VIJAY SOLVEX LTD vs. C I T ALWAR

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ITA/350/2005HC RajasthanRJHC02042104200511 January 20174 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that for claiming deductions under Chapter VI-A, including Sections 80HH and 80I, the computation must be done after allowing all deductions such as depreciation, unabsorbed depreciation, and unabsorbed losses. The 'profits and gains' of an industrial undertaking to which Sections 80HH and 80I apply must be computed in accordance with Part D of Chapter IV of the Act. Only if there is positive income after deducting these statutory allowances would the assessee be eligible for deduction under Sections 80HH and 80I. The court noted that it was an admitted fact that in the present case, after allowing depreciation, unabsorbed loss, and unabsorbed depreciation, there was no positive income. Therefore, the assessee was not entitled to any deduction under Section 80HH & 80I. The substantial questions of law were answered in the negative, i.e., against the assessee and in favour of the revenue. The appeal was dismissed. The court also noted that if an SLP was pending before the Supreme Court, the assessee would be open to claim the benefit of law within six weeks of the Supreme Court's decision.

What were the facts?

The appellant, Vijay Solvex Ltd., is challenging a judgment of the Income Tax Appellate Tribunal (ITAT) that dismissed the department's appeal and partly allowed the assessee's appeal. The High Court admitted the appeal on January 3, 2006, framing substantial questions of law concerning the interpretation of 'profit and gains' versus 'income' under Sections 80HH and 80I of the Income Tax Act, 1961, and whether current year profits or income after depreciation are relevant for these deductions. The appellant's counsel referred to a previous decision of the same court in D.B. Income Tax Appeal No. 185/2004 (Vijay Solvex Ltd. vs. CIT) decided on January 6, 2014, which addressed similar issues.

What were the issues?

1. Whether the term “profit and Gains” used in section 80HH & 80I of the Income Tax Act 1961 with reference to an eligible industrial undertaking have the same meaning as the term “income” whereas the statute uses both the terms independently in different provisions of the Act? (Question of law) 2. Whether the “Profits and Gains” of current year of the eligible undertaking would be relevant for computing deduction u/s 80HH and 80I of the Act or the income computed after reducing depreciation allowance u/s 32(1) shall be relevant for these deductions? (Question of mixed law and fact) Assessee's Contentions: The judgment does not explicitly record the assessee's contentions. However, by implication from the questions framed and the court's discussion, the assessee likely argued that 'profit and gains' should be computed on a commercial basis and that deductions under Sections 80HH and 80I should be allowed before adjusting unabsorbed depreciation and losses. Revenue's Contentions: The judgment does not explicitly record the revenue's contentions. However, the court's reasoning suggests the revenue argued that deductions under Chapter VI-A, including Sections 80HH and 80I, are to be computed after allowing all statutory deductions such as depreciation and unabsorbed losses.

Which sections of the Income-tax Act were involved?

Section 80HH,Section 80I,Section 32(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 350 / 2005 Vijay Solvex Ltd ----Appellant Versus C I T Alwar ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay Jhanwar For Respondent(s) : Ms. Parinitoo Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR

Judgment 11/01/2017

1.

By way of this appeal, the appellant has challenged the judgment and order of the tribunal whereby tribunal has dismissed

the appeal of the department and partly allowed the appeal of the assessee.

2.

This court while admitting the appeal on 3.1.2006 had framed following substantial questions of law:- “1) Whether the term “profit and Gains” used in section 80HH & 80I of the Income Tax Act 1961 with reference to an eligible industrial undertaking have the same meaning as the term “income” whereas the statute uses both the terms independently in different provisions of the Act?” 2) Whether the “Profits and Gains” of current year of the eligible undertaking would be relevant for computing deduction u/s 80HH and 80I of the Act or the income computed after reducing depreciation allowance u/s 32(1) shall be relevant for these deductions?”

3.

However, counsel for the appellant submits that the issue

(2 of 4) [ITA-350/2005] came up before this court in respect of the same assessee in D.B. Income Tax Appeal No.185/2004 (Vijay Solvex Ltd. vs. CIT) decided on 6.1.2014 wherein it has been held as under:- “15. Recently, the Hon'ble Apex Court, in the case of M/s. Himatsingka Seide Ltd. Vs. CIT, Civil Appeal No.1501/2008, decided on 19/09/2013 also took similar view. In the case of M/s. Himatsingka Seide Ltd. the assessee filed nil return claiming exemption u/s 10B and the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed deprecation of Assessment Year 1988-89. It is claimed that as Sec. 10B conferred “exemption” for the profits of the EOU, the said brought forward deprecation could not be set- off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a “commercial” basis. It also adjusted brought forward unabsorbed deprecation against income from other sources. The assessing Officer, accepting assessee's claim, assessed total income at nil. The Commissioner, in exercise of powers u/s 263, set aside assessment order holding that exemption u/s 10B was allowed on an Tribunal' order and held that the brought forward deprecation had to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. On appeal, the Hon'ble Apex Court held as under:- “Having perused the records and in view of the facts & circumstances of the case, we are of the opinion that the Civil Appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly.” 16.This Court in the case of Loonkar Tools (I) Ltd. (supra) observed as under:- “In view of the above discussion, we are of the view that the depreciation and investment allowance have to be deducted before giving the special deduction as provided under Chapter VI-A and the "profits and gains" which are alleged to be equivalent to commercial profits have to be restricted only to the extent of such profits and gains which are included in the gross total income on which the deduction is available. In these circumstances, we are of the view that the Income Tax Appellate Tribunal was not justified in coming to the conclusion that the deduction under Section 80HH is to (3 of 4) [ITA-350/2005] be computed on the commercial profits and in computing the commercial profits the assessee is entitled to require addition of the provision for tax, depreciation and investment allowance reserve to the net profit as per the profit and loss account to arrive at the commercial profits.” 17.This Court in the case of Vishnu Oil & Dal Mills (supra; Agarwal Gum Industries (supra); Rajendra Textiles (supra); Sunil & Co. (supra); Rajasthan Cooperative Spinning Mills Ltd. (supra); Vijay Industries Vs. Commissioner of Income Tax, reported in (2004) 270 ITR 175 & Commissioner of Income-Tax Vs. Surendra Textiles, reported in (2002) 258 ITR 387; Modern Syntex (India) Ltd. Vs. CIT: (2005) 142 Taxman 80 (Raj.) came to the same conclusion. 18.The Calcutta High Court in the case of Sea Hawk (I) (P)Ltd. Observed as under:- “It is also a point of interest to note that the larger Bench of the Supreme Court in Distributors (Baroda) (P.) Ltd.'s case (supra) observed that the ratio in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) was a correct one and the decision in Cloth Traders (P.) Ltd.'s case (supra) was wrongly taken and taken in oversight of the principle laid down by Cambay Electric Supply Industrial Co. Ltd.'s case (supra). Therefore, we have no hesitation to say that the Tribunal erred in following the ratio in Cloth Traders (P.) Ltd.'s case (supra) and in holding that the assessee is entitled to the deduction of the profits and gains from its new hotel business before adjustment of the past unabsorbed loss carried forward for set off.” 19.After analyzing the provisions of Section 80HH & 80I of the IT Act and the judgments rendered by the Hon'ble Apex Court and this Court (supra), we are of the view that for claiming deduction under any provision of Chapter VIA, of which Section 80HH & 80I are also part, then it has to be after allowance of all deductions such as depreciation, unabsorbed depreciation & unabsorbed losses and therefore, in order to compute the profit and loss of income from an industrial undertaking, to which Section 80HH & 80I applies, the provisions of Part D of Chapter IV has to be taken into consideration and it is only after computing the income in accordance with the provisions contained in the Chapter that income from such industrial undertaking, included in the gross total income of an assessee, could be found out. We are in conformity with (4 of 4) [ITA-350/2005] the observations of the authorities referred to herein above that deduction can only be calculated with reference to the profit and loss account of the assessee and after deductions on account of depreciation or additional depreciation unabsorbed depreciation, unabsorbed losses etc. and only if such income is positive would be eligible for deduction under Section 80HH & 80I of the IT Act. The gross total income of the assessee has to be worked out after deducting the aforesaid deductions only to arrive at the net income and in case, after deducting all these statutory deductions, some income remains, then obviously the assessee would be entitled to deduction under Section 80HH & 80I of the IT Act. However, when there is no taxable income, then no deduction under Chapter VIA could be allowed. 20.It is an admitted fact that in so far as the present facts and circumstances of the case are concerned, after allowing depreciation, unabsorbed loss and unabsorbed depreciation, there was no positive income and we

accordingly hold that the assessee was not entitled to any deduction under Section 80HH & 80I of the IT Act. 21.The judgments relied upon by learned counsel for the appellant are of no assistance. In our view, no different answer is required to be given in the facts and circumstances of the present cases and consequently, the substantial questions are answered in the negative i.e. against the assessee and in favour of the revenue. “

4.

The issues are required to be answered in favour of the department and against the assessee.

5.

However, it is submitted that SLP is pending before the Supreme Court, therefore, if ultimately the issue is decided in favour of the assessee, it will be open for the assessee to claim benefit of law within a period of six weeks from the date of decision of the Supreme Court.

6.

The appeal is accordingly dismissed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. BM Gandhi 75.

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