BALIA, J. - (1.) HEARD learned counsel for the Revenue.
(2.) NO one has appeared for respondents inspite of service. At the instance of Commissioner of Income Tax, following question of law arising out of ITA No. 52/jp/88 for 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 u/s 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 Sec. 80ab of the Act?" The facts necessary for the present purpose are that the assessee is a partnership firm. For 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 unabsorbed amount of investment allowance of the preceding year from gross income. Against this adjustment of unabsorbed amount of investment allowance, the assessee approached the learned CIT (appeals) contending that deduction under Section 80hh be allowed on the gross total income computed without deduction of unabsorbed amount of investment allowance of the preceding year. The CIT (appeals) did not accept the said contention notwithstanding the decision of the Tribunal to the contrary and placed reliance on Section 80ab inserted by Finance Act No. 2 of 1980 with effect from 1. 4. 81 and held that before computing 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 include 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 percent thereof. Section 80ab clearly postulates that for the purpose of computing deduction under any provision of Chapter VIA, of which Section 80hh is also a part, the amount of income as computed in accordance with 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 gross total income from the business in respect of which deductions under 80hh or for that matter any other provision under Chapter VIA is concerned, it must be computed in accordance with other provision of Act, excluding any provision under Chapter VIA.
(3.) PART D of Chapter IV deals with computation of total income derived from profits and gains of business of an assessee. Section 32 A forms a scheme of provisions meant for computing 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 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 income in accordance with provisions contained in the chapter that income from such industrial undertaking included in 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 provisions of Section 80hh. It may further be noticed that 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 Commissioner of Income Tax vs. Vishnu Oil and Dal Mills (1 ). As a result, the aforesaid question referred by the Tribunal is answered in negative i. e. to say in favour of the Revenue and against the Assessee 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 Income Tax Act including provisions of Sec. 32a relating to the deduction of unabsorbed investment allowance before deduction under Sec. 80hh could be computed. ;