Ajit K.Sengupta, J. - (1.) At the instance of the Commissioner of Income-tax, West Bengal. VI, the following question of law for the assessment year 1971-72 has been referred to this court under Section 256(1) of the Income-tax Act, 1961 : "Whether, oh the facts and in the circumstances of the case and having regard to -the fact that the original assessment was completed on March 22, 1974, the Tribunal was justified in law in directing the Income-tax Officer to allow deductions under Sections 80-I and 80J of the Income-tax Act, 1961, on the basis of the assessee's claim for such deductions made in its letter dated February 8, 1979, in the course of the reassessment proceedings pending in terms of the Tribunal's Order in ITA No. 2971/Cal/74-75 dated June 11, 1976."
(2.) In our view, the question has to be refrained as follows : "Whether, on the facts and in the circumstances of the case and having regard to the fact that the original assessment was completed on March 22, 1974, the Tribunal was justified in law in directing the Income-tax Officer to allow deduction under Section 80J of the Income-tax Act, 1961, on the basis of the assessee's claim for such deduction made in its letter dated February 8, 1979, in the course of the reassessment proceedings."
(3.) The dispute in this reference related to the assessee's claim for relief under Sections 80J and 80-I of the Income-tax Act, 1961. There was no specific discussion in the order of the Income-tax Officer but in the appellate order passed by the Commissioner of Income-tax (Appeals), it was noticed that, in his instructions under Section 144B, the Inspecting Assistant Commissioner had directed that the assessee had not made any claim in the return or in the computation of its income and hence there was no scope for entertaining this ground. Before the Commissioner of Income-tax (Appeals), it was argued that, in the reassessment proceedings taken in pursuance of the appellate order passed by the Appellate Assistant Commissioner, the assessee had claimed this relief in its letter dated February 8, 1979. The Commissioner of Income-tax (Appeals), however, rejected this claim on the ground that by the Finance (No. 2) Act, 1980, a new Subsection 80AA had been inserted with retrospective effect from April 1, 1968, according to which, for the purpose of computing the deductions under Chapter VI of the Income-tax Act, the amount of income which had to be computed in accordance with the provisions of this Act shall be deemed to be the amount of income of that nature in respect of which deduction is to be allowed. Thus, for purpose of deduction under Sections 80J and 80-I, only the income of the new industrial undertaking was to be taken into account. Considering the assessee's losses up to the year 1969-70 as well as the unabsorbed depreciation and unabsorbed development rebate admissible in respect of the new industrial undertaking for which the deductions under Section 80J and 80-I were claimed, the Supreme Court decision in the case of Rajapalayam Mills Ltd. v. CIT was no longer applicable because of the amended provision. He, therefore, rejected the assessee's contention holding the claim only to be of academic interest inasmuch as no deduction would be available. On second appeal before the Tribunal, the. Bench directed that the matter be restored to the Income-tax Officer for making all necessary deductions in view of the principles laid down in the case of Rajapalayam Milts Ltd. with the following observations : "There is no discussion in the order of the Income-tax Officer in this behalf and the Commissioner of Income-tax (Appeals) has noticed that in his instructions under Section 144B, the Inspecting Assistant Commissioner had mentioned that the assessee had not made any claim in the return or in the computation of income and hence there was no scope for entertaining this ground. It was argued before the Commissioner of Income-tax (Appeals) that the assessee had made the claim by its letter dated February 8, 1979, in which complete details of the old and new industrial undertakings are mentioned. Paragraph 7 of the letter further shows that the benefit of these reliefs was not claimed earlier because there was no prospect of carry forward of loss under Section 80J(3). It was further claimed before the Income-tax Officer that, in view of the Supreme Court decision in the case of Rajapalayam Mills Ltd. v. CIT , the deficiency in the new business could be set off against the profits of the old business and no separate computation with retrospective effect of the depreciation and development rebate was necessary for estimating the profits from the new industrial undertaking. The assessee had further pleaded that the profits be apportioned between the new and the old business according to the capital employed and turnover. The Commissioner of Income-tax (Appeals), however, summarily rejected this contention because of the Finance (No. 2) Act, 1980, by which a new Subsection 80AA had been inserted with effect from April 1, 1968, according to which, for the purpose of computing the deductions under Chapter VI of the Income-tax Act, the amount of income has to be computed in accordance with the provisions of the Act and for the purpose of deductions under Sections 80J and 80-I, only the income of the new industrial undertaking is to be taken into account for the purpose of deduction under this section. According to him, considering the assessed losses up to the assessment year 1969-70 as well as unabsorbed depreciation and development rebate in respect of the new industrial unit, there, would be no income in any of the years for the new industrial undertaking over which the deductions under Sections 80J and 80-I could be allowed. In view of this amended provision, he declined to go into the assessee's claim. We are afraid that, here, the Commissioner of Income-tax (Appeals) has not appreciated the position correctly. Section 80AA only refers to deduction under Section 80M which deals with deductions out of dividends from a domestic company and it is only when the income from such dividends is included in the grods total income of the assessee and a deduction claimed under Section 80M, that deduction has now to be computed with reference to the income by way of such dividends as are computed in accordance with the provisions of this Act, before making any deduction under this Chapter and not with reference to the gross amount of such dividends. A perusal of the Memo explaining the provisions of the Finance Bill, 1980, would show that the intention behind this provision was that the Supreme Court had recently held that the deduction admissible for intercorporate dividends have to be calculated with reference to the gross amount of dividends received by a domestic company from an Indian company and not with reference to the dividend income as computed in accordance with the provisions of the Income-tax Act. Though in para 8 of the memo, there is a reference to other sections as well, the language of Section 80AA is quite clear and refers only to deductions under Section 80M which deals with intercorporate dividends only. In the present case, there is no question of claiming any deduction under Section 80M, The reliefs sought to be claimed were under Sections 80-I and 80J and Section 80AA does not refer to those reliefs. The decision of the Supreme Court in Rajapalayam Mills Ltd.'s case [1978] 115 ITR 777, therefore, remains good law. This ground of appeal is, therefore, entitled to succeed.";