M/S Bajaj Motors (P) Ltd v. Commissioner Of Income Tax, Faridabad

Income-tax Appeal No.75 of 2003 *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No.75 of 2003Date of decision: 9.3.2011. M/s Bajaj Motors (P) Ltd. ...Appellant Versus Commissioner of Income Tax, Faridabad...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Pankaj Jain, Advocate for the appellant. Ms. Urvashi Dhugga, Senior Standing Counsel for therespondent. **** ADARSH KUMAR GOEL, J ( Oral). 1.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (hereinafter referred to as“the Act”) against order dated 25.11.2002 passed by the IncomeTax Appellate Tribunal, Delhi Bench 'C', New Delhi in ITANo.246/Del/1998, for the assessment year 1994-95, claimingfollowing substantial question of law:- “i).Whether under the facts and circumstances of thecase the Appellate Tribunal was right in holding thatin computing the quantum of deduction u/s 80-I ofthe Income Tax Act, 1961 out of the profits andgains of Unit No.1 the loss incurred in anotherindependent Unit No.2 should be set off against the profits of Unit No.1?” 3.The assessee manufactures automobile parts atGurgaon. It is entitled to deduction under Section 80-I of the Act.The Assessing Officer while computing the same took into accountloss of the assessee in another manufacturing unit. It was held thatthe benefit under Section 80-I was referable to total income whichwas required to be worked out after taking into account the loss, ifany. This view has been upheld by the CIT(A) as well as theTribunal. The Tribunal observed as under:- “We have carefully consider the rival submissions andgone through the various judicial pronouncements citedbefore us. In our considered view, section 80AB of theI.T. Act, 1961 which contains the non-obstante clausereading “notwithstanding anything contained” clearlyexpressed legislative intention that the section wouldhave overriding effect over any other provision whichmay be in conflict with the same. A non-obstante clauseis a legislative device which is usually employed to giveoverriding effect to certain provisions over some contraryprovisions that may be found either in the sameenactment or some other enactment. In view of thestipulation contained in section 80AB, one thing whichemerges clearly is that the mode of computation asindicated in section 80AB has full application to the caserelating to section 80-I overriding any other provision contained in Chapter VI-A including section 80-I. Thissection clearly provides that deductions under any sectionincluded in Chapter VI-A is to be made with reference tothe income “which is included in his gross total income.”The expression “gross total income” as defined u/s 80B(5) means the total income computed in accordance withthe provisions of the Act before making any deductionunder this chapter. Thus, the entire scheme forcomputing deduction in Chapter VI envisages that firstgross total income would be computed by applying theprovisions of the Act and on the total income so arrived atdeduction under Chapter VI-A would be computed. Thus,section 70 which provides for set off of loss under anyhead from one source against income from any othersource under the same head would be given effect towhile computing gross total income. On the basis of theaforesaid provisions, loss of Unit No.2 would be set offagainst profits of Unit No.1 and on the total income soarrived at deduction u/s 80-I would be worked out. Theview taken by the ld. CIT(A) is thus contrary to theexpress provisions of section 80AB, section 80B(5) andcannot be sustained.” 4.We have heard learned counsel for the parties. 5.Learned counsel for the assessee submits that forcomputing the benefit admissible under Section 80-I, loss in another 4.We have heard learned counsel for the parties. 5.Learned counsel for the assessee submits that forcomputing the benefit admissible under Section 80-I, loss in another unit could not be taken into account. Reliance has been placed onjudgment of Hon'ble Supreme Court in CIT Vs. Canara WorkshopsPvt. Ltd. (1986) 161 ITR 320 (SC) which has been followed in CITVs. Siddaganga Oil Extractions Pvt. Ltd. (1993) 201 ITR 968(Karnatala) and CIT Vs. Visakha Industries Ltd. (2001) 251 ITR471 (Andhra Pradesh). Learned counsel for the assessee alsorelies upon CIT Vs. Devidayal Rolling Refineries Pvt. Ltd. (1984)40 CTR 191 (Bombay). 6.Learned counsel for the revenue, however, submits thatcomponent of benefit under Section 80-I has to be worked out withreference to total income after excluding the loss therefrom asprovided under Section 80AB read with Sections 80A(2) and 80B(5).Reliance has been placed upon the following judgments:- (i)Distributors (Baroda) P. Ltd. Vs. Union of India(1985) 155 ITR 120 (SC);(1985) 155 ITR 120 (SC); (ii)H.H.Sir Rama Varma Vs. Commission of Income- Tax (1994) 205 ITR 433 (SC); (iii)Commissioner of Income-Tax Vs. Macmillan Co. of India Ltd. (2000) 243 ITR 403(Madras); (iv)Commissioner of Income-Tax Vs. Chemical andMetallurgical Design Co. Ltd. (2001) 247 ITR 749Metallurgical Design Co. Ltd. (2001) 247 ITR 749 (Delhi); (v)Commissioner of Income -Tax Vs. Nima SpecificFamily Trust (2001) 248 ITR 29(Bombay); and Family Trust (2001) 248 ITR 29(Bombay); and (vi)Synco Industries Ltd. Vs. Assessing Officer of *** Income-Tax and others (2002) 254 ITR 608( Bombay). 7.In order to appreciate the controversy, it would beappropriate to refer to the following provisions:- “80A(1)xxxxxx” “80A(2)The aggregate amount of the deductionsunder this Chapter shall not, in any case, exceed thegross total income of the assessee.” xxxxxxxxx “80ABWhere any deduction is required to be madeor allowed under any section included in this Chapterunder the heading “C-Deductions in respect of certainincomes” in respect of any income of the nature specifiedin that section which is included in the gross total incomeof the assessee, then, notwithstanding anythingcontained in that section, for the purpose of computingthe deduction under that section, the amount of incomeof that nature as computed in accordance with theprovisions of this Act (before making any deduction underthis Chapter) shall alone be deemed to be the amount ofincome of that nature which is derived or received by theassessee and which is included in his gross totalincome.” xxxxxxxxx “80B(5)“gross total income” means the total incomecomputed in accordance with the provisions of this Act,before making any deduction under this chapter.” xxxxxxxxx “80-I (1) Where the gross total income of an assesseeincludes any profits and gains derived from an industrialundertaking or a ship or the business of a hotel or thebusiness of repairs to ocean-going vessels or otherpowered craft to which this section applies, there shall,in accordance with and subject to the provisions of thissection, be allowed, in computing the total income of theassessee, a deduction from such profits and gains of anamount equal to twenty per cent thereof: Provided that in the case of an assessee, being acompany, the provisions of this sub-section shall haveeffect in relation to profits and gains derived from anindustrial undertaking or a ship or the business of a hotelas if for the words “twenty per cent”, the words “twenty-five per cent” had been substituted.” 8.It is clear from the above provisions that component onwhich deduction is permissible under Section 80-I is gross totalincome which is defined in Section 80B(5) and is also referred to inSections 80A(2) and 80AB. In Distributors (Baroda) the saidprovisions were so interpreted, which was also followed in H.H.SirRama Varma. Judgment in Canara Workshops does not refer to Provided that in the case of an assessee, being acompany, the provisions of this sub-section shall haveeffect in relation to profits and gains derived from anindustrial undertaking or a ship or the business of a hotelas if for the words “twenty per cent”, the words “twenty-five per cent” had been substituted.” 8.It is clear from the above provisions that component onwhich deduction is permissible under Section 80-I is gross totalincome which is defined in Section 80B(5) and is also referred to inSections 80A(2) and 80AB. In Distributors (Baroda) the saidprovisions were so interpreted, which was also followed in H.H.SirRama Varma. Judgment in Canara Workshops does not refer to Section 80AB. As observed by Madras High Court in Macmillan Co.of India Ltd. if component of deduction under Section 80-I is to refertotal income without excluding the loss therefrom, it will be againstthe statutory provisions. It will be appropriate to make a reference tothe following observations in the said judgment:- “Learned counsel for the assessee, however, contendedthat the law to be applied is that laid down in the case ofCIT V. Canara Workshops P. Ltd. (1986) 161 ITR 320(SC). It was held in that case that for computing theprofits for the purpose of deductions under section 80E ofthe Income-Tax Act, 1961, the loss incurred by theassessee in the manufacture of alloy Steels (a priorityindustry) could not be set off against the profits of themanufacture of another product. The assessment yearconsidered in that case was the year 1966-67. TheCourt, in the course of its judgment did not refer toSection 80AB of the Act and did not consider the effect ofthat provision as to whether it was declaratory or not,while the question was specifically considered by theSupreme Court in the case of H.H.Sir Rama Varma V,CIT (1994) 205 ITR 433. We are bound by the latterdecision and the law declared therein is the law which weare required to apply for determining the extent to whichdeductions are tobe permitted under several sections inChapter VIA excluding section 80M. Learned counsel also referred to certain otherdecisions which it is unnecessary to refer to, havingregard to the law laid down in the case of H.H.Sir RamaVarma V CIT (1994) 205 ITR 433(SC). We may also notice here the judgment of theConstitution Bench of the Apex Court in the case ofDistributors (Baroda) P. Ltd. Vs. Union of India (1985)155 ITR 120 in which the Court while upholding theconstitutional validity of section 80AA also in Chapter VIAof the Income-tax Act, held that section 80AA is merelydeclaratory of the law as it always was since April 1,1968. Section 80AB similarly must be held to bedeclaratory of the law as it always was since April 1,1981. It has been so held by the Apex Court in the caseof H.H.Sir Rama Varma (1994) 205 ITR 433.” 9.We are, thus, in agreement with the view taken byMadras High Court in Macmillan Co. of India Ltd. and BombayHigh Court in Nima Specific Family Trust and Synco IndustriesLtd. The provisions of Section 80A(2), 80B(5) and 80AB of the Actwere not considered before the Apex Court in Canara Workshops'case (supra). It may further be observed that the said judgment hasbeen followed by Andhra Pradesh High Court in Visakha IndustriesLtd's case (supra). We are unable to subscribe to the view taken byAndhra Pradesh High Court in the aforesaid decision. The provisionsof Section 80AB having not been noticed in the judgments relied *** upon on behalf of the assessee except in Distributors (Baroda) P. Ltd., the same are distinguishable. The question raised is decided against the assessee and in favour of the revenue. 10.The appeal is dismissed. (Adarsh Kumar Goel) Judge March 09, 2011Pka (Ajay Kumar Mittal) Judge