- (1.) HEARD learned counsel for the Revenue.
(2.) NO one has appeared for the respondents in spite of service. At the instance of the Commissioner of Income-tax, the following question of law arising out of I. T. A. No. 52/JP of 1988, for the assessment year 1983-84 has been referred to this court for its opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deduction under Section 80HH of the Act should be allowed to the assessee on commercial profits before allowing deduction of unabsorbed investment allowance of preceding year in view of the provisions of Section 80AB of the Act ?" The facts necessary for the present purpose are that the assessee is a partnership firm. For the assessment year 1983-84, the assessee-firm claimed deduction under Section 80HH in respect of profits and gains from newly established undertaking in backward area. The Income-tax Officer accepted its claim, but while working out the quantum of deduction as claimed by the assessee, he deducted the unabsorbed amount of investment allowance of the preceding year from gross income. Against this adjustment of unabsorbed amount of investment allowance, the asses-see approached the learned Commissioner of Income-tax (Appeals) contending; that deduction under Section 80HH be allowed on the gross total income computed without deduction of the unabsorbed amount of investment allowance of the preceding year. The Commissioner of Income-tax (Appeals) did not accept the said contention notwithstanding the decision of the Tribunal to the contrary and placed reliance on Section 80AB inserted by the Finance (No. 2) Act of 1980, with effect from April 1, 1981, and held that before computing the gross total income of the year under consideration, any deduction for unabsorbed amount of investment allowance as per Section 32A is to be allowed first before any deduction under Section 80HH can be allowed. However, on second appeal, the Tribunal, following its own earlier decision in the similar matter, held that deduction under Section 80HH should be allowed on commercial profits before deduction of unabsorbed investment allowance of the preceding year. To us the answer be in favour of the applicant Revenue. The deduction claimed is under Section 80HH, which envisages that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof. Section 80AB clearly postulates that for the purpose of computing the deduction under any provision of Chapter VI-A, of which Section 80HH is also a part, the amount of income as computed in accordance with the provisions of the Income-tax Act, 1961, before making any deduction under this Chapter shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. Thus, for the purpose of computing the gross total income from the business in respect of which deductions under Section 80HH or for that matter any other provision under Chapter VI-A is concerned, it must be computed in accordance with other provision of the Act, excluding any provision under Chapter VI-A.
(3.) PART D of Chapter IV deals with computation of total income derived from profits and gains of business of an assessee. Section 32A forms a scheme of provisions meant for computing the income from business or profession of an assessee under PART D of Chapter IV. Section 32A deals with deduction of amount of investment allowance to be made in computing the profits and gains of business. That, inter alia, also provides that for carry forward of unabsorbed investment allowance, if any, remaining after making deduction in any particular year to be set off against the profit and loss of subsequent year. Therefore, in order to compute profits and loss of income from an industrial undertaking to which Section 80HH applies, the provisions of PART D of Chapter IV has to be first 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 can be found out. Obviously, the Tribunal has not computed the income from industrial undertaking in accordance with the provisions of PART D of Chapter IV of the Income-tax Act before applying the provisions of Section 80HH. It may further be noticed that the entire income was claimed to be income from industrial undertaking to which Section 80HH applied. We are supported by the decision in the case of CIT v. Vishnu Oil and Dal Mills |1996] 218 ITR 71 (Raj) and CIT v. Sun Stone Engineering Industries P. Ltd. [1996] 220 ITR 182 (Raj). As a result, the aforesaid question referred by the Tribunal is answered in the negative, i.e., to say, in favour of the Revenue and against the asses-see, by holding that deduction under Section 80HH of the Act can be allowed to the assessee only on such profits and gains of an industrial undertaking which are computed in accordance with the Income-tax Act including the provisions of Section 32A relating to the deduction of unabsorbed investment allowance before deduction under Section 80HH could be computed. ;