AJIT KUMAR SENGUPTA, J. - (1.) : In this application under s. 256(1) of the IT Act, 1961, the following question of law has been referred to this Court : "Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions of ss. 80-I and 80B, the Tribunal was right in holding that the assessee was entitled to deduction under s. 80-I on the profits from priority industry before deducting therefrom the unabsorbed depreciation and unabsorbed development rebate brought forward from the earlier years ?"
(2.) THIS reference relates to the assessment for the asst. yr. 1972-73 of the assessee which is a private limited company. The assessee-company claimed before the ITO that the deduction under s. 80-I should be given on the entire income from a priority industry. The ITO, however, set off the unabsorbed depreciation and unabsorbed development rebate brought forward from the immediately preceding assessment year and also deducted the profit under s. 41(2) from the income from priority industry and on the balance income, he allowed the deduction under s. 80-I. The assessee-company was aggrieved and, therefore, went in appeal before the AAC. The AAC, however, agreed with the assessee- company that the deduction under s. 80-I should be allowed on the income from the priority industry including profit under s. 41(2) before allowing the set-off of unabsorbed depreciation or development rebate of the earlier years. The Department was aggrieved by the order of the AAC on this issue and, therefore, came up in appeal before the Tribunal. The Tribunal held that the AAC was correct in allowing relief under s. 80-I oil the business profits before set-off of the losses of the earlier years or unabsorbed depreciation or development rebate.
(3.) FROM the asst. yr. 1966-67, a new section, being s. 80E, was inserted in the IT Act, 1961, providing for straight deduction to certain companies in respect of profits and gains from priority industries specified in the then Fifth Schedule to the Act. This was to the extent of 8 per cent of such profits. The provisions of s. 80E remained in force till the asst. yr. 1967-68. Thereafter, for and from the asst. yr. 1968-69, s. 80E was replaced by s. 80-I. For the asst. yr. 1972-73, the rate was, however, reduced from 8 per cent to 5 per cent Sec. 80-I was deleted w.e.f. April 1, 1973. It may be mentioned that the 1961 Act, as originally enacted, did not contain Chapter VI-A. This chapter was first inserted by the Finance Act, 1965, w.e.f. April 1, 1965. Chapter VI-A as substituted by the Finance (No. 2) Act, 1967, from April 1, 1968, includes all the provisions of the old Chapter VI-A. It also contains certain general provisions applicable to the whole of the chapter as well as the definition of certain words and expressions occurring in the new chapter. Sec. 80B(5) defines the term "gross total income" which means total income computed in accordance with the provisions of the Act and before making any deduction under Chapter VI-A or under s. 280-O. Sec. 80E substantially reproduces s. 80-I. So also s. 80J. The Supreme Court in the case of Rajapalayam Mills Ltd. vs. CIT 1978 CTR (SC) 167 : (1978) 115 ITR 777, observed that s. 84 of the Act and s. 15C of the Indian IT Act, 1922, for all material purposes, are in the same terms. It may be mentioned that s. 84 has been substituted by s. 80J w.e.f. April 1, 1968. As indicated earlier, in Chapter VI-A, s. 80B(5) has been introduced defining the words "gross total income". Along with the introduction of "gross total income", s. 33(2) of the Act relating to unabsorbed development rebate was significantly amended w.e.f. April 1, 1968. The effect of the amendment made in s. 33(2) from April 1, 1968, was that while under the unamended s. 33(2), the deduction for any year on account of development rebate was limited to the assessee's total income of that year as computed without making the deductions for development rebate and development allowance, under the amended s. 33(2), for and from the assessment year 1968-69, the deduction on account of development rebate is limited to the assessee's total income without making the said deductions and also without making any deduction under Chapter VI-A or any deduction on account of annuity deposit under s. 280-O. Sec. 32(2) makes provision for carry forward and set-off of unabsorbed depreciation of a particular year. According to that section, where, in the assessment of the assessee, full effect cannot be given to the depreciation allowance in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of ss. 72(2) and 73(3), the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year. The effect of these provisions is that the unabsorbed depreciation for a particular year becomes, by legal fiction, part of the depreciation allowance for the succeeding year. The unabsorbed depreciation is carried forward and added to the depreciation for the following year. The total amount of depreciation thus arrived at is deemed to be the depreciation of the following year. [CIT vs. Jaipuria China Clay Mines (P) Ltd. (1966) 59 ITR 555 (SC)].;