Decided on December 15,1982



K.T. Thakore, Accountant Member - (1.) THIS set of six appeals though relate; to the different assessees involve a common ground and, therefore, for the sake of convenience they are disposed of together by this combined order.
(2.) We first proceed to deal with IT Appeal No. 2304 (Ahd.) of 1981 which relates to the assessment years 1979-80 and our decision in this appeal would govern our decision on the identical point in other appeals also. The assessee is a registered firm which derives income from manufacture of circles from aluminium ingots. The assessee, inter alia, claimed relief under Section 80HH of the Income-tax Act, 1961 ('the Act'), at 20 per cent of its profits and gains of business. The ITO restricted the claim to 20 per cent of Rs. 85,103 being the divisible income as determined prior to adjustment of interest to partners which was disallowed under the provisions of Section 40(b) of the Act. The said disallowance worked out. to Rs. 93,558. It may be stated that the ITO made the above computation without any discussion in his order. Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals) and contended that interest disallowed under Section 40(b) form part and parcel of profits and gains of the business of the assessee and, therefore, deduction under Section 80HH should be determined with reference to gross amount of profits after making the disallowance under Section 40(b) and not on basis of net amount of profit fife hors the said disallowance. The learned Commissioner, however, did not find any substance in this argument. He pointed out that profits and gains of business have to be understood in normal commercial sense which would mean the net amount of profit as determined by the ITO before disallowance under Section 40(b). In other words, according to the Commissioner (Appeals) the relief under Section 40(6) had to be determined with reference to divisible income of the firm and not with reference to the income from profits and gains of business as determined under Section 28 of the Act. In coming to this decision, the Commissioner (Appeals) relied on the provisions of Section 80E.
(3.) BEING aggrieved the assessee has come up in appeal before us. The learned representative of the assessee submitted that relief under Section 80HH had to be determined with reference to the income as determined in accordance with the provisions of the Income-tax Act which would include disallowance of interest paid to partners under Section 40(6). It was not possible to give the restricted meaning to provisions of Section 80HH as held by the Commissioner (Appeals). The learned departmental representative on the other hand supported the order of the Commissioner (Appeals) pointing out that relief under Section 80HH has to be determined in respect of profits 'derived from' industrial undertaking to which the provisions of the said section were applicable. There is no dispute that the provisions of Section 80HH were applicable in the instant case. The only controversy centered round the determination of the relief due, i.e., whether with reference to the net amount of profits excluding interest under Section 40(b) or on the gross amount of income from business inclusive of disallowance under Section 40(b). Relying on the observations of the Supreme Court in the case of Carnbay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, Shri Vaidya submitted that in that case the Supreme Court had occasion to construe the expressions 'attributable' and 'derived from.' It has been stated that the expression derived from is of narrower amplitude than the expression attributable to. Since the expression used in Section 80HH is derived from a restricted construction should be given in determining the profits and gains of the industrial undertaking to which the provisions of Section 80HH are applicable.;

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