The deduction under Section 80m of the Income-tax Act, 1961, is available only if the gross total income of the assessee is computed to be a profit.

( 1 ) IN the assessment year 1971-72, the corresponding accounting year ending on June 30, 1970, G. Atherton and Co. (P) Ltd. was assessed to income-tax. In the said year, the assessee was found to have suffered a business loss computed at Rs. 1,00,464. The assessee, however, received by way of interest on securities a gross amount of Rs. 180, interest from bank being Rs. 109 and earned income from dividend, Rs. 1,12,000.

( 2 ) THE Income-tax Officer by deducting from the business loss, the three items of positive income computed the net profit of the assessee at Rs. 11,825 and then deducted Rs. 94,989 claimed in the return on account of depreciation. The total loss suffered by the assessee was thus computed to be Rs. 83,174.

( 3 ) ON an appeal to the Appellate Assistant Commissioner against the assessment, the assessee contended that it was entitled to deduction under Section 80m of the Income-tax Act, 1961 ("the Act"), and that the Income-tax Officer was not justified in disallowing the same. The Appellate Assistant Commissioner held that as the income computed resulted in a net loss, there was no question of allowing any deduction under Section 80m.

( 4 ) FROM the order of the Appellate Assistant Commissioner, there was a further appeal by the assessee to the Tribunal. It was contended by the assessee in the appeal that the computation of its income was erroneous inasmuch as depreciation has been set off by the Income-tax Officer against the balance of all the heads of income. The income of the assessee from business being a loss, a negative income, there could be no further deduction of depreciation, which had to be carried forward to subsequent years under Section 32 (2) of the Act.

( 5 ) IT was contended further that the entire amount of Rs. 1,12,000 being dividend income could not be set off against the business loss. Under Section 80m, only 40 per cent. thereof was assessable and could be so set off. The balance 60 per cent. remained available for deduction under Section 80m.

( 6 ) THE Tribunal rejected the contentions of the assessee holding, inter alia, that according to commercial principles, depreciation having been shown in the accounts should be included in the profit and loss of business. Section 32 (2) of the Act would only apply where the assessee had no other source of income. The Tribunal further held that under Section 71 of the Act, a business loss could be set off against income under any other head and in the instant case, it has been correctly set off against the dividend income.

( 7 ) ON the application of the assessee under Section 256 (1) of the Act, the following question has been referred by the Tribunal, as a question of law arising out of its order, for the opinion of this court : "whether, on the facts and in the circumstances of the case, the assessee was entitled to a deduction under Section 80m of the Act in the instant assessment year ?"

( 8 ) AT the hearing before us, the learned advocate for the assessee drew our attention to the relevant sections of the Income-tax Act, 1961, and the Indian Income-tax Act, 1922 ("the 1922 Act"), the material portions of which are set out as follows : the INCOME-TAX ACT, 1961"section 2.--In this Act, unless the context otherwise requires,- -. . . (45) ' total income ' means the total amount of income referred to in Section 5, computed in the manner laid down in this Act ; section 29.--Income from profits and gains of business or profession, how computed.--The income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43a. Section 32.--Depreciation.-- (2) Where, in the assessment of the assessee. . . . . full effect cannot be given to any allowance under. . . . . Subsection (1) in any previous year owing to there being no profits or gains chargeable for that previous year,. . . . . then,. . . . . the allowance. . . . . to which effect has not been given,. . . . . shall be added to the amoun