Case: Commissioner Of Income Taxtamil Nadu-V, Madras Vs. Kotagiri Industrial Co-Operativetea Factory Ltd., Kotagiri

of the earlier years as required under Section 72 of the Act 8. In Distributors (Baroda) (P) Ltd. this Court has dealt with the question whether deduction of income by way of dividends under Section 80-M has to be made from the income computed in accordance with the provisions of the Act, i.e., after deducting interest on monies borrowed for earning such income or from total income of dividends without so deducting the interest amount. In the earlier decision in Cloth Traders (P) Ltd. a three Judge Bench of this Court had held that the deduction required to be allowed under Section 80-M must be calculated with reference to the full amount of dividends received from a domestic company and not with reference to the dividend income as computed in accordance with the provisions of the Act, i.e., after making deduction as provided under the Act. In the said decision in Cloth Traders (P) Ltd. the Court did not notice the earlier decision of a two-Judge Bench of the Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT wherein in the context of Section 80-E it was held that for the purpose of allowing deduction under the said provision it was necessary to first compute the total income of the assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except Section 80-E. The decision in Cloth Traders (P) Ltd. has been overruled by the Constitution Bench in Distributors (Baroda) (P) Ltd. wherein it has been observed : (ITR p. 135 : SCC p. 56, para 15) "... The opening words describe the condition which must be fulfilled in order to attract the applicability of the provision contained in sub-section (1) of Section 80-M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. Gross total income is defined in Section 80-B, clause (5) to mean total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under Section 280-D. Income by way of dividends from a domestic company included in the gross total income would therefore obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or in other words forms part of the gross total income, the condition specified in the opening part of sub-section (1) of Section 80-M would be fulfilled and the provision enacted in that sub-section would be attracted." * 9. We are unable to hold that the observations made in the judgment while construing the words "such income by way of dividends" in any way detract from the above-quoted observations inasmuch as this Court has clearly said : (ITR p. 136 : SCC p. 57, para 16) "... It is obvious, as a matter of plain grammar, that the words such income by way of dividends must have reference to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. Consequently, in order to determine which is such income by way of dividends, we have to ask the question what is the income by way of dividends from a domestic company included in the gross total income and that would obviously be the income by way of dividends computed in accordance with the provisions of the Act." * 10. It may also be pointed out that while considering the provisions of Section 80-T of the Act this Court has followed the decision in Distributors (Baroda) (P) Ltd. in H. H. Sir Rama Varma v. CIT. In that case it has been held that a long-term capital loss brought forward from earlier assessment years had to be first set off against the long-term capital gains of the current assessment year before deduction contemplated by Section 80-T of the Act is allowed and the relief under Section 80-T is to be given only for the amount of long-term capital gains of the current assessment year after the long-term capital loss of the earlier years brought forward is set off11. It is no doubt true that the decision of the Madras High Court in CIT v. Venkatachalam (Mad)) has been affirmed in appeal by this Court in CIT v. Venkatachalam. That decision was also given in the context of Section 80-T of the Act. It has been taken note of by this Court in H. H. Sir Ramu Varma v. CIT. B. P. Jeevan Reddy, J. was a party in both these decisions. In Venkatachalam this Court has emphasised that the deduction under Section 80-T had to be made from out of capital gains and no question would arise of the business loss being set off against the amount of capital gains12. Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. and H. H. Sir Rama Varma, it must be held that before considering the matter of deduction under Section 80-P(2) the Income Tax Officer had rightly set off the carried-forward losses of the earlier years in accordance with Section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under Section 80-P(2) and the Appellate Assistant Commissioner as well as the Tribunal and the High Court were in error in taking a contrary view13. The principle of statutory construction invoked by Ms Ramachandran has no application in construing the expression "gross total income" in sub-section (1) of Section 80-P. In view of the express provision defining the said expression in Section 80-B(5) for the purpose of Chapter VI-A, there is no scope for construing the said expression differently in Section 80-P

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. If Section 80-P(1) is read with the definition of the expression "gross total income" contained in Section 80-B(5), it has to be held that for the purpose of making deduction under Section 80-P it is necessary to first determine the gross total income in accordance with the other provisions of the Act. This means that for the purposes of the present case the gross total income must be determined by setting off against the income the business losses of the earlier years as required under Section 72 of theIt may also be pointed out that while considering the provisions of Section 80-T of the Act this Court has followed the decision in Distributors (Baroda) (P) Ltd. in H. H. Sir Rama Varma v. CIT. In that case it has been held that a long-term capital loss brought forward from earlier assessment years had to be first set off against the long-term capital gains of the current assessment year before deduction contemplated by Section 80-T of the Act is allowed and the relief under Section 80-T is to be given only for the amount of long-term capital gains of the current assessment year after the long-term capital loss of the earlier years brought forward is set off11. It is no doubt true that the decision of the Madras High Court in CIT v. Venkatachalam (Mad)) has been affirmed in appeal by this Court in CIT v. Venkatachalam. That decision was also given in the context of Section 80-T of the Act. It has been taken note of by this Court in H. H. Sir Ramu Varma v. CIT. B. P. Jeevan Reddy, J. was a party in both these decisions. In Venkatachalam this Court has emphasised that the deduction under Section 80-T had to be made from out of capital gains and no question would arise of the business loss being set off against the amount of capital gains12. Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. and H. H. Sir Rama Varma, it must be held that before considering the matter of deduction under Section 80-P(2) the Income Tax Officer had rightly set off the carried-forward losses of the earlier years in accordance with Section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under Section 80-P(2) and the Appellate Assistant Commissioner as well as the Tribunal and the High Court were in error in taking a contrary view13. The principle of statutory construction invoked by Ms Ramachandran has no application in construing the expression "gross total income" in sub-section (1) of Section 80-P. In view of the express provision defining the said expression in Section 80-B(5) for the purpose of Chapter VI-A, there is no scope for construing the said expression differently in Section 80-P