INDIAN TRANSFORMERS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench, has referred the following question at the instance of the assessee under Section 256(1) of the Income-tax Act, 1961.

(2.) THE year of assessment is 1967-68. THE Income-tax Officer determined the total income assessable to tax for that year at Rs. 2,13,769. THE loss in the earlier years amounting to Rs. 87,437 was then set off against the profits and gains arising from the business of the assessee which is a limited company, apparently under Section 72 of the Income-tax Act, 1961. From the balance net income of Rs. 1,26,332, 8 per cent. was deducted under Section 80E as it stood at the relevant time. THE assessee appealed and one of the contentions raised before the Appellate Assistant Commissioner was that for the deduction under Section 80E, the total income arising from profits and gains, viz., Rs. 2,13,769, should be the figure that should be taken into account. This contention was upheld by the Appellate Assistant Commissioner. But, in further appeal, the Tribunal reversed the decision of the Appellate Assistant Commissioner and held that the 8 per cent. can be permitted only on the net balance income after setting off the losses and that the figure for the purpose of Section 80E is Rs. 1,26,332. THE question is which of these views is the correct one. It is necessary to refer to Section 80E as it stood at that time :

(3.) SECTION 80E seems to be a special provision and permits deduction from profits and gains attributable to specific activities like business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the List in the Fifth Schedule. The set-off under SECTION 72 is applicable in relation to the profits and gains arising from any business or profession. We, therefore, think that the deduction under SECTION 80E is a special benefit given to a company which satisfies the conditions under SECTION 80E and the deduction of 8 per cent. permissible under that section is only from profits and gains attributable to the specific activities to which we have referred. This is a special benefit. This must refer to the results of that particular activity. This benefit should not be diminished by the other benefits conferred by the Act, such as the right to have the previous losses set off. The two serve different purposes and the benefit of both must be available to an assessee, without the one impinging on the other. The acceptance of the contention of the revenue would have the result of substantially depleting the benefit under SECTION 80E. This is not permissible. Even apart from this, we think, the wording of SECTION 80E, which talks of "total income" is also an indication that the deduction under SECTION 80E must be before the set-off permissible under SECTION 72 is made. In the case before us the total income consists exclusively of profits and gains arising from the specific activities mentioned in SECTION 80E. This refers to the total income of a particular year, namely, the previous year. And from this the deduction under SECTION 80E has to be made as the deduction is related to the profits and gains from specified activities of a particular period. The figure arrived at after setting off the losses under SECTION 72 is certainly not the total income arising from the profits and gains attributable to the activities in the year. We, therefore, answer the question referred to us in the negative, that is in favour of the assessee and against the department. There will be no order as to costs.