The Judgment of the Court was delivered by

Ajit K. Sengupta, J.:— At the instance of the Commissioner of Income-tax, the following questions of law have been referred to this court under s. 256(1) of the I.T Act, 1961, for the assessment years 1969–70, 1970–71 and 1971–72.

“(1) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of section 80B(5), section 80A(2) and other relevant provisions of the Income-tax Act, 1961, the Tribunal was correct in holding that setting off of the current year's losses and carried forward losses of the earlier years against the current year's income under sections 71 and 72 of the said Act was not part of the computation of total income and deductions under sections 80L and 80M should be allowed even if the net result after such setting off was a negative figure?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in annulling the orders of the Income-tax Officer under section 154 of the Income-tax Act, 1961, in the view that there was no mistake apparent from the record in the earlier orders granting relief under sections 80L and 80M of the said Act?”

2. The facts which are admitted and/or found by the Tribunal and incorporated in the statement of the case are stated hereunder:

The assessee is a shipping company. Besides income from shipping business, it derives income by way of dividends and also interest on securities. In the original orders of assessment for the three assessment years under reference, the ITO did not allow the relief claimed by the assessee under s. 80L and s. 80M of the I.T Act, 1961. Later, the ITO passed orders suo motu granting relief under ss. 80L and 80M of the Act. Later, by another set of orders, he purported to rectify under s. 154 of the Act, the earlier orders allowing relief under s. 80L and s. 80M. By those subsequent orders, the ITO had withdrawn the relief granted earlier under the aforesaid sections in the view that the granting of relief thereunder was a mistake apparent from the record.

3. Aggrieved by the action of the ITO in withdrawing the reliefs granted under ss. 80L and 80M, the assessee company preferred appeals before the AAC, who disposed of the appeals for all the three years under consideration by a consolidated order. He agreed with the view of the ITO that setting off the business loss of the current year and also the carried forward business losses of the earlier years against the current year's income from other sources formed part of the process of the computation of total income and the total income was what remained after such setting off. He also agreed with the view that in view of s. 80A(2) of the Act, no deduction under ss. SOL and 80M of the Act was allowable where the total income was a negative figure. Not having obtained relief from the A AC, the assessee company preferred appeals before the Tribunal for the three years under reference and the Tribunal disposed of all those appeals by a consolidated order. The Tribunal after considering the rival contentions and two decisions—one of the Kerala High Court in the case of Indian Transjormers Ltd. v. CIT, [1972] 86 ITR 192 and the other of the Mysore High Court in the case of CIT v. Balanoor Tea and Rubber Co. Ltd., [1974] 93 ITR 115— followed the order dated April 23, 1984, in the case of Aditya Investments Pvt. Ltd., where the Tribunal held as follows:

“The aforesaid two rulings, one of the Kerala High Court and the other of the Mysore High Court, are authorities for the proposition that the deduction contemplated by one or the other of the sections in Chapter VI-A goes into the computation of the total income, that the set-off under section 71 or under section 72 is not part of the process of computation of total income and that such a set-off is something to be made after the computation of the total income. We, therefore, uphold the contention of the assessee company that the deduction under section 80M should be made in computing the total income and that after the tstal income is so computed, the set off under s. 71 should be made. The authorities below erred in setting off, in the first instance, the loss sustained in the business against the income sustained from the other two sources (house property and dividends) and treating the resulting balance as the gross total income and also the total income of the assessee for the purpose of application of section 80M and section 80A(2) of the Act. We, therefore, direct the Income-tax Officer to recompute the total income of the assessee by granting in the first instance, the deduction contemplated by section 80M in computing such total income and to set off the business loss under s. 71 against the total income as thus computed.”

4. The Tribunal, therefore, upheld the contentions of the assessee and held that the deductions under s. 80M were rightly granted by the ITO for the assessment years under consideration and the subsequent orders passed by the ITO under s. 154 withdrawing such deductions are erroneous and unsustainable.

5. It has been contended by Dr. Pal that the question whether the relief under ss. 80L and 80M should be allowed even if the income is a negative figure after setting off of the loss is a debatable question on which two views are possible and, therefore, such a mistake is not rectifiable under s. 154 of the Act. He has relied on several decisions of this court in support of his contention. The first decision relied on is in the case of Commissioner Of Income-Tax v. Ellenbarrie Tea Company Ltd., [1984] 146 ITR 617 (Cal). There, in the original assessment, the ITO allowed the deduction as claimed by the assessee under s. 80M in respect of certain dividend income received by the assessee. Subsequently, the ITO was of the view that since the total income of the assessee was determined at a loss figure, the assessee was not entitled to deduction under s. 80M in respect of the dividend income received by it. The ITO, therefore, passed an order under s. 154 of the Act and withdrew the deduction granted to the assessee under s. 80M of the Act. The AAC upheld the action of the ITO. The Tribunal, however, relying on the Supreme Court decision in the case of Balaram, ITO v. Volhart Brothers, [1971] 82 ITR 50, cancelled the order made by the ITO under s. 154 of the Act. On a reference, this court held as follows (p. 619):

“The question in the instant case is whether the relief under s. 80M should be given before or after the deduction of the depreciation of the past years as claimed by the assessee ? There is a possibility of two views in respect of this matter and hence it cannot be said that there is a mistake apparent on the face of the record which can be rectified under s. 154 of the Act. In the case of National Engineering Industries Ltd. v. CIT, [1978] 113 ITR 252 (Cal), cited at the Bar, it appears that the question of carrying over of losses and/or depreciation and/or development rebate from previous years was left open. This is also not a case under s. 154.”

6. Dr. Pal has also relied on a judgment of this court in the case of Jiya-jeerao Cotton Mills Ltd. v. ITO, [1981] 130 ITR 710 (Cal). In that case, the ITO rectified the assessments under ss. 154/155 of the Act. The assessee derived profits from three industries, one of which qualified for the special rebate under Para. F of Part I of Schedule I to the Finance Act, 1965, for the assessment year 1966–67. In granting the special rebate, the ITO computed the profits and gains attributable to that industry without deducting development rebate granted to the appellant. Thereafter, the ITO sought to rectify the mistake under s. 154 of the I.T Act, 1961, by recomputing the profits by deducting the development rebate. The appellant filed a writ petition for quashing the notice of rectification and a single judge of the High Court dismissed the petition. On appeal, the Division Bench held (p. 731):

“It is not in dispute that s. 80E of the I.T Act, 1961, is in pari materia with Para. F of Pt. I of the First Schedule to the Finance Act, 1965, the correct interpretation whereof was laid down by the Supreme Court in Cambay Electric Supply's case, [1978] 113 ITR 84 and, therefore, the profits and gains attributable to the business of manufacture or production of the articles or things specified in Part III of the First Schedule to the Finance Act, 1965, here, soda ash, which qualified for the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, could not be gross or commercial profits or gains but were the net or taxable profits or gains computed after allowing all allowable deductions and rebates including the development rebate but without allowing the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965. We are unable to accept the contention of Mr. Bajoria that the said profits or gains were the gross or commercial profits and not the net or taxable profits.

In view of the decision of the Supreme Court in Cambay Electric Supply, [1978] 113 ITR 84, it cannot now be disputed any more that in computing the said profits and gains of Saurashtra Chemicals for allowing the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, the ITO was wrong in not deducting the development rebate allowed to Saurashtra Chemicals. Even though that was a mistake committed by the ITO but still the question remains whether that was a mistake apparent from the record rectifiable under s. 154 of the I.T Act, 1961. The answer to the question would depend on whether at the material time the question was a debatable one or for resolving the question, it required investigation or elaborate arguments on facts or law.”

7. The Division Bench thereafter considered that in Cambay Electric Supply, [1976] 104 ITR 744 (Guj), the Tribunal set aside the order of the Additional Commissioner and restored the order of the ITO holding that the development rebate was not deductible from the income for allowance of the deduction under s. 80E-On a reference, the Gujarat High Court upheld the view of the Additional Commissioner and held that in allowing the deduction under s. 80E, the taxable profit had to be computed and thus the development rebate allowable had to be deducted from the income. The Division Bench observed as follows (p. 732 of 130 ITR):

“Thus, it could not be said that on a plain reading of the section, it was not possible to come to any other view or to give it any other meaning than that ultimately laid down by the Supreme Court. The case of Cambay Electric Supply Co., [1978] 113 ITR 84 clearly shows that there was a good deal of debate on the question of interpretation of s. 80E and different views were taken by the income-tax authorities, the Tribunal and also by the High Court.”

8. The next decision cited by Dr. Pal is in the case of CIT v. Orient Paper Mills Ltd., [1983] 139 ITR 763 (Cal). It was held in that case that an assessee is entitled to relief under s. 80-1 of the Act (before it was deleted by the Finance Act, 1972), on the profits of the priority industry before setting off of the unabsorbed development rebate of the priority industry itself.

9. This court, after considering the provision of s. 80B(5) and s. 80-1 and after considering the various decisions, observed as follows (p. 790);

“It is important in this connection to remember that the Legislature has used the expression ‘profits and gains’ and not the total income of the priority industry or gross total income’ of the priority industry advisedly. It is in this background that the Supreme Court's later decision in the case of Cloth Traders (P.) Ltd. v. Addl. CIT, [1979] 118 ITR 243, understood the meaning of this expression. We have now the declared pronouncement of the Supreme Court at p. 260 of the said report that whenever the sections in that Chapter, namely, Chap. VI-A, used the expression ‘where the gross total income of an assessee…………………includes any income………’, these sections meant that the deduction admissible was in respect of the whole of the income received by the assessee and not in respect of the income computed after making the deductions provided under the Act. That is how the Legislature also in enacting the Finance (No. 2) Act, 1980, understood the effect of the decision of the Supreme Court. That is how they have tried to alter the law by the provisions of ss. 80AA and 80AB by the Finance (No. 2) Act, 1980, as we have set out hereinbefore. Therefore, in our opinion, on the ratio of the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT, [1979] 118 ITR 243, as to the relevant assessment year with which we are concerned, the assessee was entitled to a deduction of 8 per cent, as contemplated by s. 80E(1) without a deduction of the unabsorbed depreciation and development rebate in the priority industry.

In this connection, it appears to us that in so far as the effect of the expression as mentioned by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. Cit , there is some apparent conflict with the subsequent “decision” (sic) of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT.”

10. Dr. Pal on the strength of the aforesaid decisions sought to contend that the question is not free from doubt and accordingly the provisions of s. 154 of the Act cannot be applied to the facts and circumstances of this case.

11. On the other hand, reliance has been placed by the counsel for the Revenue in the case of CIT v. Mcleod & Co. Ltd., [1982] 134 ITR 674 (Cal), where this court was concerned with identical questions. In that case, the following two questions were referred to this court (at p. 675):

“1. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of section 2(45), section 80B(5) and section 80A(2) of the Income-tax Act, 1961, the Tribunal was correct in holding that the deduction under section 80M of the said Act should be calculated with reference to the total income and gross total income as they stood before setting off the losses under section 71 or section 72 of the Act?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the mistake, if any, in the allowance of relief under section 80M in the original assessment orders was not a mistake apparent from the record that could be corrected under section 154?”

12. There, this court answered both the aforesaid questions in the negative and in favour of the Revenue. So far as the first question is concerned, this court held that in view of the ratio of the decision in the case of National Engineering Industries Ltd. v. CIT, [1978] 113 ITR 252 (Cal) and the ratio of the decision in the case of Cloth Traders (P) Ltd. v. Addl. CIT, [1979] 118 ITR 243 (SC), the deduction under s. 80M is to be made after the setting off of the losses under s. 71 and s. 72 of the Act.

13. So far as the second question is concerned, this court considered the decision of the Supreme Court in the case of (1) Cambay Electric Supply Industrial Co. Ltd. v. Cit , [1978] 113 ITR 84 (SC), (2) the decision of the Calcutta High Court in the case of National Engineering Industries Limited v. CIT, [1978] 113 ITR 252 (Cal), (3) the decision of the Supreme Court in the case of Cloth Traders (P) Ltd. v. Addl. CIT, [1979] 118 ITR 243 (SC) and the decision of the Supreme Court in the case of Rajapalayam Mills Ltd v. Commissioner Of Income Tax, Madras, [1978] 115 ITR 777 (SC) and held thus (p. 677):

“Where, by misreading a section which is clear, a different view was taken and it was held that if a wrong view was taken and at least a wrong calculation was made, then it would certainly come within the purview of s. 154 as a mistake apparent on the face of the record. See, in this connection, the observation of this High Court in the case of ITO v. Raleigh Investment Co. Ltd., [1976] 102 ITR 616 at p. 621. In view of the clear provisions of s. 80A, sub-s. (1), read with sub-s. (2), in our opinion, there was a clear mistake apparent from the record and, therefore, the Tribunal was not right on this aspect of the matter and in the view it took.

In the premises, question No. 2 is answered in the negative and in favour of the Revenue.”

14. We have considered the rival submissions. In Ellenbarrie Tea Company Ltd., [1984] 146 ITR 617 (Cal), the question was whether the relief under s. 80M should be allowed before or after the deduction of the depreciation of the past years. In that case, the attention of the court was not drawn to the earlier decision in the case of Mcleod & Company Ltd., [1982] 134 ITR 674 (Cal). None of the decisions of the Supreme Court relied on in the case of Mcleod & Company Ltd. was cited before the court which decided the case of Ellenbarrie Tea Company Ltd. In Mcleod & Company Ltd., the question was whether the deduction under s. 80M should be allowed after setting off the losses under ss. 71 and 72 of the Act. It was held that the deduction under s. 80M is to be allowed after setting off the losses under ss. 71 and 72. Section 80A(2) limits the aggregate of the deduction allowable under ss. 80C to 80VV to the amount of the gross total income of the assessee. In other words, the deduction allowable cannot result in a negative figure of loss. Where the gross total income is found to be a net loss, there is no question of any further deduction under s. 80M. The consistent view taken by this court is that the provisions of s. 80A are clear and no deduction can be allowed if the result after setting off of losses is a negative figure. This view taken by this court in the case of National Engineering Industries Ltd., [1978] 113 ITR 252 (Cal) and Mcleod & Company Ltd., [1982] 134 ITR 674 (Cal) is supported by the decisions of the Supreme Court in the case of Cambay Electric Supply Industrial Company Ltd., [1978] 113 ITR 84 (SC), Cloth Traders (P) Ltd., [1979] 118 ITR 243 (SC) and Rajapalayam Mills Ltd., [1978] 115 ITR 777 (SC). A mistake in the allowance of relief under ss. 80L and 80M made because of the misreading of s. 80A would be a mistake apparent from the record and such a mistake can be rectified under s. 154 of the Act. In that view of the matter, we answer the questions in the negative and in favour of the Revenue. There will be no order as to costs.

Dipak Kumar Sen, J.:— I agree.