Supreme court of India
Synco Industries
v.
Assessing Officer, Income Tax, Mumbai
ASHOK BHAN AND J.M. PANCHAL, JJ.
CIVIL APPEAL NOS. 4190-4191 OF 2002
AND 4192-4193 OF 2002
March 13, 2008
Section 80HH, read with section 80-I of
the Income-tax Act, 1961 - Deductions - Profits and gains from hotels or
industrials undertakings etc., in backward areas - Assessment years 1990-91 and
1991-92 - Whether while working out gross total income of an assessee losses
suffered have to be adjusted and if gross total income of assessee is ‘Nil’,
assessee will not be entitled to deduction under Chapter VI-A - Held, yes -
Assessee was engaged in business of oil and chemicals - It had suffered losses
in oil division - Assessee claimed deductions under section 80HH and 80-I in
respect of profits earned from chemical division claiming that each unit should
be treated separately and loss suffered by oil division was not adjustable
against profits of chemical division for purpose of deduction - Assessing
Officer rejected claim on ground that gross total income of assessee before
deductions under Chapter VIA was nil - Whether loss from oil division was
required to be adjusted before determining gross total income and as gross
total income was ‘Nil’, assessee was not entitled to claim deduction under Chapter
VI-A - Held, yes
FACTS
The assessee-company was engaged in the
business of oil and chemicals. The assessee had suffered losses in the oil
division in earlier years. The assessee claimed deductions under section 80HH
and 80-I, claiming that each unit should be treated separately and the loss
suffered by the oil division in earlier years was not adjustable against the
profits of the chemical division while considering the question whether
deductions under sections 80HH and 80-I were allowable. The Assessing Officer noticed that the gross
total income of the assessee before deductions under Chapter VI-A was 'nil'. Therefore, he concluded that the assessee
was not entitled to the benefit of deductions under Chapter VI-A. The Commissioner (Appeals) as well as the
Tribunal confirmed the view of the Assessing Officer. On appeal under section
260A, the High Court upheld the opinion expressed by the lower authorities that
the gross total income must be determined by setting off against the income,
the business losses of the earlier years, before allowing deduction under
Chapter VI-A and if the resultant income was ‘nil’, then the assessee could not
claim deduction under Chapter VI-A.
On appeal to the Supreme Court:
HELD
If the gross
total income of the assessee is determined
as 'Nil' then there is no question of any deduction being allowed under
Chapter VI-A in computing the total income. The Assessing Officer has to take into account the provisions of
section 71 providing for set off of loss from one head against income from
another and section 72 providing for carry forward and set off of business
losses. Section 32(2) makes provisions
for carry forward and set off of the unabsorbed depreciation of a particular
year. The effect of the these
provisions is that while computing the total income, the losses carried forward
and depreciation have to be adjusted and, thereafter, the Assessing Officer has
to work out the gross total income of the assessee. Sub-section (2) of section 80A specifically enacts that the
aggregate of deductions under Chapter VI-A should not exceed the gross total
income of the assessee. If the gross
total income is found to be a net loss on account of the adjustment of losses
of the earlier years or 'Nil', no deduction under this Chapter can be
allowed. The effect of Clause (5) of
section 80B is that gross total income will be arrived at after making the
computation as follows:-
(i) making
deductions under the appropriate computation provisions;
(ii) including
the incomes, if any, under sections 60 to 64 in the total income of the
individual;
(iii) adjusting
intra-head and/or inter-head losses; and
(iv) setting
off brought forward unabsorbed losses and unabsorbed depreciation, etc. [Para 8]
The predominant majority of the High
Courts have taken the view that deductions under Chapter VI-A would be
available only if the computation of gross total income as per the provisions
of the Act after setting off carried forward loss and unabsorbed depreciation
of earlier years is not ‘nil’. [Para
10]
The that
predominant majority of the High Courts have taken the view that while working
out gross total income of an assessee the losses suffered have to be adjusted
and if the gross total income of the assessee is 'nil', the assessee will not
be entitled to deduction under Chapter VI-A.
It is well settled that where the predominant majority of the High
Courts have taken certain view on the interpretation of certain provisions, the
Supreme Court would lean in favour of the predominant view. Therefore, the High Court was justified in
holding that gross total income must be determined, by setting off against the
income, the business losses of earlier years, before allowing deduction under
Chapter VI-A and if the resultant income was 'nil', then the asessee could not
claim deduction under Chapter VI-A.
[Para 11]
The contention
that under section 80-I (6) the profits derived from one industrial undertaking
could not be set off against loss suffered from another and the profit is
required to be computed as if profit making industrial undertaking was the only
source of income, had no merits.
Section 80-I (1) lays down that where the gross total income of the
assessee includes any profits derived from the priority undertaking/unit/division,
then in computing the total income of the assessee, a deduction from such
profits of an amount equal to 20 per cent has to be made. Section 80-I (1) lays down the broad
parameters indicating circumstances under which an assessee would be entitled
to claim deduction. On the other hand, section
80-I (6) deals with determination of the quantum of deduction. Section 80-I (6) lays down the manner in
which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go
back to section 80-I (1) which categorically states that where the gross total
income includes any profits and gains derived from an industrial undertaking to
which section 80-I applies then there shall be a deduction from such profits
and gains of an amount equal to 20 per cent. The words ‘includes any profits’
used by the Legislature in section 80-I(1) are very important which indicate
that the gross total income of an assessee shall include profits from a
priority undertaking. While computing
the quantum of deduction under section 80-I(6) the Assessing Officer, no doubt,
has to treat the profits derived from an industrial undertaking as the only
source of income in order to arrive at the deduction under Chapter VI-A. However, the non-obstante clause appearing in section 80-I(6), is applicable
only to the quantum of deduction, whereas, the gross total income under section
80B(5) which is also referred to in
section 80I(1) is required to be computed in the manner provided under the Act
which presupposes that the gross total income shall be arrived at after
adjusting the losses of the other division against the profits derived from an
industrial undertaking. If the
interpretation as suggested by the assessee was accepted it would almost render
the provisions of section 80A(2) nugatory and, therefore, the interpretation
canvassed on behalf of the assessee could not be accepted. It is true that under section 80-I(6) for
the purpose of calculating the deduction, the loss sustained in one of the
units, cannot be taken into account because sub-section 6 contemplates that
only the profits shall be taken into account as if it was the only source of
income. However, section 80A(2) and
section 80B (5) are declaratory in nature.
They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of
deduction and, therefore, the non-obstante
clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and
80B(5) which operate in different spheres.
As observed earlier section 80-I(6) deals with actual computation of
deduction whereas section 80-I(1) deals with the treatment to be given to such
deductions in order to arrive at the total income of the assessee and,
therefore, while interpreting section 80-I(1), which also refers to gross total
income one has to read the expression 'gross total income' as defined in
section 80B(5). Therefore, the High
Court was justified in holding that the loss from the oil division was required
to be adjusted before determining the gross total income and as the gross total
income was 'nil', the assessee was not
entitled to claim deduction under Chapter VI-A which includes section 80-I
also. [Para 12]
The
proposition of law, is that the gross total income of the assessee has first
got to be determined after adjusting losses etc., and if the gross total income
of the assessee is 'nil', the assessee would not be entitled to deductions
under Chapter VI-A. [Para 13]
Therefore, the
appeals filed by the assessee had no substance and same were to be
dismissed. [Para 14
CASE REVIEW :
Synco Industries Ltd. v. Assessing
Officer [2001] 119 Taxman 503 (Bom.) affirmed.