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High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
ORIENT PAPER MILLS LTD. - Respondent
Income-Tax Reference 424 Of 1977
Decided On : 03/18/1981
The assessee is entitled to a deduction of 8% as contemplated by Section 80e (1) without a deduction of the unabsorbed depreciation and development rebate in the priority industry.
Fact of the Case:
The assessee, a company, was engaged in the business of generation and distribution of electricity. During the assessment year 1967-68, the assessee earned an income of Rs. 46,319 from its business and had sold some of its old machinery and building in respect of which sale the ITO worked out the balancing charge contemplated by Section 41 (2) at Rs. 7,55,807. In accordance with Section 41 (2), this amount was added to the previously mentioned business income of Rs. 46,319 thus making a total of Rs. 8,02,126. The deduction of 8% which was contemplated by Section 80e (1) computed by the ITO on this amount and since this deduction worked out to Rs. 64,170 for the purpose of computing the net income chargeable to tax he arrived at the figure of Rs. 7,37,956. The unabsorbrd depreciation of Rs. 1,42,955 and the unabsorbed development rebate of Rs. 1,11,658 totalling Rs. 2,54,613 was set-off against the above amount of Rs. 7,37,956 and this gave a result of net income chargeable to tax at Rs. 4,83,343.
Finding of the Court:
The court held that the assessee was entitled to a deduction of 8% as contemplated by Section 80e (1) without a deduction of the unabsorbed depreciation and development rebate in the priority industry.
Issues: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to relief under Section 80-I of the Income-tax Act, 1961, on the profits of the priority industry, before setting off the unabsorbed development rebate of the said priority industry itself.
Ratio Decidendi: The court held that the expression "profits and gains" attributable to the specified industry was not the taxable profit but commercial profit. It further held that it was the gross amount and not the net amount which was eligible for exemption in respect of priority industry. The court also held that the Legislature has advisedly used the expression "profits and gains" without making any provision that such profits and gains had to be computed as total income in accordance with the other provisions of the Act as it had done under Section 15c (3) of the Indian I. T. Act, 1922, or s. 84 (5) of the I. T. Act, 1961. In such a situation it may be pointed out, with respect, that it would be unwarranted to make those two expressions synonymous.
Final Decision: The court answered the question No. 1 in the affirmative and in favour of the assessee and the question No. 2 in the negative and in favour of the assessee.
( 1 ) THIS reference under Section 256 (1) of the I. T. Act, 1961, relates to the assessment year 1971-72. It appears that the ITO did not allow relief under Section 80-I of the I. T. Act, 1961, as the assessee had not claimed the same in the return as required under the I. T. Rules. In this connection it may not be inappropriate to refer to the relevant portion of the order of the ITO which reads as follows:" (5) Development rebate for earlier year as detailed below: up to 68-69 A. Y. Rs. 23,79,623 69-70 " Rs. 6,94,995 70-71 " Rs. 15,82,829 Rs. 46,57,447 "
( 2 ) THEREAFTER, the ITO has observed as follows :"under Section 80-I on Rs. 4,60,42,731 @ 8%, i. e. , after adjustment of income under Section 41 (2), rent, sundry receipt, technical know-how and rebate allowed under Section 80g. Rs. 36,83,418 Rs. 2,47,82. 407 Total income: Rs. 2,31,02,004 Round off to : Rs. 2,31,02,000"
( 3 ) THERE was an appeal before the AAC. The AAC, relying upon the decision in the case of Indian Transformers Ltd. and Gurjargravures Pvt. Ltd. [1972] 84 ITR 723 (Guj), directed the ITO to allow relief to the assessee under Section 80-I on the gross total income before setting off of the carried forward losses and development rebate. Being aggrieved by the order on this aspect, the Revenue went up in appeal before the Tribunal. The Tribunal had observed that similar issue arose in the assessment year 1970-71, in which it had held that the assessee was entitled to the relief under Section 80e on the profits of priority industry before setting off of the unabsorbed development rebate. In this connection, it should be proper to refer to the order of the Appellate Tribunal which, inter alia, observed as follows:"in ground No. 6 the Department has objected to the allowance of relief under Section 80-I on the gross total income before setting off of the unabsorbed development rebate. Similar issue arose in the assessment year 1970-71. In that year, we have held that the assessee is entitled to the relief under Section 80-I on profits of the priority industry before setting off of the unabsorbed development rebate. The parties have raised the same contentions in this year. We follow our decision for the assessment year 1970-71 on this point. We may point out that in this year the gross total income is such that relief under Section 80-I can be allowed to the full extent and Section 80a (2) does not come in the way. We, therefore, affirm the order of the AAC. "
( 4 ) THERE was another question involved in the assessment for this year. The ITO went into the details of the perquisites allowed by the assessee to its employees. He determined that the value of the perquisites to the extent of Rs. 16,678 exceeded 1/5th of their salary. It was argued that the cash allowance paid to the employees did not amount to perquisites and the same could not be considered in making a disallowance under Section 40 (a) (v) of the I. T. Act, 1961. The ITO disallowed Rs. 16,678 which included the cash allowance of Rs. 8,623.
( 5 ) IN appeal, the AAC following the decision of the Tribunal in the case of Blue Star Engineering Co. , accepted the assessee's contention and deleted the disallowance of Rs. 8,623. The Tribunal upheld the order of the AAC.
( 6 ) ON these two aspects, the following questions under Section 256 (1) of the I. T. Act, 1961, have been referred to this court:"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to relief under Section 80-I of the Income-tax Act, 1961, on the profits of the priority industry, before setting off the unabsorbed development rebate of the said priority industry itself. 2; Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the sum of Rs. 8,623, being cash allowance paid to the employees by the assessee-company, did not amount to perquisites and as such the same could n
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