LexCAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. versus THE COMMISSIONER OF INCOME TAX, GUJARAT-II AHMEDABAD (AND VICE VERSA)
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660 A CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. B c D v. THE COMMISSIONER OF INCOME TAX, GUJARAT-II AHMEDABAD (AND VICE VERSA) April 11, 1978 [Y. V. CHANDRACHUD, C.J. AND V. D. TULZAP\!RKAR, J.J Income Tax Act, 1961 Sections 32(2), 33(2), 41(2), 72 and SOE(l)- Co1np111atton of tlic 1node in which and the fund fron1 which deduction of 8% under Section SOE(l) is to be 1nade, explained. The assessee company carries on the business of generation and distribution of electricity at Cambay and as such is covered by the provisions of Section SOE(l) and is entitled to claim the deduction contemplated by the said provi- sion. During the accounting period which ended on March 31, 1967 i.e. assessment year 1967·68, the assessee Company earned an income of Rs. 46,319/- from its business. The assessce company had sold some of its old machinery and buildings resulting in balancing charges contemplated by section 41(2) v.1hich worked out to Rs. 7,55,807/-. There were unabsorbed deprecia- tion of Rs. 1,42,955/- and unabsorbed development rebate of Rs. l,11,658/- aggregating to Rs. 2,54,613/- of the earlier years which \Vere required to be set off against the profits of that period. The Income Tax Officer, while com~ pleting the assessment treated the item of Rs. 7,55,807 /- as profits attributable to the business of generation and distribution of electricity and a1lo¥.'ed deduc- tion at 8% thereon under Section 80E(l). The Income Tax Officer. thus com- puted the relief/deduction admissible to the assessee under section 80E(l) at 8% on the amount of Rs. 8,02,126/- ,(46,319+7,55,807). that is to say, on the income without adjusting or setting off the unabsorbed depreciation and development rebate carried forward from the earlier year. In exercise of his revisional powers under section 263 of the Act, the· Additional Commissioner of E Income Tax called for examined the records and took the view that the manner of computing the deduction admissible to the assessee under Section SOE ( 1) was erroneous and prejudicial to the interests of the Revenue, in that the deduc· tion of 8% on the item of profit of Rs. 7,55,807 arising under Section 41(2) had been wrongly allowed and that for the purpose of calculating the deduc- tion of 8%, the items in respect of the unabsorbed depreciation and develop- ment rebate should not have been excluded and that, if proper calculations as suggested by him were made, the assessee was not entitled to any deduction. In F G H the appeal, the Tribunal took the view that the item of Rs. 7,55.807 being profits arising from the sale of old machinery and buildings under S. 41(2) of the Act, could not be treated in isolation or divorced from the profit'! and gains of the business of generation and distribution of electricity done by the assessee~company and that the said item will have to be regarded as profits "attributable to'', though not "derived from" the business of generation and distribution of electricity and, as such, the said item was exigible to the deduc- tion of 8 % under Section SOE( I) of the Act. On the question whether the unabsorbed depreciation and development rebate would be deductible in com- puting the profits under Section 80E of the Act, fo11owing 93 ITR, 115, the Tribunal held that these items could not be deducted in computing the deduc- tion admissible under Section SOE. The Tribunal allowed the appeal and set aside the orders of the Additional Commissioner. By its judgn1ent, dated 11th and 24th of December 1975 disposing of the Reference, the Gujarat High Court upheld the view .of the Tribunal re·garding the item of Rs. 7,55,807/- and answered in favour of the assessee. As to the items of unabsorbed depreciation and development rebate, the High Court held that they \Vere deductible befor€ arriving at the figure that would be exi.dble to the deduction of 8% under Section 80E(1) and. therefore. after deducting the aggregate amount of Rs. 2,54,613 from Rs. 8,02.126, the balance of Rs. 5,47,513 was exigible to the deduction of 8% under the said provision. ' j .. , --\. / ' - • "' l. ~ .. ': ..._.... - > ' - • CAMBAY ELECTRIC SUPPLY V. C.I.T. GUJARAT 661 Both the assessee and the Revenue preferred separate appeals againSt the said A judgment. Dismissing both the appeals, the Court HELD : 1. (a) On true constructioa of the prov1s1on itself, both the Tribunal and the High Court were right in ta
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