Law: Income Tax Act, 1961

Section: 80HH,80AA,80AB

Law: Income Tax Act, 1961

Section: 80HH,80AA,80AB

Section 80HH, read with sections 80AA and 80AB, of the Income-tax Act, 1961 - Deductions - Profits and gains from hotels/industries in backward areas - Assessment years 1979-80 and 1980-81 - Whether section 80AB was enacted to declare law as it always stood in relation to deductions to be made in respect of income specified under head 'C' of Chapter VI-A - Held, yes - Whether, therefore, special deduction under section 80HH is allowable on net income and not on gross income - Held, yes FACTS For the assessment years 1979-80 and 1980-81, the assessee claimed relief under section 80HH in respect of its liquid section which was newly set up in a backward area on the gross income and not on the net income. The Tribunal held that the assessee was not entitled to deduction on the gross profit. The High Court upheld the decision of the Tribunal. On appeal: HELD After the decision in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC) in which it was held that deduction under section 80M was to be allowed on the gross total income, two sections 80AA and 80AB were introduced by the Finance (No. 2) Act, 1980. While section 80AA was to have retrospective effect with effect from 1-4-1968, section 80AB was to have operation with effect from 1-4-1981. Section 80AA had the effect of effacing the decision in Cloth Traders (P.) Ltd.'s case (supra) which had interpreted section 80M. Section 80AB was made applicable to all the sections in Chapter VI-A except section 80M. In Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120/ 22 Taxman 49 (SC), however, the Court specifically overturned its earlier decision in Cloth Traders (P.) Ltd.'s case (supra) and held that deduction was to be allowed only on the net income and not on the gross income. With reference to section 80AB, the Supreme Court said it is merely of a clarificatory nature and the decision in Distributors (Baroda) (P.) Ltd.'s case (supra) was, thus, irrespective of section 80AB. The High Court, therefore, relying on the decision in Distributors (Baroda) (P.) Ltd.'s case (supra), answered the question in favour of the revenue and against the assessee. The assessee submitted that even though…

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