MURUGAPPA AND SONS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a firm. THE business of the firm is the promotion of companies. In respect of the assessment year 1972-73, it filed a return disclosing an income of Rs. 3,741 by way of interest on securities, Rs. 53,813 by way of dividend under the head "other sources", Rs. 8,770 by way of long term capital gains and a loss of Rs. 76,529 under the head "Business". In completing the assessment, the Income-tax Officer disallowed the expenditure of Rs. 4,587 incurred in connection with the foreign travel of one of the partners and after computing the business loss and setting of the income by way of interest on securities, capital gains and dividend, the net loss was computed at Rs. 5,618. In doing so, the Income-tax Officer declined to allow deduction under section 80k and 80T of the Income-tax Act 1961, (hereinafter referred to as "the Act"). Aggrieved by that, the assessee preferred an appeal before the Appellate Assistant Commissioner Contending, inter alia, that deductions under sections 80K and 80T of the Act should have been allowed. THE Appellate Assistant Commissioner accepted the contention of the assessee and directed the Income-tax Officer to grant relief under sections 80K and 80T of the Act. On further appeal by the Revenue to the Tribunal, it was contended that as the gross total income of the assessee was a negative figure, the assessee was not entitled to claim the benefit of deduction under sections 80K and 80T of the Act. Considering the relevant positions and taking into account the provisions of sections 80K(2) and 80B(5) of the Act, the Tribunal held that where the gross total income is a loss, there can be obviously no question of deduction being allowed under Chapter VI-A of the At and in that view, upheld the order of the Income-tax Officer disallowing the deductions under sections 80K and 80T of the Act. That conclusion arrived at by the Tribunal has given rise to this reference, wherein at the instance of the assessee, under section 256(2) of the Act, the following question of law has been referred for the opinion of this court :

(2.) LEARNED counsel for the assessee contended, referring to sections 67(2) and 80A(3) of the Act and the Decision in CIT v. K. Saraswathi Ammal [1981] 127 ITR 404 (Mad) (sic) that, in the absence of any indication in the allowance sheet in relation to the disallowance in the assessment of the firm, the partners, with reference to their individual assessment, are placed at a disadvantage in the matter of claiming the benefit of deductions and allowances and that such a situation ought to be removed. On the other hand, learned counsel for the Revenue, inviting attention to sections 80A(1), 80A(2) and 80B(5) of the Act and relying upon the decisions in CIT v. Merchantile Bank Ltd. [1988] 169 ITR 44 (Bom) and CIT v. Rambal (P.) Ltd. [1988] ITR 50 (Mad.), submitted that where the gross total income is a loss, there can be obviously no question of any deduction being allowed under Chapter VI-A if the Act and the Tribunal was, therefore, right in its conclusion. Adverting to the difficulty mentioned by learned counsel for the assessee, it was further submitted that, having regard to the limited scope of the question referred, that fell outside the ambit of the reference.