New Page 2
2 New Industrial Undertaking — Special
deduction — 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 of the Act.
[Synco Industries Ltd. v. CIT, (2008) 299 ITR 444
(SC)]
The appellant-assessee is a company incorporated under the
provisions of the Companies Act, 1956. It is engaged in the business of oil and
chemicals. It has a unit for oil division at Sirohi District, Rajasthan. It has
also a chemical division at Jodhpur. The appellant had earned profit in the
A.Ys. 1990-91 and 1991-92 in both the units. However, the appellant had suffered
losses in the oil division in earlier years. The appellant claimed deductions
u/s.80HH and u/s.80-I of the Act, claiming that each unit should be treated
separately and the loss suffered by the oil division in earlier years is not
adjustable against the profits of the chemical division while considering the
question whether deductions u/s.80HH and u/s.80-I were allowable.
The Assessing Officer noticed that the gross total income of
the appellant 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. Feeling aggrieved, the appellant carried the matters in appeal
before the Commissioner of Income-tax (Appeals) who confirmed the view of the
Assessing Officer by dismissing the same. Therefore, the appellant preferred
appeals before the Income-tax Appellate Tribunal.
The Tribunal held that gross total income of the appellant
had got to be computed in accordance with the Act before allowing deductions
under any Section falling under Chapter VI-A and as the gross total income of
the appellant after setting off the business losses of the earlier years was
‘nil’, the appellant was not entitled to any deduction either u/s.80HH or S.
80-I of the Act. In that view of the matter the Tribunal dismissed the appeals
filed by the appellant. The High Court also dismissed the same by judgment dated
July 23, 2001.
On further appeal, the Supreme Court held that Ss.(1) of S.
80A lays down that while computing the total income of an assessee, deductions
specified in S. 80C to S. 80U shall be allowed from his gross total income. This
Section has introduced a new concept of ‘gross total income’ as distinguished
from the ‘total income’ i.e., the net or taxable income.
Clause (5) of S. 80B defines the expression ‘gross total
income’ to mean the total income computed in accordance with the provisions of
the Act before making any deductions under Chapter VI-A of the Act. It follows,
therefore, that deductions under Chapter VI-A can be given only if the gross
total income is positive and not negative. 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 S. 71 providing for set-off of loss from one head against income from another
and S. 72 providing for carry forward and set-off of business losses. S. 32(2)
makes provisions for carry forward and set-off of the unabsorbed depreciation of
a particular year. The effect of the abovementioned 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.
Ss.(2) of S. 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.
As noticed earlier clause (5) of S. 80B of the Act is that
‘gross total income’ to mean the total income computed in accordance with the
provisions of the Act without making any deductions under Chapter VI-A. The
effect of clause (5) of S. 80B of the Act 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 u/s.60 to u/s.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.
The Supreme Court therefore held that 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 S. 80-I also. The proposition of law, emerging from the above
discussion 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 of the Act.
