LexC.I.T (CENTRAL), MADRAS versus CANARA WORKSHOPS (P) LTD., KODIALBALL, MANGALORE
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A ( C.I.T. (CENTRAL), MADRAS v. CANARA WORKSHOPS (P) LTD., B KODIALBALL, MANGALORE JULY 15, 1986 --· [R.S. PATHAK AND SABYASACHI MUKHARJI JJ.] / Income Tax Act, 1961-s. SOE-Profit and gains-Priority in- c dustries-deductions in respect of-how determined. The assessee-company is engaged in the mannfactnre of autombile -4 spares. During the previous year relevant to the assessment year 1966- 67, the assessee also commenced the manufacturing of alloy steels. Both the industries are included in the Fifth Schedule to the Income Tax Act, D 1961. The assessee sustained a loss in the alloys steel industry during the previous years relevant to the assessment years 1966-67 and 1967-6S. It claimed a loss in the sum of Rs.15,30,6SS for the assessment year 1966- 67. For the assessment year 1966-67, the assessee disclosed profits to the tune of Rs.17,57, 129 from the industry of automobile ancillaries. The assessee claimed relief under s. SOE at S% of this amount in the sum of E Rs.1,40,574. Similarly the assessee claimed relief in the sum of Rs. l,52,4S3 for the assessment year 1967-6S. The Income Tax Officer declined to grant the relief claimed and held that the assessee would be entitled to deduction under s. SOE on the profits from the manufacture of automobile parts only after setting off the loss in alloy steel manu- \ facture. The Appellate Assistant Commissioner dismissed the appeal F of the assessee. But on second appeal, the Tribunal accepted the conten- tion of the assessee that a deduction was permissible at S% on the entire r profits of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture and directed the Income-tax Officer to recompute the relief under s. SOE. G In the Reference, on the question whether in computing the pro- fits for the purpose of dedu<tion under s. SOE of the Income-tax Act, \ 1961, the loss incurred in the manufacture of alloy steels should not be set off against the profits of the manufacture of automobile ancillaries, the High Court answered in favour of the assessee and against the H Revenue. I \ -I j - C.l.T. (CENTRAL) v. CANARA WORKSHOPS 167 In the Appeal to this Court, on behalf of the Revenue it was contended that on a true application of s. SOE the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steels. Dismissing the appeal, HELD: t. In the application of s. ·SOE of the Income-tax Act, 196 l the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. [172G I 2. Each industry must be consider~ on its own working only when adjudging its title to the deduction under s. SOE. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. To determine the benefit under s. SOE on the basis of the net result of all the industries owned by the assessee would be, to shift the focus from the industry to the assessee. I 172E-F] Commissioner of Income-tax, Tamil Nadu-111 v. English Electric Company Ltd., [1981] 131ITR 277 overruled. Cambay Electric Supply Industrial Co. Ltd. v. Commia:>ioner of Income-tax, Gujarat-II, [1978] 113 ITR 84 followed. Distributors (Baroda) P. Ltd. v. Union of India & Ors., [1985] 155 ITR 120 inapplicable. Commissioner of Income-tax, West Bengal-II v. Belliss and Marcon (I) Ltd., [1982] 136 ITR 481; and Com_ssioner of Income-tax, Mysore v. Balanoor Tea and Rubber Co. Ltd., [1974] 93 ITR 115 approved. 3. The object underlying the enactment of s. SOE was to encour- age the setting up of industries concerned with the generation or dis- tribution of electrical and other energy and the construction, manu- facture or production of articles or things specified in the list in the Fifth Schedule. By making a provision for a rebate year after year on the industry making profits and gains during the year, the intention also was to provide an incentive for promoting efficiency in the in· dustry. The benefit was directed to the setting up and also the efficient working of the priority industries. [171E-F) A B c D E F G H I 168 SUPREME COURT REPORTS 11986] 3 S.C.R. A 4. The object in enacting s. SOE is properly served only by confin- ~ ing the application of the provisions of that section to the profits
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