention was to give to the meritorious its full reward. Toconstrue section 80E to mean that you must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be, in our opinion, to undermine the object of the section. An example will illustrate this. An industry entitled to the benefit of section 80E could have its profits wholly wiped out on adjustment against a heavy loss suffered by another industry, and,thus, be totally denied the relief which should have been its due by virtueof its profits. In our opinion, each industry must be considered on its own working only when adjudging its title to the deduction under section 80E.It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. To determine the benefit under section 80E on the basis of the net result of all the industries owned by the assessee would be, moreover, to shift the focus from the industry to the assessee. We hold that in the application of section 80E, the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.” 17. The aforesaid paragraph would indicate that alloy steel industry was also a priority industry but this did not compel the Supreme Court to follow the principle of aggregation. It was observed that the provisions did not intend that the loss suffered in one priority industry ITA No. 170 & 165/2001 Page 15 of 25 should be set off from the profits earned from another priority industry, on which deduction was allowable. The assessee had the option to only take into account the profits making priority industry to claim deduction under Section 80E. The stance and stand of the assessee was, therefore, affirmed. The said principle would be equally and squarely applicable to section 32AB of the Act, as it then existed. An identical controversy in relation to Section 32AB of the Act arose in the Commissioner of Income Tax vs. Pudumjee Agro Industries Ltd. (2006) 285 ITR 301 (Bom), and the plea of the Revenue was rejected, inter alia, observing:- ITA No. 170 & 165/2001 Page 15 of 25 should be set off from the profits earned from another priority industry, on which deduction was allowable. The assessee had the option to only take into account the profits making priority industry to claim deduction under Section 80E. The stance and stand of the assessee was, therefore, affirmed. The said principle would be equally and squarely applicable to section 32AB of the Act, as it then existed. An identical controversy in relation to Section 32AB of the Act arose in the Commissioner of Income Tax vs. Pudumjee Agro Industries Ltd. (2006) 285 ITR 301 (Bom), and the plea of the Revenue was rejected, inter alia, observing:- “11. At the relevant time, deduction under Section 32AB(1)of the Act was available to an assessee who had income chargeable under the head "Profit and gains of business or profession" and out of the said business income, the assessee had either deposited certain amount with the industrial bank of India or utilised the business income for acquisition of certain assets before the expiry of 6 months from the end of the previous year or before furnishing the return of income whichever is earlier. On fulfilment of the above conditions, the assessee was entitled to deduction of a sum equal to the amount deposited/utilised or a sum equal to 20% of the profits of eligible business or profession computed under Section 32AB(3), whichever is lower. 12. Section 32AB(2)of the Act inter alia sets out the meaning of the word "eligible business or profession" used in Section 32AB(1)and Section32AB(3) of the Act sets out separate methods for determining the profits of eligible business or profession in cases where the accounts of the eligible business are maintained separately and in cases where the accounts of the eligible business are not maintained separately. Section32AB(3)(a) deals with determination of the profits of the eligible business or profession where the accounts are maintained separately and Section 32AB(3)(b)deals with the determination of the profits of eligible business where accounts are not maintained separately. Thus, Section 32AB(3)(a) of the Act deals with each eligible business separately and the profits of each eligible ITA No. 170 & 165/2001 Page 16 of 25 business has to be determined by increasing or decreasing the profits of each eligible business computed separately under the provisions of the Companies Act, 1956. The increases and decreases permitted under Section 32AB(3)(a)do not contemplate setting off the loss of another eligible unit. Therefore, in the absence of any provision for setting off the loss suffered by one eligible business from the profits of another eligible business for the purpose of deduction under Section32AB(1)of the Act, the Tribunal was justified in upholding the claim of the assessee. xxxxxxxx ITA No. 170 & 165/2001 Page 16 of 25 business has to be determined by increasing or decreasing the profits of each eligible business computed separately under the provisions of the Companies Act, 1956. The increases and decreases permitted under Section 32AB(3)(a)do not contemplate setting off the loss of another eligible unit. Therefore, in the absence of any provision for setting off the loss suffered by one eligible business from the profits of another eligible business for the purpose of deduction under Section32AB(1)of the Act, the Tribunal was justified in upholding the claim of the assessee. xxxxxxxx 15. There can be no dispute that where an assessee carried on an eligible business and a non eligible business and the assessee had maintained accounts of the above two businesses separately and there was profit in the eligible business and loss in the non eligible business, then for the purpose of deduction under Section32AB(1) of the Act, the profits of the eligible business alone would be considered without deducting therefrom the loss suffered in the non eligible business. If the loss suffered in the non eligible business is to be ignored for determining the profits of the eligible business, then, there is no reason as to why the loss suffered by one eligible business should not be ignored from the profits of the other eligible business under Section 32AB(3)(a)of the Act. In other words, where the accounts of each of the eligible business are maintained separately, then the profits of each of the eligible businesses for the purpose of deduction under Section 32AB(1)has to be determined separately under Section 32AB(3)(a)of the Act and merely because there is loss suffered by one eligible business, it cannot be said that the said loss is to be set off from the profits of the other eligible business. 16. It is pertinent to note that by Finance Act, 1989 the concept of eligible business and determination of profits of eligible business whose accounts have been maintained separately have been done away with prospectively with effect from 1/4/1991. As a result from 1/4/1991, maintaining separate accounts has no relevance for the purpose of deduction under Section32AB(1) of the Act and what is relevant from 1/4/1991 is the profits of business or profession of an assessee and not the profits of each business of the assessee. Therefore, for the AY 90-91 with which we are concerned in this appeal, the deduction under Section 32AB(1)of the Act in respect of the profits of the ITA No. 170 & 165/2001 Page 17 of 25 paper division has to be determined from the profits of the paper division as determined under Section32AB(3)(a) of the Act without setting off the loss suffered by the agro division. 17. It is true that under Section70 of the Act, while determining the total income chargeable to tax under the head "profits and gains of business", the loss from the agro division has to be set off against the profits of the paper division. However, the said set off is not relevant for the purpose of computing 20% deduction under Section 32AB(1)of the Act, in view of the specific provisions contained in Section 32AB(3)(a) of the Act for determining the profits of each eligible business of the assessee.” ITA No. 170 & 165/2001 Page 17 of 25 paper division has to be determined from the profits of the paper division as determined under Section32AB(3)(a) of the Act without setting off the loss suffered by the agro division. 17. It is true that under Section70 of the Act, while determining the total income chargeable to tax under the head "profits and gains of business", the loss from the agro division has to be set off against the profits of the paper division. However, the said set off is not relevant for the purpose of computing 20% deduction under Section 32AB(1)of the Act, in view of the specific provisions contained in Section 32AB(3)(a) of the Act for determining the profits of each eligible business of the assessee.” 18. The aforesaid paragraphs refer to the amendments made by Finance Act, 1989 applicable from 1[st] April, 1991. With effect from the said date, the concept of eligible business referred to in Section 32AB was negated. With effect from 1[st] April, 1991, the provisions of Section 32BA will have to be read and interpreted in light of the said amendments. However, for the assessment years in question under the applicable provisions only the profits of the eligible business can be taken into consideration for computing the deduction under Section 32AB of the Act and aggregation will not be permissible. Accordingly, Question C in ITA No. 170/2001 and Question E in ITA 165/2001 are decided in favour of the assessee and against the Revenue. 19. This brings us to the question D in ITA 165/2001. The relevant facts which are found in the assessment order are that the assessee for the purpose of computation of profits earned by eligible business under Section 32AB had included the following incomes: Schedule –‘K’ ITA No. 170 & 165/2001 Page 18 of 25 20. The Assessing Officer, during assessment proceedings, called upon the assessee to explain why the aforesaid incomes should not be shown under the head „Other income‟ and excluded from the head „income from business or profession‟ for the purpose of computing allowable deduction under Section 32AB of the Act. The assessee in response had submitted that they had computed the deduction under Section 32AB of the Act in accordance with Part II and III of Schedule VI of the Companies Act and other income should not be excluded from the business income of the assessee company while computing deduction under section 32AB. The Assessing Officer thereafter observed as under: “I have carefully examined the assessee‟s claim. As explained by the assessee‟s representative, the nature of the income as shown under the head other income is summarized as under: explained by the assessee‟s representative, the nature of the income as shown under the head other income is summarized as under: ITA No. 170 & 165/2001 Page 19 of 25 deptt. Etc. during the course of business. IV. Interest received Rs.4,43,11,016/- This represents interest from customers/Moped received from the customers in installments the ordinary course of business. V. Interest loans inter Rs.86,16,571/- Represents interest on corporate deposits investment deposits with several companies made out of surplus fund of the Co. VI. Dividend Rs.3,01,460/- Interest on shares of various companies VII. Profit on sale of Rs.2,73,537/- Represents profit on sale of assets business assets. VIII Duty draw back and Rs.2,02,74,000/- Nature of assistance receive