INDO POLYCOATS (P) LTD Vs. CIT

JUDGEMENT

(1.) IN IPCA Laboratory Ltd. v. Dy. CIT : [2004]266ITR521(SC) the Supreme Court was examining whether deductions under Chapter VI -A of the Income Tax Act were allowable on the net or gross income that qualified for such deductions under that chapter. The court held that section 80AB had an overriding effect over all other sections in Chapter VI -A and that all other provisions contained in the said chapter would remain subject to the said provision. The court further declared that the provisions of section 80AB made it clear that' computation of income has to be in accordance with the provisions of the Act and that any computation in accordance with the provisions of the Act would not only include profits but losses also. The following passage from the said decision sums up the legal position : '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 Vl - -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. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.'

(2.) IN Motilal Pesticides (1) (P) Ltd. v. CIT : [2000]243ITR26(SC) one of the questions which fell for consideration was whether the assessed was entitled to deduction under section 80HH of the Act on the GP and not the net profit derived by the assessed for the assessment year under consideration. The Supreme Court noticed its earlier decision in Distributors (Baroda) (P) Ltd. v. Union of India : [1985]155ITR120(SC) and held that deduction was to be allowed under Chapter VI -A of the Act only on the net income and not the gross income earned by the assessed. The court reiterated that section 80AB introduced with retrospective effect from 1 -4 -1981, was only clarificatory in nature and that the decision in Distributors (Baroda) (P) Ltd. (supra) case stated the legal position irrespective of the introduction of the said provision. The following passage in this regard apposite : In Distributors (Baroda) (P) Ltd.'s case : [1985]155ITR120(SC) , however, this court specifically overturned its earlier decision in Cloth Traders (P) Ltd.'s case : [1979]118ITR243(SC) and held that deduction is to be allowed only on the net income and not on the gross income. With reference to section 80AB, this court said it was merely of a Clarificatery nature and the decision of this court in Distributors (Baroda) (P) Ltd.'s case (supra) is thus irrespective of section 80AB of the Act. The High Court, thereforee, relying on the decision of this court in Distributors (Baroda) (P) Ltd.'s case (supra.) answered the question in favor of the revenue and against the assessed.'..... The effect of section 80AB was now that deduction would have to be made from the net income and not from the gross income. But then, in all fairness, Mr. Ramamurti also referred to another decision of this court in H.H. Sir Rama Varma v. CIT : [1994]205ITR433(SC) , where this court observed that on a parity of reasoning with section 80AA as given in Distributors (Baroda) (P) Ltd.'s case (supra), it must be held that section 80AB was enacted to declare the law as it always stood in relation to the deductions to be made in respect of the income specified under the head 'C' of Chapter VI -A of the Act.'

(3.) THE Tribunal has in the instant case relied upon the decision of Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , Motilal Pesticides v. : [1994]207ITR636(Delhi) , HH. Sir Rama Varma v. CIT : [1994]205ITR433(SC) and Grasim Industries Ltd. v. Asstt. CIT and Ors. : [2000]245ITR677(Bom) to hold that deduction under section 80 -I could be computed only after allowing development rebate and depreciation under sections 30 to 43A from the total income or commercial profit of the assessed. It has, thereforee, followed the very same line of reasoning as has prevailed in the judgments of the Hon'ble Supreme Court, referred to earlier. In that view, thereforee, no substantial question of law arises for our consideration. The appeal fails and is accordingly dismissed.