Commissioner of Income Tax vs Cadila Chemicals Pvt. Ltd.

M.S. Shah, J.—This reference is at the instance of the Revenue. The following questions have been referred for the opinion of this court in respect of the assessment year 1983-84 :

"1. Whether, the Appellate Tribunal is right in law and on facts in holding that the subsidy amount should not be deducted from the cost of plant and machinery for allowing depreciation, investment allowance and for computation of capital employed u/s 80J of the Income Tax Act, 1961? 2. Whether, the Appellate Tribunal is right in law and on facts in holding that for working out relief u/s 80HH of the Act, initial depreciation has not to be deducted from the profits of the company?"

We have heard Mr. M.R. Bhatt, the learned counsel for the Revenue. Though served, none appears as for the respondent assessee.

At the hearing of this reference, the learned counsel for the Revenue fairly states that the controversy raised in question No. 1 is covered in favour of the assessee by the decision of the apex court in Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., . Since the subsidy in question was a general subsidy for establishing industry in backward area, in view of the aforesaid decision of the apex court our answer to question No. 1 is in the affirmative, i.e., in favour of the assessee and against the Revenue.

Coming to question No. 2, the learned counsel for the Revenue relies on the decision of this court in Paushak Ltd. Vs. Commissioner of Income Tax, , wherein this court relied on the decision of the apex court in the case of Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, and Commissioner of Income Tax, Gujarat Vs. Gautam Sarabhai, , holding that unabsorbed losses and unabsorbed depreciation have to be deducted before arriving at the figures that would be quantified for the purpose of deduction u/s 80HH of the Income Tax Act, 1961. We may also add that with effect from April 1, 1989, Parliament inserted Section 80AB laying down that where any deduction is required to be made or allowed under any section in Chapter VI-A under the heading "Deductions in respect of certain incomes", then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed under the provisions of this Act (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 includible in the gross total income meaning thereby depreciation will have to be deducted before making any deduction u/s 80HH.

In view of the aforesaid decision, our answer to question No. 2 is in the affirmative, i.e., in favour of the Revenue and against the assessee.

The reference stands disposed of accordingly with no order as to costs.