COMMISSIONER OF Income Tax vs MACMILLAN CO. OF INDIA LTD.

JAYASIMHA BABU, J. :

The question of law arising in these two references being the same, both these matter are disposed by this common order. The question is as to

whether on the facts and in the circumstances of the case the Tribunal was right in holding that the deduction under s. 80QQ should be allowed on

the gross income before setting off of business loss and, not on the net income ? The assessment years in question are 1975-76 and 1976-77.

The assessee-company carries on business of printing, publishing and trading. It maintains separate accounts in respect of printing and publishing

activity on the one hand and trading on the other. Printing and publishing being a priority industry, the assessee was entitled to claim benefit of the

deduction of 20 per cent of the income from its printing and publishing business under s. 80QQ. The AO for the purpose of deciding the amount of

deduction for which the assessee was eligible under s. 80QQ, first set off the trading loss that had been incurred by the assessee in trading

business, against the profit earned by it from the printing and publishing business and after doing so, allowed the benefit under s. 80QQ.

The assessee preferred an appeal against that order contending that the loss that had been suffered in the trading activity could not have been set

off against the profits earned from the printing and publishing business while computing the 20 per cent of the gross total income. The CIT(A)

accepted the plea of the assessee. The Tribunal having agreed with the CIT(A), and the Revenue having pressed for the reference, the question set

out above has been referred for our decision.

The decision of the apex court in the case of H.H. Sir Rama Varma Vs. Commissioner of Income Tax, Kerala, is of materiality for the purpose

of deciding the issue now before us. The apex court held in that case that s. 80AB though inserted w.e.f. 1st April, 1981, was enacted to declare

the law as it always stood in relation to the deductions to be made in respect of income specified in and under the head ""C of Chapter VI-A"".

Sec. 80AB of the Act reads as under :

80AB : Deductions to be made with reference to the income included in the gross total income :

Where any deduction is required to be made or allowed under any section (except s. 80M) included in this Chapter under the heading ""C-

Deductions in respect of certain incomes"" in respect of any income of the specified in that section which is included in the gross total income of the

assessee, then, notwithstanding anything contained in that section, the amount of income of that nature as computed in accordance with 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 included in his gross total income"".

That section applies to deductions to be made or allowed under all the sections under heading ""C""Deductions in respect of certain income.

Chapter VI-A of the Act, including s. 80QQ, but excluding s. 80M.

The manner in which the total gross income is to be calculated is, therefore, governed by the other provisions of the Act including s. 70 Sec. 70

provides for the set off of the loss from one source against the income from another source under the same head of income. In this case, all the

income of the assessee was under the heading namely `business. While the assessee had made profit in business of printing and publishing, it had

suffered a loss in its business of trading. The loss incurred in the latter business is, therefore, required to be set off against the profit earned in the

business of printing and publishing, before arriving at the gross total income of the assessee under the head `business'' The deduction under s.

80QQ was, therefore, required to be made with reference to the gross total income so calculated, and not by excluding the loss suffered in the

trading activity which admittedly was one of the businesses carried on by the assessee.

The learned counsel for the assessee however conteded that the law to be applied is that laid down in the case of CIT vs. Canara Workshop

(P) Ltd. (1986) 58 CTR (SC) 08 : (1987) 161 ITR 320 It was held in that case that for computing the profit for purpose of deductions under s.

80E of the IT Act, 1961, the loss incurred by the assessee in the manufacture of alloy steels (a priority industry) could not be set off against the

profits of the manufacture of another product. The assessment year considered in that case was the year 1966-67. The court, in the course of its

judgment did not refer to s. 80AB of the Act and did not consider the effect of that provision as to whether it was declaratory or not, while that

question was specifically considered by the Supreme Court in the case of H.H. Sir Rama Varma vs. CIT (supra). We are bound by that later

decision and the law declared therein is the law which we are required to apply for determining the extent to which deductions are to be permitted

under several sections in Chapter VI-A excluding s. 80M.

The learned counsel also referred to certain other decisions which it is unnecessary to refer to, having regard to the law laid down in the case of

H.H. Sir Ram Varma (supra).

We may also notice here the judgment of the Constitution Bench of the apex court in the case of Distributors (Baroda) Pvt. Ltd. Vs. Union of

India (UOI) and Others, in which the court while upholding the constitutional validity of s. 80AA also in Chapter VI-A of the IT Act, held that s.

80AA is merely declaratory of the law as it always was since 1st April, 1968. Sec. 80AB similarly must be held to be declaratory of the law as it

always was since 1st April, 1968. It has been so held by the apex court in the case of H.H. Sir Rama Varma.

In the result, the question referred to us is answered in the negative in favour of the Revenue and against the assessee. Revenue shall be entitled

to costs in the sum of Rs. 1,000 (Rupees one thousand only).