Holding

Gross total income must be determined after adjusting all losses, and if it is ‘Nil’, no deduction under Chapter VI‑A (including Sections 80HH, 80I and 80‑1) can be allowed.

Summary

Mis Synco Industries Ltd., a company with oil and chemical divisions, earned profits in 1990‑91 and 1991‑92 but had earlier losses in its oil division. It claimed deductions under Sections 80HH, 80I and 80‑1 of the Income‑Tax Act, arguing that each unit should be treated separately and that the earlier oil losses should not be set off against chemical profits for the purpose of computing the deduction. The Assessing Officer, the Commissioner (Appeals) and the Income‑Tax Appellate Tribunal held that the gross total income must be computed after adjusting all losses and, because the resulting gross total income was ‘Nil’, the company was not entitled to any Chapter VI‑A deduction. The Supreme Court affirmed this view, stating that Section 808(5) defines gross total income before Chapter VI‑A deductions and that a nil gross total income precludes any such deduction, and it rejected the contention that Section 80‑1(6) overrides the ceiling provision of Section 80A(2). The appeals were dismissed.

Issues considered

The method of computing gross total income for the purpose of Chapter VI‑A deductions, specifically whether losses must be set off before allowing deductions.
Whether a gross total income of ‘Nil’ bars the claimant from claiming deductions under Sections 80HH, 80I and 80‑1.
The interpretation of Section 80‑1(6) in relation to the ceiling provision of Section 80A(2) and the definition of gross total income in Section 808(5).
Whether losses of one industrial unit can be set off against profits of another when determining eligibility for Chapter VI‑A deductions.
The relevance of the predominant view of High Courts on this statutory interpretation.

Legislation cited

Income Tax Act, 1961s. 32(2), s. 71, s. 72, s. 80-1(1), s. 80-1(6), s. 808(5), s. 80A, s. 80A(2), s. 80HH, s. 80I

Subjects

Income TaxChapter VI‑Agross total incomeset‑off of lossesdeductionSection 80HHSection 80ISection 80‑1nil incomestatutory interpretationHigh Court precedent

Judgment

[2008] 4 S.C.R. 919

MIS SYNCO INDUSTRIES LTD. A
II.
ASSESSING OFFICER, INCOME TAX, MUMBAI & ANR.
(Civil Appeal No. 4190-4191 of 2002)
MARCH 13, 2008
B
[ASHOK BHAN AND J.M. PANCHAL, JJ.]

Income tax Act, 1961 - Chapter VI-A, ss. 80 HH, 80 I 80
B (5), 71, 72 and 32 (2)-Assessee-company running two units
- Both the units earned profit in the relevant assessment years c
- However, one of the units had suffered loss in previous years
- Demand of deduction u/ss. 8 HH and 80 I by treating both
the units separately - Denial of by authorities/courts below -
In appeal, held: Assessee was not entitled to claim the
deduction - The gross total income of the assessee has first D
got to be determined after adjusting losses, and then if the
gross total income is 'Nil', assessee not entitled to deduction.
Practice and Procedure - Interpretation of statutory
provisions - Held: Where the predominant majority of the High
Courts have taken certain view on interpretation of certain E
provisions, Supreme Court would lean in favour of that view.
Appellant-assessee was a company, engaged in the
business of oil and chemicals. It had two units for its
respective business. It earned profit in the assessment
years 1990-91 and 1991-92 in both the units. But it had F
suffered losses in its oil division in earlier years. Assessee
claimed deductions under s. 80 HH and 80 I of Income tax
Act, claiming that each unit should be treated separately
and the loss suffered in the oil division should be treated
separately and the loss suffered in the oil division in the G
earlier years should not be adjustable against the profits
of the chemical division while considering the question
of deduction under the provisions. Assessing Officer as
well as appellate authorities/courts, including High Court
919 H
920 SUPREME COURT REPORTS [2008] 4 S.C.R.

A held that the assessee was not entitled to deductions 'f
under Chapter VI-A, opining that the gross total income
must be determined by setting off against the income, the
business losses of the earlier years, before allowing
deduction under ChapterVl-A and if the resultant income
.
B is 'Nil', the assessee cannot claim deduction under
Chapter VI-A. Hence the present appeal. Other appeals
also raise common question. ,r.,.J

Dismissing the appeals, the Court A "'

c HELD: 1.1 The gross total income of the assessee
has first got to be determined after adjusting losses etc.,
and if the gross total income of the assessee is 'Nil' the
assessee would not be entitled to deductions under
Chapter VI-A of Income Tax Act. The High Court was
justified in holding that gross total income must be
.,
\~,

D
determined, by setting off against the income, the
business losses of earlier years, before allowing deduction ~

under Chapter VI-A and if the"resultant income is 'Nil', then
the asessee cannot claim deduction under Chapter VI-A.
[Paras 13 and 11] [935-A, 933-8, C]
E
1.2 If the gross total come of the assessee is
determined as 'Nil' then there is no question of any
deduction being allowed under Chapter VI-A in computing
the total income. The Assessing Officer has to take into
t-
F account the provisions of Section 71 providing for set off
~
of loss from one head against income from another and
Section 72 providing for carry forward and set off of
business losses. Section 32(2) makes provisions for carry
forward and set off of the unabsorbed depreciation of a
particular year. While computing the total income, the
G
losses carried forward and depreciation have to be
adjusted and thereafter the Assessing. Officer has to work
out the gross total income of the assessee. Sub-Section
(2) of Section BOA specifically enacts that the aggregate
of deductions under Chapter VI-A should not exceed the
H
MIS SYNCO IND. LTD. v. ASSESSING OFFICER, 921
INCOME TAX, MUMBAI & ANR.

gross total income of the assessee. If the gross total A
income is found to be a net loss on account of the
adjustment of losses of the earlier years or 'Nil', no
deduction under this Chapter can be allowed. [Para 8]
[927-8, C, D, E]
1.3 Clause (5) of Section 808 defines the expression 8
'gross total income' to mean the total income computed
in accordance with the provisions of the Act before making
any deductions under Chapter VI-A of the Act. It follows,
therefore, that deductions under Chapter VI-A can be
given only if the gross total income is positive and not C
negative. The effect of Clause (5) of Section 808 of the
Act is that gross total income will be arrived at after making
the computation by (i) making deductions under the
appropriate computation provisions; (ii) including the
incomes, if any, under Sections 60 to 64 in the total D
income of the individual; (iii) adjusting intra-head and/or
inter-head losses; and (iv) setting off brought forward
unabsorbed losses and unabsorbed depreciation, etc.
[Paras 7 and 8] [927-A, 8, F, G, H; 928-A]
1.4 The contention that under Section 80-1 (6) the E
profits derived from one industrial undertaking cannot be
set off against loss suffered from another and the profit is
required to be computed as if profit making industrial
undertaking was the only source of income, has no merits.
If such interpretation is accepted it would almost render F
the provisions of Section 80A(2) of the Act nugatory. It is
true that under Section 80-1(6) .for the purpose of
calculating the deduction, the loss sustained in one of
the units, cannot be taken into account because Sub-
section 6 contemplates that only the profits shall be taken G
into account as if it was the only source of income.
However, Section 80A(2) and Section 808 (5) are
declaratory in nature. They apply to all the Sections falling
in Chapter VI-A. They impose a ceiling on the total amount
of deduction and therefore the non-obstante clause in H
922 SUPREME COURT REPORTS [2008] 4 S.C.R.

'(
,,I
A Section 80-1(6) cannot restrict the operation of Sections
80A(2) and 808(5) which operate in different spheres. ~
Section 80-1(6) deals with actual computation of deduction ,,
'
whereas Section 80-1(1) deals with the treatment to be
given to such deductions in order to arrive at the total
B income of the assessee and therefore while interpreting
Section 80-1(1 ), which also refers to gross total income
one has to read the expression 'gross total income' as
defined in Section 808(5). Therefore, this Court is of the .. ~

opinion that the High Court was justified in holding that
c the loss from the oil division was required to be adjusted
before determining the gross total income and as the
gross total income was 'Nil' the assessee was not entitled
to claim deduction under Chapter VI-A which includes
Section 80-1 also. [Para 12] [933-D, 934-C-H]
J
D 1.5 Predominant majority of the High Courts have '
taken the view that while working out gross total income ).
of the assessee the losses suffered have to be adjusted
and if the gross total income of the assessee is 'Nil' the
assessee will not be entitled to deduction under Chapter
E
VI-A of the Act. It is well settled that where the predominant
majority of the High Courts have taken certain view on
the interpretation of certain provisions, the Supreme Court
would lean in favour of the predominant view. [Para 11]
[933-A, 8]

F C. I. T v. Kotagiri Industrial Co-op. Tea Factory 1997 (224)
l.T.R. 604 (S.C.) - relied on.
Commissioner of Income-Tax, Tamil Nadu-lil, Madras
v. Madras Motors (P) Ltd. 1984 (150 ITR) 150; Commissioner
of Income- Tax v. Midda Ram 1984 Vol.19 Taxman Pg. 23;
G Commissioner of Income-Tax, West Bengal-II, Calcutta v.
Bengal Assam Steamship Company Ltd. 1985 (155) ITR 26;
GAtherton and Co. v. Commissioner of Income- Tax 1987 (165) )..
ITR 527; Commissioner of Income-Tax, Bombay City-Ill,
Bombay v. Mercantile Bank Ltd. 1988 (169) ITR 44;
H Commissioner of Income-Tax v. Rambal (P) Ltd. 1988 (169)'
MIS SYNCO IND. LTD. v. ASSESSING OFFICER, 923
INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]

...... ~
ITR 50; Orient Paper Mills Ltd. v. Commissioner of Income A
-;
Tax 1986 (158) l.T.R. 695; Commissioner of Income Tax v.
Sundaravel Match Industries (P) Ltd. 2000 (245) ITR 605;
Commissioner of Income- Tax v. Nima Specific Family Trust
2001 (248) ITR 29; Commissioner of Income-Tax v. Atam
Ballabh Finance Pvt. Ltd. 2002 (258) ITR 485; IPCA B
Laboratory Ltd. v. Dy. Commissioner of Income- Tax, Mumbai
2004 (12) SCC 742; Commissioner of Income-Tax v. Lucky
• ~ Laboratories Ltd. 2006 (284) ITR 435 (ALL); Commissioner
of Income Tax and Anr. v. R.P. G Telecoms Ltd. 2007 (292)
ITR 355 - referred to. c
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
4190-4191 of 2002.

, From the final Judgment and Order dated 23.7.2001 of
the High Court of Judicature at Bombay in I.TA. No. 592/2000. D
...( WITH
Civil Appeal No.4192-4193 of 2002.
Manish Singhvi (for Ashok K. Mahajan) for the Appellant.
E
Mohan Parasaran,A.S.G., K. Radhakrishnan,Asha G. Nair
and K.K. Senthilvelan (for B.V. Balaram Das) for the
Respondents.
The Judgment of the Court was delivered by
.... F
-i J.M. PANCHAL, J. 1. These appeals are directed against
Judgments dated July 23, 2001 rendered by the Division Bench
of the High Court of Judicature at Bombay in Income Tax Appeal
No. 591 /2001 and 592/2002 whereby the opinion expressed
by the Assessing Officer and confirmed by Commissioner of
Income Tax (Appeals) Mumbai as well as the Income Tax G
Appellate Tribunal Mumbai Bench 'B', Mumbai that the gross
A total income must be determined by setting off against the
income, the business losses of the earlier years, before allowing
deduction under Chapter VI-A and if the resultant income is "Nil",
H
924 SUPREME COURT REPORTS [2008] 4 S.C.R.

A then the assessee cannot .claim deduction under Chapter VI-A '(
;--
of the Income Tax Act, 1948 ('The Act' for short), is upheld. ·
2. Since all the appeals raise common questions of law
and fact, this Court proposes to dispose them of by this common ,,,.-
Judgment.
B
· 3. The facts emerging from the record of the case are as
under:-
~ ""'""
The appellant-assessee is a Company incorporated und~r
the provisions of the Indian Companies Act, 1956. It is engaged
c in the business of oil and chemicals. It has a unit for oil division
at Sirohi District, Rajasthan. It has also a chemical division at
Jodhp.ur. The appellant had earned profit in the assessment year
1990-91 and 1991-92 in both the units. However, the appellant
had suffered losses in the oil division in earlier years. The
D appellant claimed deductions under Section 80HH and 80-1 of
r
the Act, claiming that each unit should be treated separately >
and the loss suffered by the oil division in earlier years is not
adjustable against the profits of the chemical division while
considering the question whether deductions under Sections
E 80HH and 80-1 were allowable. The Assessing Officer noticed
that the gross total income of the appellant before deductions
under Chapter VI-A was 'Nil'. Therefore, he concluded that the
assessee was not entitled to the benefit of deductions under
Chapter VI-A. Feeling aggrieved the appellant carried the ,,
F matters in appeal before the Commissioner of Income Tax ~
;-
(Appeals) V, Mumbai who confirmed the view of the Assessing
Officer by dismissing the same. Therefore, the appellant
preferred two appeals before Income Tax Appellate Tribunal
Mumbai Ben.ch 'B', Mumbai. The Tribunal held that gross total
income of the appellant had got to be computed in accordance
G
with the Act before allowing deductions under any Section falling
under Chapter VI-A and as the gross total income of the appellant
after setting off the business losses of the earlier years, was >.
'Nil', the appellant was not entitled to any deductions either under
Section 80HH or 80-1 of the Act. In that view of the matter the
H
(
I
• M/S SYNCO IND. LTD. v. ASSESSING OFFICER, 925
~ INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]
....,.
I
~ Tribunal dismissed the appeals filed by the appellant. Thereupon, A
the appellant invoked jurisdiction of the High Court under Section
260-A of the Act by filing these appeals. The High Court has
dismissed the same by Judgment dated July 23, 2001 giving
rise to the instant appeals.
4. This Court has heard the learned counsel for the parties B

- ~
at length and in great detail. This Court has also considered the
documents forming part of the appeals.
5. The plea that the appellant had earned profits from the
two divisions during the assessment years in question and c
therefore losses suffered by the oil division in earlier years could
not have been adjusted against the profits of the two divisions
while considering the question of grant of deduction under
Sections 80-1 of the Act, cannot be accepted.
6. In order to resolve the~controversy raised by the D
appellant, it would be advantag·~·ous to refer to the relevant
provisions of the Act:-
"Section BOA. (1) In computing the total income of an
assessee, there shall be allowed from his gross total
income, in accordance with and subject to the provisions
E
of this Chapter; the deductions specified in Sections 80C
to [80U].
(2) The aggregate amount of the deductions under this
~
Chapter shall not, in any case, exceed the gross total F
income of the assessee.
[(3) Where, in computing total income of an association of
persons or a body of individuals, any deduction is
admissible ·under Section 80G or Section 80GGA [or
Section 80GGC] or Section 80HH or Section 80HHA or G
Section 80HHB or Section 80HHC or Section BOHHD or
Section 80-1 or Section 80-IA [or Section 80-18] [or Section
80-:-fG] [or Section 80-10 or Section 80-IEJ or Section BOJ
or Section 80JJ, no deduction under the same section
·1 shall be made in computing the total income of a member H
926 SUPREME COURT REPORTS [2008] 4 S.C.R.

A or the association of persons or body of individuals in
relation to the share of such member in the income of the "
association of persons or body of individuals.]
Section 808. (5) "gross total income" means the total
income computed in accordance with the provisions of
B this Act, before making any deduction under this Chapter.
Section 80-1 (6) Notwithstanding anything contained in
any other provision of this Act, the profits and gains of an ~
..
industrial undertaking or a ship or the business of a hotel
c [or the business of repairs to ocean-going vessels or other
powered craft] to which the provisions of sub-section (1)
apply shall, for the purposes of determining the quantum
of deduction under sub-section (1) for the assessment
year immediately succeeding the initial assessment year
or any subsequent assessment year, be computed as if
D
such industrial undertaking or ship or the business of the
hotel [or the business of repairs to ocean-going vessels
or other powered craft] were the only source of income of
the assessee during the previous years relevant to the
initial assessment year and to every subsequent
E assessment year up to an including the assessment year
for which the determination is to be made."
7. Section BOA, as originally inserted by the Finance Act,
1965 with effect from 1.4.1969 dealt with a different topic
F altogether viz., deductions in respect of life insurance premia, '>-
annuities, contributions and provident fund etc. The present
Section came on the statute book by way of substitution of
Chapter VI A by the Finance (No. 2) Act, 1967, w.e.f. 1.4.196B.
This Section has witnessed several consequential amendments
from time to time by way of insertions, substitutions or
G
omissions. Sub-Section (1) of Sections 80A lays down that while
computing the total income of an assessee, deductions
specified in Sections BOC to BOU shall be allowed from his gross
total income.

H This Section has introduced a new concept of 'gross total
\::::
• MIS SYNCO IND. LTD. v. ASSESSING OFFICER, 927
INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]

income' as distinguished from the 'total income' i.e., the net or A
taxable income. Clause (5) of Section 808 defines the
expression 'gross total income' to mean the total income
computed in accordance with the provisions of the Act before
making any deductions under Chapter VI-A of the Act. It follows,
therefore, that deductions under Chapter VI-A can be given only 8
if the gross total income is positive and not negative.
8. If the gross total income of the assessee is determined
as 'Nil' then there is no question of any deduction being allowed
under Chapter VI-A in computing the total income. The Assessing
Officer has to take into account the provisions of Section 71 C
providing for set off of loss from one head against income from
another and Section 72 providing for carry forward and set off
of business losses. Section 32(2) makes provisions for carry
forward and set off of the unabsorbed depreciation of a
particular year. The effect of the above mentioned provisions is D
that while computing the total income, the losses carried forward
and depreciation have to be adjusted and thereafter the
Assessing Officer has to work out the gross total income of the
assessee. Sub-Section (2) of Section 80A specifically enacts
that the aggregate of deductions under Chapter VI-A should not E
exceed the gross total income of the assessee. If the gross total
income is found to be a net loss on account of the adjustment of
losses of the earlier years or 'Nil', no deduction under this
Chapter can be allowed. As noticed earlier Clause (5) of Section
808 defines the expression 'gross total income' to mean the F
total income computed in accordance with the provisions of the
Act without making any deductions under Chapter VI-A. The
effect of Clause (5) of Section 808 of the Act is that gross total
income will be arrived at after making the computation as
follows:-
G
(i) making deductions under the appropriate
computation provisions;
(ii) including the incomes, if any, under Sections 60 to
64 in the total income of the individual;
H
928 SUPREME COURT REPORTS [2008] 4 S.C.R.

A (iii) adjusting intra-head and/or inter-head losses; and "
(iv) setting off brought forward unabsorbed losses and
unabsorbed depreciation, etc.
9. In C.l.T. v. Kotagiri Industrial Co-op. Tea Factory
B (1997) 224 l.T.R. 604 (S.C.) the respondent was a co-operative
society, It carried on business in manufacture and sale of tea
from bought tea leaves and the purchase and supply of
agricultural manure to members. It was also receiving income
from d.ividend from investments with other co-operative
c societies. In the previous year relevant to the assessment year
1972-73, the assessee had earned a total income of Rs.
85, 150/-. The losses of the earlier year which had been carried
forward to the said assessment year were Rs. 1,82,744/-. The
assessee claimed a deduction of Rs. 53, 386/- under Section
80-P(2) from the income of Rs. 85, 150/-. The I.TO. first set off
0
the losses of previous years that had been carried forward
against the income and since the losses were in excess of the
income, he held that no deduction was permissible u/s. 80-P.
The said view, was not accepted by the Appellate Authority. The
E decision of the Appellate Authority was affirmed by the Income
Tax Appellate Tribunal and High Court. While reversing the
decision of the High Court, the Supreme Court has held that in
view of the express provision defining the expression "gross
total income" in Clause (5) of Section 808, for the purpose of
Chapter VI-A, the gross total income must be determined by
F setting off, against the income, the business losses of the earlier
years as required by Section 72, before allowing deduction u/s.
80-P. The contention raised on behalf of the appellant that the
deduction must first be allowed under Section 80-1 and then only
the gross total income as computed under the provisions of the
G Act before allowing deductions under Chapter VI-A should be
worked out, cannot be accepted. As noticed earl!er Section BOA
provides that the deductions shall be allowed out of the gross
total income, whereas Sub-Section (2) restricts the deductions
of the gross total income: It is, therefore, clear that the gross
H total income of the assessee has got to be computed in
I

M/S SYNCO IND. LTD. v. ASSESSING OFFICER, 929
INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]

accordance with the Act after adjusting losses etc. and if the A
gross total income so determined is positive then the question
of allowing deductions under Chapter VI-A arises, but not
otherwise.
10. This Court further notices that predominant majority of
the High Courts have taken the view that deductions under B
Chapter VI-A of the Act would be available only if the
computation of gross total income as per the provisions of the
Act after setting off carried forward loss and unabsorbed
depreciation of earlier years is not 'Nil'. In Commissioner of
Income-Tax, Tamil Nadu-111, Madras v. Madras Motors (P) C
Ltd. (1984) 150 ITR 150, after noticing the definition of 'gross
total income' the Madras High Court has held that the intention
of the Parliament, that the deduction under Chapter VI-A is
contemplated only after the total income is computed after
setting off of the unabsorbed depreciation as per Section 72 is D
evident and therefore Section 72 has to be applied before the
total income of an assessee is determined i.e., before the
deductions under Chapter VI-A are allowed. In Commissioner
of Income-Tax v. Midda Ram (1984) Vol.19 Taxman Pg. 23
again the Madras High Court has taken the view that having E
regard to the provisions of Section 80A and 808, before making
any deduction under Chapter VI-A the total income of the
assessee is to be computed in accordance with the provisions
of the Act and such total income will have to be taken as gross
total income from which the deduction under Chapter VI-A has F
to be allowed. In the said case the gross total income so
computed after set off of unabsorbed depreciation was 'Nil'. It
was, therefore, held that there was no positive figure from which
the deduction under Chapter VI-A could be allowed. In
Commissioner of Income-Tax, West Bengal-II, Calcutta v. G
Bengal Assam Steamship Company Ltd. (1985) 155 ITR
26 the Calcutta High Court has held that deduction under
Section SOL and SOM of the Act are to be allowed after setting
off of losses under Section 71 and 72 because Section 80A(2)
limits the aggregate of the deduction allowable to the amount of
H
930 SUPREME COURT REPORTS [2008] 4 S.C.R.

A the gross total income of the assessee which means that the
deduction allowable cannot result in a negative figure of loss.
What is held in the said decision is that where the gross total
income is found to be a net loss there is no question of any
further deductions under Section 80L and 80M. In G.Atherton
8 & Co. v.. Commissioner of Income-Tax (1987) 165 ITR 527
it is held that the gross total income and also the dividend
income of the assessee had to be computed in accordance
with the provisions of the ACt without making any deduction under
Section SOM contained in Chapter VI-A of the· Act and as the
c gross total income was computed to be a loss, no relief was
available to the assessee und_er Section BOM. In
Commissioner of Income-Tax, Bombay City-Ill, Bombay
v. Mercantile Bank Ltd. (1988) 169 ITR 44 after examining
the scheme envisaged by Sub-Section 1 of Section BOA, Sub-
section 2 of Section BOA and Sub-Section 5 of Section 808
D
the Cal~utta High Court has held that the gross total income
defined by Section B08(5) is the total income computed under
the provisions of the Act, but before making any deductions
under Chapter VI-A and if the total income computed under the
Act before making the deductions under Chapter VI-A is found
E to be a positive figure, can the deductions permissible under
Chapter VI-A be given. in Commissioner of Income-Tax v.
Rambal (P.) Ltd. (1988) 169 ITR 50 the Madras High Court
has taken the view that the relief under Section BO-I would not
be available if net taxable income determined is 'Nil' after
F computation of gross total income as per the provisions of the
Act, after setting off carried forward loss and unabsorbed
depreciation of earlier years. In Orient Paper Mills Ltd. V.
Commissi_oner of Income Tax (1986) 158 l.T.R. 695 the
Calcutta High Court has taken the view that deductions under
G Section BO-I cannot exceed gross total income and if gross total
income found is 'Nil' or a net loss the assessee is not entitled to
deduction under Section 80-1 of the Act. The principle of law
enunciated in the said decision is that Section BOA of the Act
lays down certain general principles for the purpose of
H deductions to be allowed in computing the total income under
-r

' M/S SYNCO IND. LTD. v. ASSESSING OFFICER, 931
INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]

y
Section BOC to BOU and such deductions are to be allowed A
from the gross total income of the assessee in computing the
total income. After noticing the definition of the term gross total
income as given in Clause 5 of Section BOB it is held iii the said
decision that in the case of a company, total income computed
is in accordance with the provisions of the Act before making B
any deduction under Chapter VI-A: what is laid down as principle
is that Section BOA(2) limits the aggregate of the deductions
.' ~
allowable to the amount of the gross total income of the
' assessee and therefore deductions allowance cannot result in
any negative figure or loss and therefore where the gross total c
income is 'Nil' or net loss in the relevant year the assessee will
not be entitled to any relief under Section BO-I. In Commissioner
of Income Tax v. Sundaravel Match Industries (P) Ltd.
(2000) 245 ITR 605 the Madras High Court has held that losses
should be set off against the profits of the industrial undertaking
D
before granting the deduction under Section BOHH of the Income-
~ Tax Act, 1961, in view of the specific provisions found in Section
BOAB. In Commissioner of Income-Tax v. Nima Specific
Family Trust (2001) 248 ITR 29 the Bombay High Court has
taken the view that the legislature has introduced Section BOA(2)
and Section BOA(5) in order to put a ceiling on the claim for E
deduction which indicates that if the deductions under Chapter
---l
I
VI-A are to be claimed then the gross total income should be
~

sufficient to absorb such deductions i.e. if the gross total income
Iii I
... is 'Nil' then deduction under Section BOHH and BOI cannot be
\ F
~
claimed because it would mean that aggregate amount of the
deduction would exceed the gross total income of the assessee.
In Commissioner of Income-Tax v. Atam Ballabh Finance
Pvt. Ltd. (2002) 258 ITR 485 after noticing the definition of
gross total income as given under Section BOB(5) the Delhi High
Court has held that while computing the income, all provisions G
are required to be applied and only thereafter the deductions
have to be allowed. In IPCA Laboratory Ltd. V. Dy.
..... Commissioner of Income-Tax, Mumbai (2004) 12 SCC 742
the appellant was a holder of an Export House certificate. It
exported self-manufactured goods as well as goods H
t::

{
{
932 SUPREME COURT REPORTS [2008] 4 S.C.R.

A manufactured by supporting manufacture.rs. It had earned a profit
...,
from the export of self-manufactured goods and had suffered
loss from the export of trading goods. In its return for assessment
year 1.996-97, it claimed deduction under Section 80HHC
contending that profits from the two types of export should be
B considered separately and the profit in respect of one could not
be negated or set off against the loss from the other. Dismissing
the appeal the Supreme Court ruled that although Section
BOHHC has been incorporated with a view to provide incentive ""
~
to export houses, if there is a loss then no deduction would be
c available under Section BOHHC(1) or (3). What is held is that in
arriving at the figure of positive profit both the profits and loss
will have to be considered and if the net figure is the positive
profit then the assessee will be entitled to a deduction but if the
net figure is a loss then the assessee will not be entitled to a
deduction. In Commissioner of Income-Tax v. Lucky
D
Laboratories Ltd. (2006) 284 ITR 435 (ALL) it is held that
Section BOA (1) of the Act says that in computing the total income
~
of an assessee it shall be allowed from the gross total income
in accordance with and subject to the provisions of this Section
the deductions specified in Section BOC to BOU whereas sub-
E section 2 of Section BOA says that the aggregate amount of the
deductions under this Chapter shall not be in any case exceed
the gross total income of the assessee and therefore the total
deduction under Sections BOHH and 801 should not exceed the
gross total income of the assessee. In Commissioner of
F Income Tax and Another V; R.P.G. Telecoms Ltd. (2007) 292
E
~
ITR 355 the Karnataka High Court has held that Section BOAB
of the Income-Tax Act, 1961, would override all other Sections
for the purpose of deduction under Chapter VI-A of the Act and
while calculating the gross total income of the company, one
G has to adjust the losses from one priority unit against the profits ~
t
of the .other priority unit and if the resultant gross total income is
'Nil' then the assessee cannot claim deduction under Chapter
VI-A. ;..._

11. The above discussion makes it very evident that
H }
1

..,.-
M/S SYNCO IND. LTD. v. ASSESSING OFFICER, 933
INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]

predominant majority of the Migh Courts have taken the view A
..,.
that while working out gross total income of the assessee the
losses suffered have to be adjusted and if the gross total income
of the assessee is 'Nil' the assessee will not be entitled to
deduction under Chapter VI-A of the Act. It is well settled that
where the predominant majority of the High Courts have taken B
certain view on the interpretation of certain provisions, the
Supreme Court would lean in favour of the predominant view.
Therefore, this Court is of the opinion that the High Court was
~ justified in holding that gross total income must be determined,
by setting off against the income, the business losses of earlierc
years, before allowing deduction under Chapter VI-A and if the
resultant income is 'Nil', then the asessee cannot claim
deduction under Chapter VI-A.
12. The contention that under Section 80-1 (6) the profits
derived from one industrial undertaking cannot be set off against D
loss suffered from another and the profit is required to be
...._ computed as if profit making industrial undertaking was the.only
source of income, has no merits. Section 80-1 (1) lays down that
where the gross total income of the assessee includes any profits
derived from the priority undertaking/unit/division, then in E
computing the total income of the assessee, a deduction from
such profits of an amount equal to 20% has to be made. Section
80-1 (1) lays down the broad parameters indicating
circumstances under which an assessee would be entitled to
claim deduction. On the other hand Section 80-1 (6) deals with F
.
•
_.,. determination of the quantum of deduction. Section 80-1 (6) lays
down the manner in which the quantum of deduction has to be
/
worked out. After such computation of the quantum of deduction,
one has to go back to Section 80-1 (1) which categorically states
that where the gross total income includes any profits and gains
G
derived from an industrial undertaking to which Section 80-1
applies then there shall be a deduction from such profits and
gains of an amount equal to 20%. The words "includes any
... profits" used by the legislature in Section 80-1(1) are very
important which indicate that the gross total income of an
H

•
~·
'

934 SUPREME COURT REPORTS [2008] 4 S.C.R.

j
A assessee shall include profits from a priority undertaking. While r
computing the quantum of deduction under Section 80-1(6) the
Assessing Officer, no doubt, has to treat the profits derived from
an industrial undertaking as the only source of income in order
to arrive at the deduction under Chapter VI-A. However, this
8 Court finds that the non-obstante clause appearing in Section
80-1(6) of the Act, is applicable only to the quantum of deduction, .
whereas, the gross total income under Section 808(5) which is r-,,,
also referred to in Section 801(1) is required to be computed in ,..
~ I'
the manner provided under the Act which presupposes that the
c gross total income shall be arrived at after adjusting the losses /
fi
of the other division against the profits derived from an industrial
undertaking. If the interpretation as suggested by the appellant
is accepted it would almost render the provisions of Section
f.
80A(2) of the Act nugatory and therefore the interpretation
canvassed on behalf of the appellant cannot be accepted. It is
r
;--
0 ~.-
true that under Section 80-1(6) for the purpose of calculating the
deduction, the loss sustained in one of the units, cannot be taken
>-
into account because Sub-Section 6 contemplates that only the
profits shall be taken into account as if it was the only source of •
income. However, Section 80A(2) and Section 808 (5) are •r
E declaratory in nature. They apply to all the Sections falling in l ~

Chapter VI-A. They impose a ceiling on the total amount of
deduction and therefore the non-obstante clause in Section 80-
1(6) cannot restrict the operation of Sections 80A(2) and 808(5)
which operate in different spheres. As observed earlier Section
F 80-1(6) deals with actual computation of deduction whereas
Section 80-1(1) deals with the treatment to be given to such
deductions in order to arrive at the total income of the assessee
and therefore while interpreting Section 80-1(1 ), which also refers
r
to gross total income one has to read the expression 'gross
'
G total income' as defined in Section 808(5). Therefore, this Court
is of the opinion that the High Court was justified in holding that
the loss from the oil division was required to be adjusted before i
determining the gross total income and as the gross total income
was 'Nil' the assessee was not entitled to claim deduction under
H Chapter VI-A which includes Section 80-1 also.
M/S SYNCO IND. LTD. v. ASSESSING OFFICER, 935
INCOME TAX, MUMBAI & ANR. [J.M. PANCHAL, J.]

13. The proposition of law, emerging from the above A
discussion is that the gross total income of the assessee has
first got to be determined after adjusting losses etc., and if the
gross total income of the assessee is 'Nil' the assessee would
not be entitled to deductions under Chapter VI-A of the Act.
14. The appeals therefore filed by the appellant have no B
substance and deserve to be dismissed. Accordingly, all the
appeals fail and are dismissed. There shall be no order as to
cost.
K.K.T. Appeals dismissed. c