The main legal principle established in the judgment is the requirement to compute gross total income without giving effect to the provisions of Section 80-I, and the limitation that the aggregate amount of deductions under Chapter VI-A shall not exceed the gross total income of the assessee.

Prakash Shrivastava, J.

1. The Tribunal, Indore has referred the following question of law to this Court:

Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the allowance of deduction under Section 80-I keeping in view the provisions of Section 80B and Section 80A of the IT Act?

2. The matter relates to the asst. yrs. 1987-88, 1988-89 and 1989-90. The facts relating to the issue are that the assessee owns two units, one is old and the other is new. The new unit falls within the category of priority industry. The assessee computed the deduction under Section 80-I of the Act in respect of new unit treating it as an independent unit. For this purpose the assessee calculated the gross total income of new unit after considering brought forward losses, unabsorbed depreciation and investment allowance of new unit alone. From the gross total income of the new unit so arrived at, the assessee claimed deduction under Section 80-I. The remaining net income of the new unit was thereafter set off against losses of old unit and carry forward of resultant unabsorbed losses, unabsorbed depreciation and investment allowance was claimed. This claim of the assessee was disallowed by the AO because he was of the view that gross total income of both the units taken together should be first determined and if the resultant gross total income is a minus figure no deduction under Section 80-I can be allowed. Against the disallowance, the assessee carried the matter before the CIT (A). The CIT (A) relying upon the judgment of Supreme Court in CIT v. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) case held that new unit is to be considered in isolation and deduction under Section 80-I is to be allowed in each year where there are some profits from the new unit after considering brought forward losses and unabsorbed depreciation of such unit alone from earlier year. Similar losses etc. of other unit of earlier year as well as current year is not to be considered for this purpose. The Tribunal affirmed the order of CIT (A) by dismissing the appeals of the Revenue.

3. The Revenue made application under Section 256(1) of the Act before the Tribunal for making reference to this Court which was initialy rejected against which Revenue had approached the High Court and on being directed the Tribunal, referred the above question of law.

4. Learned Counsel appearing for the Revenue submitted that while computing the deduction under Section 80-I of the Act, the gross income of the assessee from both the units should be computed first and if the resultant is a minus figure, no deduction under Section 80-I can be allowed.

5. Learned Counsel appearing for the assessee submitted that for the purpose of computing deduction under Section 80-I of the Act, the new and old units of the petitioner are to be treated separately and carried forward the unabsorbed losses and depreciation of old unit should not be adjusted against the profits of the new unit. In support of his submission, he referred to Sub-section (6) of Section 80-I of the Act.

6. We have heard learned Counsel for the parties and perused record of the case

7. The AO while framing the assessment had disallowed the deduction under Section 80-I of the Act. For the assessment period 1989-90 in the assessment order dt. 30th March, 1990, he gave following reasoning to disallow the claim.

10. Disallowance of claims under Sections 80G and 80-I:

The assessee company has claimed deduction under Sections 80G and 80-I. By question No. 4 of notice under Sections 143(2) and 142(1) dt. 2nd Feb., 1990 the assessee company was required to justify its claim in view of the fact that after considering the carry forward of losses or allowances for earlier years the gross total income of the assessee is reduced to nil and therefore having regard to the provisions of S.80A the deductions under Sections 89G and 80-I as claimed by the assessee at Rs. 1,78,50