Mahalaxmi Fabric Mills Ltd v. Assistant Commissioner Of Income Tax - Respondent =========================================

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 373 of 1999 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA AND HONOURABLE MR.JUSTICE H.B.ANTANI ========================================== 1 Whether Reporters of Local Papers may be allowed to see NONOthe judgment?2 To be referred to the Reporter or not?NO3 Whether Their Lordships wish to see the fair copy of the NO3 Whether Their Lordships wish to see the fair copy of the NOjudgment?4 Whether this case involves a substantial question of law NOas to the interpretation of the Constitution of India, 1950 or any Order made thereunder?as to the interpretation of the Constitution of India, 1950 or any Order made thereunder? 5 Whether it is to be circulated to the Civil Judge?NO ========================================= MAHALAXMI FABRIC MILLS LTD. - APPELLANT VERSUS ASSISTANT COMMISSIONER OF INCOME TAX - RESPONDENT ========================================= =Appearance : MR JP SHAH for the Appellant. MR MANISH R BHATT for the Respondent. ========================================== CORAM :HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE H.B.ANTANI Date : 17/06/2008 ORAL JUDGMENT(Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1.This appeal was admitted after formulating the following substantial question of law: “Whether, on the facts and in the circumstances of the case, the Tribunal ought to have allowed 80HHC relief in respect of the “profits derived by the assessee from the export of goods” without reducing the said profits by the amount of carried forward depreciation and investment allowance?” 2.The Assessment Year in question is 1991-92, the relevant Previous Year being Financial Year ended on 31[st ]March, 1990. The appellant-assessee claimed deduction under Section 80HHC of the Income Tax Act, 1961 (“the Act”) at a sum of Rs. 30,89,519/=. The Assessing Officer restricted the claim to Rs.21,75,700/=. The difference relatable to sum of Rs. 17,75,218/= comprised of unabsorbed depreciation carried forward and investment allowance. According to the Assessing Officer, the profits derived by the assessee from export of goods were required to be reduced by deducting the amount of unabsorbed depreciation carried forward and investment allowance. TAXAP/373/1999 3.Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals), who, for the reasons stated in his order, confirmed the action of the Assessing Officer. In Second Appeal also, the assessee could not succeed. The Tribunal followed the decision of the Apex Court in the case of Commissioner of Income Tax Vs. Kotagiri Industrial Co-operative Tea Factory Limited, [1997] 224 ITR 604 to hold that before allowing any deduction under Chapter VI-A of the Act, Gross Total Income had to be computed in accordance with the provisions of the Act. 4.The learned Advocate for the appellant Shri Manish J. Shah very fairly invited attention to the decisions of the Apex Court in the case of Synco Industries Limited Vs. Assessing Officer (Income-Tax) And Another, [2008] 299 ITR 444 and Commissioner of Income Tax Vs. Shirke Construction Equipment Limited [2007] 291 ITR 380 to submit that the controversy is no longer res integra. According to the learned Advocate, in light of the aforesaid two decisions of the Apex Court, the question is required to be answered against the appellant-assessee. TAXAP/373/1999 4.The learned Advocate for the appellant Shri Manish J. Shah very fairly invited attention to the decisions of the Apex Court in the case of Synco Industries Limited Vs. Assessing Officer (Income-Tax) And Another, [2008] 299 ITR 444 and Commissioner of Income Tax Vs. Shirke Construction Equipment Limited [2007] 291 ITR 380 to submit that the controversy is no longer res integra. According to the learned Advocate, in light of the aforesaid two decisions of the Apex Court, the question is required to be answered against the appellant-assessee. TAXAP/373/1999 5.In the case of Synco Industries Limited Vs. Assessing Officer (Income-Tax) and Another (supra), the Apex Court has discussed the scheme of the Act with reference to the provisions of Section 80B (5) of the Act which defines “gross total income”. The controversy before the Court was in relation to working out the deductions under Sections 80HH and 80I of the Act – whether such deductions are allowable before setting off the business losses of earlier years or not. The Supreme Court has come to the conclusion that if the resultant figure, after setting off the business losses of earlier years, is nil, no deduction under Section 80HH and 80I can be granted. 6.In the case of Commissioner of Income Tax Vs. Shirke Construction Equipment Limited (supra), the Supreme Court was called upon to determine whether Section 80AB of the Act can be applied to Section 80HHC of the Act and whether the profits under Section 80HHC of the Act are required to be computed after setting off unabsorbed business losses of earlier years under Section 72 of the Act. The Supreme Court, after referring to its earlier decision in the case ofIPCA Laboratory Limited Vs. Deputy Commissioner of Income Tax, [2004] 266 ITR 521, has reiterated as under: “Section 80AB is also in Chapter VI-A. It starts with the words 'where any deduction is required to be made or allowed under any section of this Chapter'. This would include Section 80HHC. Section 80AB further provides that 'notwithstanding anything contained in that section'. Thus, Section 80AB has been given an overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.” 7. In the aforesaid set of circumstances, it is apparent that in light of the enunciation of law by the Apex Court, no error can be found in the impugned order of the Tribunal. The Tribunal was justified in reducing the profits by the amount of carried forward depreciation and investment allowance before allowing deduction under Section 80HHC of the Act. Accordingly, the question is answered in the negative i.e. in favour of the Revenue and against the assessee. The appeal is dismissed accordingly with no order as to costs. [D. A. MEHTA, J.] /shamnath [H. B. ANTANI, J.]