Commissioner Of Income-Tax v. Rambal (P.) Limited.

Ramanujam, J.:— At the instance of the Revenue, the following two questions have been referred to this court for its opinion, as arising out of the order of the Income-tax Appellate Tribunal:

“(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to development rebate at 35% on the value of machinery installed during the relevant previous years?

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduction under section 80-I for the assessment year 1970-71 despite the fact that the total income for that assessment year was determined as ‘nil’ by reason of setting off the carried forward loss and unabsorbed depreciation of the earlier assessment years?”

2. The assessee is a private limited company incorporated on June 16, 1965, and is engaged in the manufacture and sale of bolts, nuts and screws for automobiles and for other machinery.

3. During the accounting years ending with June 30, 1969, and June 30, 1970, it had installed new machinery of the value of Rs. 1,86,189 and Rs. 2,22,369, respectively. It claimed development rebate in respect of such machinery at 35% thereof amounting to Rs. 48,840 for the assessment year 1970-71 and Rs. 77,490 for the assessment year 1971-72 under section 33(1)(b)(B)(i)(a) of the Income-tax Act, 1961. The Income-tax Officer held that the asses-see would be entitled to development rebate on such machinery at the rate of 20% only on the ground that the relevant machinery had been used not only for the production of nuts, bolts and screws for automobiles but also for the production of other machinery. Hence, he allowed development rebate of Rs. 37,238 for the assessment year 1970-71 and Rs. 44,280 for the assessment year 1971-72. The assessee also claimed the benefit of deduction allowable under section 80-I of the Act for the assessment year 1970-71 of a sum of Rs. 4,800 and for the assessment year 1971-72 of a sum of Rs. 29,258. The Income-tax Officer observed that from the accounts maintained by the assessee, it was not possible to separate the income from the manufacture and sale of bolts, nuts and screws for the automobile ancillaries and the income derived from the manufacture and sale of such bolts, nuts and screws for other machinery. Hence, he rejected the claim under section 80-I for the assessment year 1970-71 and he gave an additional reason that since the total income for that year was determined as “nil”, deduction permissible under section 80-I could not be given. Aggrieved by those assessments, the assessee preferred appeals to the Appellate Assistant Commissioner who accepted the assessees' claims for both the assessment years under consideration.

4. Thereupon, the Revenue preferred appeals to the Tribunal. Regarding the claim for allowance of development rebate at 35% on the value of the machinery installed during the relevant two previous years, the Tribunal noticed that a similar claim made by the assessee for the earlier assessment years has been upheld by its decision in ITA Nos. 2755 and 2756 of 1973-74, dated November 14, 1975. Following its own earlier decision, the Tribunal upheld the order of the Appellate Assistant Commissioner upholding the assessee's claim for allowance of development rebate at 35% of the value of the machinery installed during the relevant previous assessment years. Regarding the assessee's claim for deduction under section 80-I, the Tribunal observed that the said section did not provide that the relief thereunder was to be allowed only when the income attributable to the priority industry could be precisely ascertained and that, in any case, it did not bar relief being allowed on such income if it could be reasonably worked out. As for the assessment year 1970-71, the Tribunal disagreed with the reasoning of the Income-tax Officer that as there was no positive income for that year, the relief under section 80-I could not be given, and held that the relief under section 80-I was an independent relief and the deduction permissible thereunder should be made from the business income as computed before setting off the losses pertaining to the earlier years. It is against the decision of the Tribunal that these references had been made.

5. We find that the first question of law stated above is covered by a decision of this court in the assessee's own case in Commissioner Of Income-Tax v. Rambal (P.) Limited., [1980] 123 ITR 130 (Mad) relating to an earlier year which is against the Revenue. Therefore, the decision rendered in the assessee's own case should govern the first question here. Question No. (1) is, therefore, answered against the Revenue.

6. Coming to the second question, it has been found by the Income-tax Officer that the total income for the assessment year 1970-71 as computed under section 80B(5) for the purpose of income-tax is “nil” and this finding of the Income-tax Officer has not been disturbed either by the Appellate Assistant Commissioner or by the Tribunal. The Tribunal which proceeded on the basis that the total income determined is “nil”, however, held against the Revenue proceeding on the basis that the deduction contemplated under Chapter VI-A is independent and, therefore, even if there, is no positive income, deduction contemplated under that Chapter has to be allowed. A similar question came up for consideration before this court in CIT v. Madras Motors (P.) Ltd., [1984] 150 ITR 150 (Mad) (T.C No. 44 of 1977) and this court by its judgment dated August 19, 1983, held, relying upon the provisions of sections 80A and 80A(2) occurring in Chapter VI-A, that having regard to the limitations contained in section 80A(2) if the total income as computed under section 80B(5) is “nil.”, then, no relief could be granted by the other sections in view of the limitations contained in section 80A(2) which says that the aggregate amount of deductions under that Chapter shall not, in any case, exceed the gross total income of the assessee. If the gross total income of the assessee is determined as “nil”, then, there is no question of any deduction being allowed under that Chapter as that will clearly exceed the gross total income of the assessee. In that case, we have answered a similar question in the negative and in favour of the Revenue.

7. Learned counsel for the assessee does not dispute the fact that the said decision in CIT v. Madras Motors (P.) Ltd., [1984] 150 ITR 150 (Mad) (T.C No. 44 of 1977) squarely applies to the facts of this case. However, he would submit that this court has not taken note of the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT, [1979] 118 ITR 243 and also a subsequent decision of this court in CIT v. Katpadi Co-operative Timber Works Ltd., [1982] 135 ITR 287 (Mad) and that having regard to those two decisions, the decision in CIT v. Madras Motors (P.) Ltd., [1984] 150 ITR 150 (Mad) (T.C No. 44 of 1977) requires reconsideration. We have gone through the decision in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC) and we find that in that case, the gross total income as determined under section 80B(5) was a positive figure from which the reliefs under Chapter VI-A can be claimed. Having regard to the fact that the gross total income computed in that case was a positive figure, this court did not go into the question as to the scope and effect of section 80A(2) which puts a limitation on the reliefs to be granted under Chapter VI-A. As a matter of fact, in that case, the Supreme Court has specifically referred to the fact that any relief to be granted under Chapter VI-A should be subject to the limitation contained in section 80A(2). Therefore, the decision of this court in CIT v. Madras Motors (P.) Ltd., [1984] 150 ITR 150 (Mad) (T.C No. 44 of 1977) cannot be said to run counter to the decision of the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT, [1979] 118 ITR 243. But, on the other hand, it gives full effect to the observations of the Supreme Court that the limitation contained in section 80A(2) should be kept in mind while granting the reliefs under Chapter VI-A.

8. In CIT v. Katpadi Co-operative Timber Works Ltd., [1982] 135 ITR 287 (Mad), another Division Bench of this court has granted relief under section 80P on the basis that any deduction under that section will have to be on the gross income and not on the net income. But, we find that in that case, the gross total income as computed under section 80B(5) was a positive figure and, therefore, to that extent possible, relief could be granted and this was done in that case. That case did not deal with the situation where the gross total income as determined under section 80B(5) was “nil”. We do not, therefore, see any reason for reconsidering our decision in CIT v. Madras Motors (P.) Ltd., [1984] 150 ITR 150 (Mad) (T.C No. 44 of 1977). Following the said decision, question No. (2) is answered in the negative and in favour of the Revenue.

9. Learned counsel for the Revenue makes an oral application for grant of leave so far as our answer to the first question is concerned, on the ground that leave has already been granted by the Supreme Court in S.L.P No. 4451 of 1980. Having regard to the fact that leave has already been granted by the Supreme Court, we grant leave to the Revenue for filing an appeal against the answer we have given to question No. (1). No costs.