C.I.T (CENTRAL), MADRAS vs. CANARA WORKSHOPS (P) LTD., KODIALBALL, MANGALORE

CIVIL APPEAL No. 1685/1974Supreme Court[1986] 3 S.C.R. 16615 July 1986Bench: 2 JudgesAuthor: R.S. PATHAK, SABYASACHI MUKHERJI9 pages
AI SummaryDismissed

What were the facts?

The assessee, Canara Workshops (P) Ltd., engaged in manufacturing automobile spares, also commenced manufacturing alloy steels. Both are priority industries under the Fifth Schedule of the Income Tax Act, 1961. For assessment years 1966-67 and 1967-68, the assessee incurred losses in alloy steel manufacturing but declared profits in automobile ancillaries. The assessee claimed relief under Section 80E at 5% of the automobile ancillary profits. The Income Tax Officer allowed relief only after setting off the alloy steel losses against the automobile ancillary profits. The Appellate Assistant Commissioner upheld this. The Income Tax Appellate Tribunal, however, ruled in favour of the assessee, allowing deduction on the entire profits of the automobile parts industry without deducting alloy steel losses. The High Court affirmed this decision.

What did the Supreme Court hold?

The Supreme Court held that in the application of Section 80E of the Income Tax Act, 1961, profits and gains earned by an industry listed in the Fifth Schedule cannot be reduced by losses suffered by any other industry owned by the assessee. Each industry must be considered on its own working to determine its entitlement to the deduction under Section 80E. Allowing the benefit to be determined on the net result of all industries would shift the focus from the industry to the assessee and undermine the object of Section 80E, which is to encourage the setting up and efficient working of priority industries. The Court overruled Commissioner of Income-tax, Tamil Nadu-III v. English Electric Company Ltd. and approved Commissioner of Income-tax, Mysore v. Balanoor Tea and Rubber Co. Ltd. The appeals were dismissed.

What were the issues?

1. Whether, for the purpose of computing deduction under Section 80E of the Income Tax Act, 1961, losses incurred in the manufacture of alloy steels should be set off against profits from the manufacture of automobile ancillaries? (Question of law) Assessee's contention: The assessee argued that the deduction under Section 80E is permissible at 5% on the entire profits of the automobile parts industry without deducting losses from the alloy steel manufacture. The Tribunal accepted this contention. Revenue's contention: The Revenue contended that on a true application of Section 80E, the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steels. The High Court answered this question in favour of the assessee and against the Revenue.

Which sections of the Income-tax Act were involved?

Section 80E,Section 41(2)

AI-generated summary — verify with the full judgment below

A ( C.I.T. (CENTRAL), MADRAS v. CANARA WORKSHOPS (P) LTD., B KODIALBALL, MANGALORE JULY 15, 1986 --· [R.S. PATHAK AND SABYASACHI MUKHARJI JJ.] / Income Tax Act, 1961-s. SOE-Profit and gains-Priority in- c dustries-deductions in respect of-how determined. The assessee-company is engaged in the mannfactnre of autombile -4 spares. During the previous year relevant to the assessment year 1966- 67, the assessee also commenced the manufacturing of alloy steels. Both the industries are included in the Fifth Schedule to the Income Tax Act, D 1961. The assessee sustained a loss in the alloys steel industry during the previous years relevant to the assessment years 1966-67 and 1967-6S. It claimed a loss in the sum of Rs.15,30,6SS for the assessment year 1966-

67.

For the assessment year 1966-67, the assessee disclosed profits to the tune of Rs.17,57, 129 from the industry of automobile ancillaries. The assessee claimed relief under s. SOE at S% of this amount in the sum of E Rs.1,40,574. Similarly the assessee claimed relief in the sum of Rs. l,52,4S3 for the assessment year 1967-6S. The Income Tax Officer declined to grant the relief claimed and held that the asses

The order continues below.

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