COMMISSIONER OF INCOME TAX vs SUNDARAVEL MATCH INDUSTRIES (P) LTD.

N. V. Balasubramanian J.

At the instance of the revenue , the Appellate Tribunal referred the following two questions of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for our consideration:

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was entitled to the deduction u/s 80HH in respect of the profit earned by the three profit making units without setting off the losses sustained by the other two units?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of subsidy received from SIPCOT should not be reduced from the actual cost of assets for the purpose of allowing depreciation, investment allowance and relief u/s 80j ?"

The assessment year involved is 1981-82. The assessee is engaged in the manufacture of safety matches and other allied products. The assessee claimed relief, u/s 80HH of the Act in respect of the profits earned by three units without setting off the assessee''s loss sustained by the other two units. The Appellate Tribunal held that the assessee is entitled to deduction of the losses from other units (sic). Recently in an unreported judgment in T. C. Nos. 498 of 1983 and 446 of 1986, by our judgment dated 25-2-1998 Commissioner of Income Tax Vs. Macmillan Co. of India Ltd., , we have held that the losses should be set off against the profits of the industrial undertaking before granting the deduction u/s 80HH of the Act, in view of the specific provision found in section 80AB of the Act. In view of the said decision, the Tribunal was not correct in holding that the losses should not be set off and accordingly we answer the first question of law referred to us in the negative and in favour of the revenue .

In so far as the second question is concerned, it is fairly conceded by learned counsel for the revenue that the issue raised in the question is covered against the department by the decision of the Supreme Court in Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., , wherein the Supreme Court held that the amount of subsidy received by the assessee is not deductible from the actual cost of the assets u/s 43(1) of the Act for the purpose of calculation of the depreciation. Following the decision of the Supreme Court, the second question of law referred to us is answered in the affirmative and against the revenue . However, in the circumstances of the case, there will be no order as to costs.