Motilal Pesticides (India) Pvt. Ltd. v. Commissioner Of Income-Tax.

B.N Kirpal, J.:— This is a reference under section 256(1) of the Income-tax Act, 1961, and pertains to the interpretation of section 80HH of the said Act.

2. The assessee is a private limited company and it carries on the business of manufacture and sale of pesticides.

3. The assessment years involved in this case are 1979–80 and 1980–81.

4. The assessee claimed relief under section 80HH in respect of its liquid section which had been newly set up in a backward area. The contention of the assessee was that the relief should be allowed on the gross income and not on the net income. In this connection reliance was placed by the assessee on the decision of the Supreme Court in the case of Cloth Traders (P) Ltd. v. Additional Cit, Gujarat-I, [1979] 118 ITR 243.

5. The Income-tax Officer followed an earlier decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. Cit , [1978] 113 ITR 84 and came to the conclusion that relief could be granted under section 80HH only on the net income of the liquid section. This decision was upheld by the Commissioner of Income-tax (Appeals) and also by the Income-tax Tribunal. After the decision of the Tribunal an application under section 256(1) was filed and the Tribunal has stated the case and referred the following question to this court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction under section 80HH of the Income-tax Act, 1961, on the gross profit of Rs. 34,30,035 (liquid section) but on the net income therefrom, for the assessment year 1979–80?”

6. The contention of learned counsel for the assessee before us is that the law before the introduction of section 80AB was that deduction had to be allowed on the basis of the gross income and not on the net income. It is submitted by Shri Bhatnagar that section 80AB has been inserted with effect from April 1, 1981, and the said provision does not apply and this court should follow the decision of the Supreme Court in the case of Cloth Traders, [1979] 118 ITR 243 and allow deduction on the basis of the gross income.

7. Learned counsel for the assessee also relies upon the decisions in Addl. CIT v. Isthmian India Maritime P. Ltd., [1978] 113 ITR 570 (Mad); Addl. Commissioner Of Income-Tax, Delhi-I v. Seth Vineet Virmani, [1983] 141 ITR 595 (Delhi); Dr. T. Ramadas M. Pai v. CIT (No. 2), [1978] 115 ITR 883 (Kar); CIT v. B.M Grover, [1978] 115 ITR 885 (Bom) and CIT v. Advance Insurance Co. Ltd., [1979] 119 ITR 660 (Bom). In all these cases the High Courts had followed the decision of the Supreme Court in the case of Cloth Traders' [1979] 118 ITR 243 and come to the conclusion that deduction was to be granted on the basis of gross income and not on the net income.

8. It is not necessary to discuss or consider the aforesaid decisions in any great detail for the simple reason that the decision of the Supreme Court in Cloth Traders' case, [1979] 118 ITR 243, has been overruled by a Constitution Bench of that court in the case of Distributors (Baroda) P. Ltd. v. Union of India, [1985] 155 ITR 120. It was held by the Supreme Court while dealing with the claim for deduction under section 80M that deduction was to be granted to the assessee only on the net dividend income and not gross dividend income. The Supreme Court expressly overruled its earlier decision in Cloth Traders' case, [1979] 118 ITR 243 (SC) and, by necessary implication, it must follow that the decisions of various High Courts, referred to above, can no longer be regarded as good law.

9. The Supreme Court in Cit v. P.K Jhaveri, [1990] 181 ITR 79, once again reiterated and followed its earlier decisions in the cases of Cambay Electric Supply Industrial Co. Ltd., [1978] 113 ITR 84 (SC), and Distributors (Baroda), [1985] 155 ITR 120 (SC), while dealing with the claim for deduction under section 80K of the said Act.

10. The provisions of sections 80M, 80K and 80HH, with which we are concerned in the present case, are more or less identical. Section 80HH has to be read along with the provisions of section 80B(5) which defines gross total income as meaning the total income computed in accordance with the provisions of the Income-tax Act, before making any deduction under Chapter VI-A. The ratio of the decisions in Distributors (Baroda)'s case, [1985] 155 ITR 120 (SC), P.K Jhaveri's case, [1990] 181 ITR 79 (SC) and Cambay Electric Supply Industrial Co.'s case, [1978] 113 ITR 84 (SC), being clearly applicable, as the said sections are more or less similarly worded, our answer to the question referred can only be in the affirmative and in favour of the Revenue. Ordered accordingly.

11. There will be no order as to costs.