The Commissioner of Income Tax vs S.S.C. Shoes Ltd.

N.V. Balasubramanian, J.—The assessee is a company. The assessee claimed deduction u/s 80HHC of the Income Tax Act, 1961

(hereinafter referred to as ''the Act'') for the assessment year 1987-88 and 1988-89. There is no doubt that the assessee was entitled to claim

deduction u/s 80HHC of the Act, but however, the Income Tax Officer, while completing the assessment for the years 1987-88 and 1988-89

restricted the deduction available u/s 80HHC of the Act applying the provisions of sub-section (1) of section 80VVA of the Act. A sum of

Rs.2,04,475/- was not granted to the assessee in respect of deduction admissible u/s 80HHC for the assessment years 1987-88 and 1988-89.

The assessment year with which we are concerned is 1989-90. The assessing officer, in the assessment of the assessee for the assessment year

1989-90, held that the assessee was not entitled to carry forward and set off the deduction u/s 80HHC of the Act relating to the earlier years on

the ground that the deduction cannot be carried forward and his view was also confirmed by the Commissioner of Income Tax (Appeals) holding

that section 80VVA of the Act was omitted from the statute book and therefore the assessee was not entitled to the relief claimed.

The Income Tax Appellate Tribunal, however, took a different view and held that a vested right had accrued to the assessee to carry forward

and set off the relief to which it was entitled during the subsequent assessment years under sub-section (4) of section 80VVA of the Act and

hence, the assessee was entitled to carry forward the relief which was restricted u/s 80VVA(1) of the Act. The Appellate Tribunal, relying upon

the decision of this Court in J.K.K. Angappan Vs. Income Tax Officer, , held that by virtue of section 6 of the General Clauses Act the assessee

was entitled to carry forward the relief though Section 80VVA of the Act was omitted from the statute book. The Appellate Tribunal allowed the

appeal by the assessee.

On the basis of the directions of this Court, the Appellate Tribunal has stated a case and referred the following question of law:

Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in directing the assessing officer to give set off of

deduction u/s 80HHC in the assessment year 1980-90 carried forward from the assessment years 1987-88 and 1988-89 by virtue of the

restrictions imposed by section 80HHC of the Income Tax Act?

We heard Mrs. Pushya Sitharaman, learned senior standing counsel for the Revenue and Mr. George Philip, learned counsel for the assessee.

Section 80HHC of the Act was introduced by the Finance Act, 1983 with effect from 1.4.1984 to curb the expenditure in case of companies

which had paid no tax or paid nominal tax due to absorption of various fiscal incentives and concessions granted to the companies though the

companies were highly profitable companies. The section came to be introduced when it was found that several highly profitable companies were

able to reduce their tax liability to zero though they continued to pay dividend and hence, the restriction was imposed to the effect that the fiscal

incentives and deductions granted under Chapter VI-B of the Act should not exceed 70% of the profits. Section 80VVA(1) has imposed certain

restrictions on the allowability of certain deductions specified in sub-section (2) of that section and the deductions were restricted in the sense that

the deduction was granted to the extent of 70% of the amount of profits as computed under sub-section (2) of section 80VVA of the Act. Section

80VVA(4) of the Act provides that where the deduction was not granted in respect of any provision specified in section 80VVA(2) of the Act, by

virtue of the restrictions, the amount remaining unallowed shall be added to the amount to be allowed in the next financial year and shall be deemed

to be a part of the deduction admissible to the assessee under the said provision for that year. Section 80VVA(4) further provides that the

deduction not allowed shall be added to the deduction for the succeeding assessment years. Section 80VVA was deleted by the Finance Act,

1987 with effect from 1.4.1988 and in its place section 115J of the Act was introduced.

There is no dispute that the assessee was not granted the relief or deduction for a sum of Rs.2,04,475/- in respect of the claim u/s 80HHC of

the Act for the assessment years 1987-88 and 1988-89. Though section 80VVA of the Act was deleted, the effect of sub-section (4) of section

80VVA of the Act is that the unallowed remaining deduction was permitted to be carried forward to the next succeeding assessment year and by

statutory fiction it is deemed to be the deduction for the next following assessment year which means that it is liable to be allowed in that year in

accordance with the provisions of the Act. In other words, the assessee has a statutory right to carry forward the unallowed deduction. The effect

of section 80VVA(4) of the Act is that the unallowed deduction under sub-section (2) of section 80VVA of the Act is taken to be deduction

allowable in the next following assessment year. We are therefore of the view that notwithstanding the deletion of section 80VVA of the Act, the

assessee is entitled to claim the deduction in accordance with law and the deletion of section 80VVA(4) has no effect as the disallowed deduction

is deemed to be a deduction allowable in the next following assessment year.

We therefore hold that the statutory right u/s 80VVA(4) of the Act conferred on the assessee is not taken away by the deletion of section

80VVA from the statute book and the assessee is entitled to claim the deduction, but was disallowed as a deduction, in the next following

assessment year. In other words, a vested right had accrued in favour of the assessee and that right is not taken away either expressly or by

necessary implication by the deletion of section 80VVA of the Act.

The Supreme Court has considered a similar question in Commissioner of Income Tax Vs. Shah Sadiq and Sons, where the Supreme Court

held that the accrued right of the assessee could be taken away expressly or by necessary implication. In that case, the Supreme Court was dealing

with a case of carried forward loss and the Supreme Court held that u/s 6(c) of the General Clauses Act, the assessee had a vested right to carry

forward the loss though the Act was repealed and laid down the principle of law as under:-

... the right of the respondent u/s 24(2) of the 1922 Act to carry forward and set off speculation losses of the assessment years 1960-61 and

1961-62 was an accrued right and a vested right: it could have been taken away expressly or by necessary implication. This had not been done

either by section 75 or by section 297 of the 1961 Act. That vested right was preserved by section 6(c) of the General Clauses Act. The

respondent was, therefore, entitled to the set-off claimed.

Though the Supreme Court was dealing with a case of repeal of an enactment, the principle laid down by the Supreme Court would apply to

carry forward the deduction provided u/s 80VVA(4) of the Act. Hence, we are of the view that it is not necessary to consider the larger question

that section 6 of the General Clauses Act does not apply to the omission of a provision and the omission of a provision is different from ''repeal'' as

held by the Supreme Court in Rayala Corporation (P) Ltd. and M.R. Pratap Vs. Director of Enforcement, New Delhi, and Kolhapur Canesugar

Works Ltd. and Another Vs. Union of India and Others, as the assessee had secured a right to carry forward the unabsorbed deduction deeming

the same as the deduction of the next following assessment year when section 80VVA was in existence and in full force, which was not taken away

by the omission of the provision from the statute book. Following the principle laid down by the Supreme Court, we hold that the Appellate

Tribunal was correct in holding that a vested right had accrued to the assessee to treat the deduction disallowed as a part of deduction for the next

assessment year to be allowed in the computation of total income for the next following assessment year and the assessee is entitled to carry

forward the deduction for the subsequent assessment years, if not allowed, as the deduction disallowed would join the main stream of deduction.

We therefore hold that the Appellate Tribunal has come to the correct conclusion in holding that the assessee was entitled to claim the relief

even though section 80VVA of the Act was omitted from the statute book by the Finance Act, 1987 with effect from 1.4.1988, and there are no

grounds to interfere. Accordingly, the question of law referred to us is answered in the affirmative, against the Revenue and in favour of the

assessee. However, in the circumstances, there will be no order as to costs.