Https://Hcservices.ecourts.gov.in/Hcservices v. Shirke Constructionequipment Ltd. [ 246 I.t.r. 429], Allowed The Claim Of Theassessee. Against The Said Order Of The Tribunal, The Revenue Hascome Forward With

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR.JUSTICE P.D.DINAKARANAND THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA Commissioner of Income Tax - IICoimbatore...Appellant in/ Respondentall T.Cs.Vs. M/s.Salzer Electronics Ltd.Coimbatore...Respondent in/ Appellantall T.Cs. Appeal under Section 260A of the Income Tax Act, 1961 againstthe orders of the Income Tax Appellate Tribunal, Madras 'C' Benchdated 13.11.2003 and 13.1.2004 in ITA Nos.308/Mds/1996 and 2355 and2356/Mds/1996 for the assessment years 1993-94 and 1994-95 againstthe order of the Commissioner of Income Tax (Appeals) Coimbatorefor the Assessment year of 1993-94- 1994-95 in ITA.No.47 - C and48-C/ 96-97 351-C/95-96 dated 10.9.96, 16.1.96 and against theAssessment order of the Deputy Commissioner of Income tax SpecialRange II Coimbatore in PAN GIR No.CX2279 dated 12.2.96, 30.11.94respectively. For Appellant : Mrs.Pushya Sitaraman, Sr.S.C.(IT) The vexed substantial question of law, as raised by theRevenue, arises for consideration in these appeals is," Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right inholding that for computation of profit under Section 80HHC, business profit should be adopted without takinginto account unabsorbed depreciation carried forward fromthe earlier year ?"under the following facts and circumstances of the case.Revenue, arises for consideration in these appeals is," Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right inholding that for computation of profit under Section 80HHC, business profit should be adopted without takinginto account unabsorbed depreciation carried forward fromthe earlier year ?"under the following facts and circumstances of the case. https://hcservices.ecourts.gov.in/hcservices/ 2.1. The assessment years involved in these appeals are 1993-94 and 1994-95. The assessing officer, while processing the returnof income filed by the assessee for the assessment year 1994-95under Section 143(1)(a), worked out the deduction under Section80HHC of the Income-tax Act, 1961 (in brevity 'the Act'), afterdeducting unabsorbed depreciation carried forward from the earlieryear, by his assessment order dated 30.3.95. Aggrieved by thesame, the assessee went on appeal before the Commissioner ofIncome-tax (Appeals), who, by order dated 16.1.96, following theearlier order in the assessee's own case, held that the deductionunder Section 80HHC has to be computed after setting off of carriedforward unabsorbed depreciation and that such an adjustment waspossible under Section 143(1). But, on further appeal by theassessee, the Income-tax Appellate Tribunal, by its order dated13.11.2003, following the decision of the Bombay High Court in thecase of Commissioner of Income-tax v. Shirke ConstructionEquipment Ltd. [ 246 I.T.R. 429], allowed the claim of theassessee. Against the said order of the Tribunal, the Revenue hascome forward with T.C.(A) No.431 of 2004. 2.2. The Assessing Officer, while completing the assessmentsfor the assessment years 1993-94 and 1994-95, disallowed the claimof the assessee with regard to deduction under Section 80HHC beforesetting off of unabsorbed depreciation and computed the deductionafter adjusting the unabsorbed depreciation brought forward byassessment orders dated 12.2.96. The said orders of the AssessingOfficer were confirmed by the Commissioner by common order dated10.9.96, on appeals at the instance of the assessee. But, theTribunal by its common order dated 13.1.2004 in the appeals filedby the assessee, reversed the order of the Commissioner followingthe decision of the Bombay High Court in Commissioner of Income-taxv. Shirke Construction Equipment Ltd. [ 246 I.T.R. 429]. Againstthe said order of the Tribunal, the Revenue has filed T.C.(A)Nos.264 and 301 of 2004. 3. Heard both sides. 3. Heard both sides. 4.1. When an identical issue came up for consideration beforethis Court in Asvini Cold Storage P. Ltd. v. Commissioner ofIncome-tax [(2007) 290 I.T.R. 183], a Division Bench of this Court,while rejecting the case of the assessee therein, who placedreliance on the decision of the Bombay High Court in Commissionerof Income-tax v. Shirke Construction Equipments Ltd. [(2000) 246I.T.R. 429 (Bom.)], followed the decision of the Apex Court in IPCALaboratory Ltd. v. Deputy Commissioner of Income-tax [(2004) 266I.T.R. 521 (SC)], and held as hereunder:- " ... Section 80 HHC of the Income-tax Act, 1961,provides for deduction of profits from the gross totalincome. Sub-section (3) is a machinery provision whichlays down the manner of circulating the profits whichconstitute deduction under section 80 HHC(1). https://hcservices.ecourts.gov.in/hcservices/ Consequently, section 80 HHC(3) aids in the working ofthe deduction under section 80 HHC(1). Considering thefact that section 80HHC is a section which comes underChapter VI-A providing for special deduction in grosstotal income, necessarily, the computation for deductionhas to be in accordance with the total income computed ina manner provided fro under section 80AB. It is relevantto note that section 80A deals with deduction to be madeunder Chapter VI-A in computing the total income. It mayalso be noted that section 80A(2) lays down that theaggregate amount of the income under Chapter VI-A shallnot exceed the gross total income of the assessee. Readin the context of section 80A and section 80AB, thescheme of deduction under section 80HHC has to becomputed out of the income from profits and gains ofbusiness in accordance with the provisions of the Act, asstated so under section 80AB. ... Section 80AB starts with the words "Where anydeduction is required to be made or allowed under anysection included in this Chapter, ... notwithstandinganything contained in that section, for the purpose ofcomputing the deduction under that section, the amount ofincome of that nature as computed in accordance with theprovisions of this Act, (before making any deductionunder this Chapter), shall alone be deemed to be theamount of income of that nature which is derived orreceived by the assessee and which is included in hisgross total income". It may be seen that the provisionsof section 80AB contemplate that the gross total incomehas first to be computed in accordance with theprovisions of the Act. When it comes to a deduction,section 80AB further provides that for the purpose ofdeduction under any of the sections in Chapter VI-A, theamount of income of that nature has to be computed inaccordance with the provisions of the Act, which means,necessarily for the purpose of deduction, the income ofthat nature computed for deduction must have a working inaccordance with the provisions of this Act. If that beso, income from profits and gains of business mustnecessarily conform to the provisions in Part D,including set off and carry forward."4.2. While holding as above, the Division Bench in the abovecase held that the unabsorbed depreciation and unabsorbedinvestment allowance of earlier years should be set off whilecomputing the profits of business for the purpose of determiningthe relief under section 80 HHC. 4.3. The view taken by this Court in the case of Asvini ColdStorage, referred supra, was subsequently followed by this Court inan unreported case in T.C.No.62 of 2004 (between Commissioner ofhttps://hcservices.ecourts.gov.in/hcservices/ Income Tax-III v. M/s.Sharon Vaneers P. Ltd.), wherein this Courtby order dated 26.2.2007 held as follows:- 4.3. The view taken by this Court in the case of Asvini ColdStorage, referred supra, was subsequently followed by this Court inan unreported case in T.C.No.62 of 2004 (between Commissioner ofhttps://hcservices.ecourts.gov.in/hcservices/ Income Tax-III v. M/s.Sharon Vaneers P. Ltd.), wherein this Courtby order dated 26.2.2007 held as follows:- 6. It is not in dispute that section 80HHC of theAct, which provides for deduction in respect of profitsretained for export business, has been incorporated inthe Income-tax Act, 1961, with a view to providingincentive for earning foreign exchange. A plain readingof section 80HHC makes it clear that in arriving atprofits earned from export of both self manufacturedgoods and trading goods, the profits and losses in bothtrades have to be taken into consideration. If, aftersuch adjustments, there is a positive profit the assesseewould be entitled to deduction under section 80HHC(1) ofthe Act and if there is a loss the assessee would not beentitled to deduction. In arriving at the figure ofpositive profit, both the profits and the losses willhave to be considered. If the net figure is a positiveprofit then the assessee will be entitled to deductionand if the net figure is a loss then the assessee willnot be entitled to deduction. A plain reading of sub-section (3)(c) shows that “profits from such exports” hasto be profits of exports of self-manufactured goods plusprofits of exports of trading goods. The opening words“profit derived from such exports” together with the word“and” clearly indicate that the profits have to becalculated by counting both the exports. Deduction can bepermitted under section 80HHC(1) only if there is apositive profit in the exports of both self-manufacturedgoods as well as trading goods. If there is a loss ineither of the two, then the loss has to be taken intoaccount for the purposes of computing the profits. On theother hand, the Section 80AB of the Act, which is also inChapter VI-A, starting with the words “where anydeduction is required to be made or allowed under anysection of this Chapter” would include section 80HHCalso. Further, section 80AB of the Act provides that“notwithstanding anything contained in that section”.Thus section 80AB of the Act has been given an overridingeffect over all other sections in Chapter VI-A. But,section 80HHC does not provide that its provisions are toprevail over section 80AB of the Act or over any otherprovision of the Act. Section 80HHC of the Act would thusbe governed by section 80AB of the Act. [vide: IPCALaboratory Ltd. v. Deputy Commissioner of Income-tax, 266ITR (SC) 521]. 7. In this view of the matter, we are of the viewthat it is not correct to say that section 80HHC of theAct is a self-contained provision and section 80 AB ofthe Act cannot be applied to section 80 HHC of the Act.In other words, section 80AB of the Act will prevailover any other provision in Chapter VIA of the Act and https://hcservices.ecourts.gov.in/hcservices/ Section 80HHC of the Act would thus be governed bysection 80AB of the Act. We therefore hold that theunabsorbed business losses, unabsorbed depreciation, etc.should be taken into account while computing income forthe purpose of deduction under section 80HHC of the Act.The Appellate Tribunal is not correct in holding that theunabsorbed depreciation, unabsorbed business loss andunabsorbed investment allowance of earlier years cannotbe deducted before granting deduction under section 80HHC of the Act and that the provisions of section 80AB ofthe Act cannot be applied while determining the businessprofits under section 80HHC." 4.4. To both the above decisions of this Court, viz., AsviniCold Storage P. Ltd. v. Commissioner of Income-tax [(2007) 290I.T.R. 183] and T.C.No.62 of 2004 (between Commissioner of IncomeTax-III v. M/s.Sharon Vaneers P. Ltd.), one of us was a party(P.D.DINAKARAN, J.). 4.4. To both the above decisions of this Court, viz., AsviniCold Storage P. Ltd. v. Commissioner of Income-tax [(2007) 290I.T.R. 183] and T.C.No.62 of 2004 (between Commissioner of IncomeTax-III v. M/s.Sharon Vaneers P. Ltd.), one of us was a party(P.D.DINAKARAN, J.). 5.1. That apart, the view taken by the Bombay High Court inCommissioner of Income-tax v. Shirke Construction Equipments Ltd.[(2000) 246 I.T.R. 429 (Bom.)], which is relied upon by theassessee in the case of Asvini Cold Storage and in the case ofSharon Vaneers P. Ltd., referred supra, has now been reversed bythe Apex Court in the recent decision reported in [(2007) 291I.T.R. 380 (SC)], wherein the Apex Court has held as follows:-".. Section 80AB of the Income-tax Act, 1961, specifyingthat profits are those as determined for the purpose ofthe Act, will apply for determining profits from exportbusiness for the purposes of the deduction under section80 HHC... In determining business profits for the deductionunder section 80 HHC, the unabsorbed business losses ofearlier years under section 72 should be set off." 6. Under such circumstances, since the law on the point iswell settled, as fortified by the decision of the Apex Court inCommissioner of Income-tax v. Shirke Construction Equipment Ltd.[(2007) 291 I.T.R. 380 (SC)] referred supra, we answer thesubstantial question of law raised by the Revenue in these appeals,in the negative, in favour of the Revenue and against the assessee.The tax case appeals are, accordingly, allowed. No costs. /true copy/ https://hcservices.ecourts.gov.in/hcservices/ Sub Asst. Registrar. sra To1.The Assistant Registrar,Income Tax Appellate TribunalRajaji Bhavan, Besant Nagar,Madras.2.The Commissioner of Income-Tax (Appeals), Coimbatore.3.The Deputy Commr. Of Income-tax,Special Range-II, Coimbatore.4. The Commissioner of Income Tax IICoimbatore3 ccs to Mr.N. Muralikumaran, Advocate, SR. 39966 to 39968 T.C.(A).Nos.264, 301 and 431 of2004NSM (CO)kk 21/7