Commissioner of Income Tax vs Macmillan Co. of India Ltd.

R. Jayasimha Babu, J.—The question of law arising in these two references being the same, both these matters are disposed of by this

common order. The question is as to whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the

deduction u/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 the 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 the

benefit of the deduction of 20 per cent, of the income from its printing and publishing business u/s 80QQ, The Assessing Officer for the purpose of

deciding the amount of deduction for which the assessee was eligible u/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 u/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

Commissioner accepted the plea of the assessee. The Tribunal having agreed with the Commissioner 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 Section 80AB though inserted with effect from April 1, 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 head ""C"" of

Chapter VI-A.

Section 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 Section 80M) included in this Chapter under the heading ''C--Deductions in respect of certain incomes'' in

respect of any income of the nature specified in that section which is included in the gross total income of the assessee, 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

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 the heading ""C.--Deductions in respect of certain income

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

The manner in which the gross total income is to be calculated is governed by the other provisions of the Act including Section 70. Section 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 ""Business"". While the assessee had made profit in its 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 u/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.

Learned counsel for the assessee, however, contended that the law to be applied is that laid down in the case of Commissioner of Income Tax

(Central), Madras Vs. Canara Workshops (P) Ltd., Kodialball, Mangalore, . It was held in that case that for computing the profits for the purpose

of deductions u/s 80E of the Income Tax 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 Section 80AB of the Act and did not consider the effect of that provision as to whether it was

declaratory or not, while the question was specifically considered by the Supreme Court in the case of H.H. Sir Rama Varma Vs. Commissioner

of Income Tax, Kerala, . We are bound by that latter 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 VIA excluding Section 80M.

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 Rama Varma Vs. Commissioner of Income Tax, Kerala, .

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 Section 80AB also in Chapter VIA of the Income Tax Act,

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

declaratory of the law as it always was since April 1, 1981. It has been so held by the apex court in the case of H.H. Sir Rama Varma Vs.

Commissioner of Income Tax, Kerala, .

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

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