COMMISSIONER OF INCOME TAX Vs. VENKATESWARA TRANSMISSION LIMITED

JUDGEMENT

(1.) Pursuant to the direction of this court in I.T.C. No. 6 of 1984, the Income-tax Appellate Tribunal, Hyderabad, referred for the opinion of this court the following question of law under section 256(2) of the Income-tax Act, 1961 :

(2.) For answering the reference, it would be useful to refer to the facts which gave rise to this question. The assessee-company is engaged in the business of manufacture of various diesel locomotives. For the assessment year 1978-79, the assessee-company claimed deduction under section 80HH of the Income-tax Act, 1961 (for short, "the Act"). The income of the assessee for that year was computed at Rs. 57,882 before setting off the past business loss and unabsorbed depreciation; if these items are set off, the income of the assessee in that year would become "nil". The Income-tax Officer, however, did not grant any relief under section 80HH of the Act. On appeal, the Appellate Commissioner of Income-tax confirmed the assessment. The assessee then carried the matter to the Income-tax Appellate Tribunal. On 14/10/1982, the Tribunal allowed the appeal taking the view that having regard to the judgment of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, relief should be given under section 80HH of the Act; it further held that, since section 80AB has come into force with effect from 1/04/1981, it would not come in the way of the assessee getting the relief as that section was applicable from the assessment year 1981-82. Out of the said order of the Tribunal, the above question of law arises.

(3.) Sri S. R. Ashok, learned standing counsel for the Revenue, contends that on a proper construction of section 80HH of the Act, the irresistible conclusion is that the relief granted thereunder has to be calculated on the net income of the assessee from the industrial undertaking. Sri M. J. Swamy, learned counsel for the assessee, on the other hand, contends that the expression used in section 80HH is "profits and gains" and not "income", therefore, deduction has to be given on the gross profits and gains of the assessee from the industrial undertaking.