R.P. GARG, VICE PRESIDENT ORDER Because of cleavage of opinion between Benches of Tribunal viz., Mumbai and Kolkata, President, Tribunal, has constituted this Special Bench for considering following issue : "Whether in view of provisions of s. 80-IA(5) of IT Act, 1961, profit from eligible business for purpose of deduction under s. 80-IA of Act has to be computed after deduction of notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years ?" 2. decision of Tribunal, Bombay Benches, in case of M. Pallonji & Co. (P) Ltd. vs. Jt. CIT (2006) 105 TTJ (Mumbai) 136 is in favour of assessee and it held that unabsorbed depreciation of eligible project could not be set off against profit of eligible business for purposes of deduction under s. 80-IA which unabsorbed depreciation stood already adjusted against profits of assessee from other business. Whereas, another Bench of Tribunal in Addl. CIT vs. Ashok Alco Chem Ltd. (2005) 96 TTJ (Mumbai) 1000 : (2005) 96 ITD 160 (Mumbai) is stated to have held against assessee by observing that for purpose of applying provisions contained in s. 80-IA of Act, profits or gains of eligible business are to be computed as if eligible business were only business of assessee right from initial year, brought forward losses of unit have to be set off against profits and in absence of profit from eligible units after set off of brought forward losses of said units, deduction under s. 80-IA could not be allowed. Tribunal, Kolkata Benches, in case of ITO vs. Kanchan Oil Industries Ltd. (2005) 92 TTJ (Kol) 739 : (2005) 92 ITD 557 (Kol) has concluded that in view of sub-s. (7) of s. 80-IA, for computing deduction under s. 80-IA, brought forward losses and unabsorbed depreciation of ineligible business cannot be deducted from income of eligible business and only unabsorbed depreciation/brought forward losses of eligible business can be so deducted. 3 . brief facts of case are that assessee is mainly dealing in shares and securities. During financial year 1995-96, relevant to asst. yr. 1996- 97, assessee purchased wind mills and started producing electricity. receipt of electric power generated through these mills is shown as credited in P&L a/c at Rs. 95,388 and Rs. 6,40,296. following is income credited in P&L a/c of assessee for financial years ending on 31st March, 1995, 31st March, 1996 and 31st March, 1997. Sr. Head of F.Y. F.Y. F.Y. No income 1994-95 1995-96 1996-97 Net income from 1. 25,43,055 96,57,818 2,00,083 sale/purchase of shares/debentures Dividend 2. 15,321 53,647 1,59,865 income Electric 3. power charges Nil 95,388 6,40,296 receivable Income from 4. - - 19,726 bill discounting Interest on 5. - - 2,268 bank FDR 4. Against these very low receipts from electric power charges in financial year 1995-96 when assessee purchased wind mills, it claimed depreciation of Rs. 1,04,44,150 which was set off against business income from all sources. In return of income for asst. yr. 1996-97 assessee set off depreciation against other income leaving thereby balance unabsorbed depreciation at Rs. 9,89,675. note No. 4 was attached stating : "The assessee is entitled to get deduction/benefit under s. 80-IA in respect of income derived by it from undertaking engaged in generation and distribution of power. During previous year income derived from said power generation unit has been set off against claim of depreciation under s. 32(1) and hence amount deductible under s. 80-IA is nil." 5. In return of income for asst. yr. 1997-98, assessee has claimed deduction under s. 80-IA on power generation income of Rs. 6,40,296 restricted to gross total income of Rs. 1,59,865 representing dividend income (business income being Rs. 5,66,219 but set off against unabsorbed depreciation of Rs. 9,89,675, balance Rs. 4,23,456 still carried forward). In subsequent years method was repeated. 6 . Thus in all asst. yrs. 1997-98 to 2000-01 assessee company claimed deduction under s. 80-IA on basis of profits earned in respective year subject to maximum of gross total income. On other hand AO reduced claim of assessee under s. 80-IA in view of provisions of s. 80-IA(7)/80-IA(5) of IT Act holding that deduction in asst. yr. 1997-98 and subsequent years would be allowable only on income which is arrived after setting off of carried forward losses on notional basis of eligible business even though such losses of eligible business were set off against other incomes of assessee in asst. yr. 1996-97. assessee challenged order of AO before CIT(A) who primarily relied upon judgment of High Court of Calcutta in case of CIT vs. Balmer Lawrie & Co. Ltd. (1995) 215 ITR 249 (Cal) and decided issue in favour of assessee by observing as under : "10. From various decisions discussed, crystallized ratio appears to be : (i) profits and gains of industrial undertaking should have been included in total income and that such profits must be computed in accordance to provisions of Act. (ii) percentage as prescribed is to be applied to such component of profits of industrial undertaking included in total income. (iii) loss from other business cannot be set off from current profit of industrial undertaking to determine profit and gain of IU for incentive section. (iv) loss of another priority industry also cannot be set off against profit of entitled priority industry. (v) carried forward unabsorbed depreciation, loss or development rebate of any other business or any other priority in industry cannot be set off against current profit of industrial undertaking for computing incentive. (vi) Unabsorbed loss and unabsorbed depreciation of concerned priority industry is required to be set off for computation of profits and gains of such IU for working out deduction. (vii) loss, depreciation and development rebate of IU, already set off against other income in earlier years cannot be artificially brought forward and set off against current year s profit of industrial undertaking to recompute deduction under ss. 80E, 15C, 84, 87J, 80HH etc. (viii) Sec. 80-IA(7) does not have legal fiction that as if losses, depreciation or development rebate in respect of new industrial undertaking for past assessment years were not set off against profit of other business . 10.1 Thus considering all permutations, Action of AO, hinges upon interpretation and inference about legislative intent for introducing clause as if such eligible business were only source of income . It will be noted from various decisions that for computation of deductions based on profits and gains of industrial undertaking, various disputes arose. Department sought to set off losses of other business, loss of other priority industry, unabsorbed depreciation and loss of other business, unabsorbed depreciation and loss of concerned industrial undertaking and loss and depreciation already set off against other income in earlier years to set off against industrial undertaking s current profit, whereas assessee took view that carried forward losses and depreciation of industrial undertaking is to be set off against other business of assessee and then against profit of industrial undertaking. fiction seems to have been introduced to set at rest these sort of controversies. fiction also appears to have been created so that profit of such industrial undertaking could not be artificially increased or decreased like in case of deduction under s. 80J being based on proportion of turnover. It is significant to note that sub-s. 80-IA(7) has not used fiction or as if past years depreciation or development rebate had not been set off against other income of assessee as is mentioned by Hon ble Supreme Court in case of Rajapalayam Mills. In place section has used fiction mentioned in aforesaid judgment if new industrial undertaking were only business of assessee . Looking into controversies, if legislature intended to permit set off of such absorbed loss and depreciation, against current profit of industrial undertaking, it could have very well used first fiction mentioned above. It appears more logical that legislation chose other fiction to clarify issue that profit of industrial undertaking is to be determined as if, such business was only source. By this, legislation meant to clarify that profit of each unit is to be determined as per provisions of Act but did not mean to introduce fiction that unabsorbed depreciation or unabsorbed loss of unit set off earlier is required to be set off from current profits. 10.2 In case other view that fiction meant to permit two modes of computation and to allow carry forward of such absorbed losses and depreciation is taken, it leads to numerous impractical situations and will go against observations of Hon ble Supreme Court mentioned in para 9 and will also defeat purpose of incentives to priority industry. contradictions, in my opinion, will be with reference to following ratio laid down. (i) profit of industrial undertaking shall be computed as per provision of Act in same manner. It is done in determining total income chargeable to tax. (ii) new industrial undertaking is not retrospectively quarantined or isolated from other income producing activities of assessee. (iii) There are no two modes of computation of profits of new IU, one for deduction under s. 80J and one for determining income chargeable to tax. 10.2.1 Further, in my opinion, in legal fiction created for limited purpose cannot be extended to further fiction of carry forward of loss or depreciation of unit which has already been set off from other income in earlier year . 10.2.2 Sec. 80HH is with regard to industry which started manufacture after 31st Dec., 1970. It has sub-s. (9) which is as under : (9) In case where assessee is entitled also to deduction under s. 80-I or s. 80J in relation to profits and gains of industrial undertaking or business of hotel to which this section applied, effect shall first be given to provisions of this section. In this section, phrase used is deduction under s. 80-I or s. 80J in relation to profits and gains of industrial undertaking . It shows that profit and gains of industrial undertaking for ss. 80-I, 80J and 80HH are not different but have to be same. If legal fiction as if only source of business is interpreted to permit carried forward and set off of already absorbed loss and depreciation, profit for ss. 80J and 80HH would be different than for purpose of s. 80-IA. That is for ss. 80HH and 80J absorbed loss and depreciation of earlier years would not be set off from current year s profit, whereas it will be artificially set off for s. 80-IA. Logically this would not be intention of legislature. 10.2.3 As is mentioned by Authorised Representative, Circular No. 657 is intended to give benefit to energy sector. Act allowed 100 per cent depreciation and also exemption of 100 per cent profit from tax for first five years. If interpretation of AO is accepted very objective of incentive is defeated. As is revealed by statistics of income generation by wind farm, appellant will require at least 15 years to absorb depreciation which had already been set off against other income i.e. owner of wind farm will never get benefit of deduction. 10.2.4 Further reason advanced by learned Authorised Representative quoted in para 6(iii)(b) is also very valid. benefit proposed to be given puts appellant in disadvantageous position if interpretation of Department is accepted. 10.3 Considering objective of incentive section, ratios laid down by higher Courts, harmonious construction of various similar incentive provisions related to new industrial undertaking and strict interpretation of fiction in s. 80-IA(7), I am of opinion that fiction cannot be extended to permit set off of already absorbed depreciation of industrial undertaking against other income in earlier years from current profit However, unabsorbed depreciation is required to be set off from business profit of industrial undertaking to determine such profit . balance depreciation out of unabsorbed depreciation that could not be set off against profit of industrial undertaking, will be set off against other income if any and resultant balance remaining will be carried forward to subsequent years for set off with profit of industrial undertaking." 7. Against this decision of CIT(A) Revenue is in appeal before Tribunal. learned Departmental Representative submitted that provisions of s. 80-IA(5) are identical to provisions of s. 80-I(6) of IT Act, which was brought in statute by Finance Act, 1980 w.e.f. 1st April, 1981. On introduction of s. 80-I(6) by Finance (No. 2) Act, 1980 Board issued Circular No. 281 dt. 22nd Sept., 1980 on subject and referred to para 19.4 of "Explanatory Notes of Provisions Relating to Direct Taxes". 8 . He further stated that deduction under s. 80-IA is allowed to undertaking or enterprise or eligible business and not to assessee; that s. 80-IA(5) is non obstante clause and thus has overriding effect over all other provisions of Act; and that if for purpose of arguments adverse view is taken i.e. if loss of eligible business in earlier year is set off against income of other type of activities and deduction under s. 80-IA is to allowed only on income of eligible business of current year without considering notional loss in earlier year, then this will be disadvantageous to those assessees who do not have any source of income other than eligible business. Further, even if assessee does not have real profits from other activities to set off against loss of eligible business, then assessee may buy bogus profits to set off loss of eligible business so that in subsequent year assessee is entitled to 100 per cent deduction under s. 80-IA. It may be mentioned that in this case assessee has shown exceptionally higher profits of Rs. 96.57 lakhs from share activity in asst. yr. 1996-97 as against normal share income of Rs. 25 lakhs shown in asst. yr. 1995-96 and Rs. 2 lakhs in asst. yr. 1997-98. Since deduction under s. 80-IA is allowable only to eligible business and not to assessee, earlier year loss of eligible business, even though set off against other type of income in that year has to be set off against subsequent year income of eligible business. following example illustrates position : has only activity of eligible business Yr. No. 1st year 2nd year Loss of Rs. 1.5 Profit of Rs. 2 Profit/loss crores crores Deduction u/s. On Rs. .5 cr.=(2- -Nil- 80-IA 1.5 cr.) B has two activities one of eligible business and other non-eligible business activity 2nd Yr. No. 1st year year Eligible business + Eligible business + Non-eligible Non-eligible Loss of 1.5 cr + Profit Rs. 2 cr. + Profit 1.50 cr. Profit Rs. 1.50 cr. Deduction u/s. 80- On -Nil- IA Rs. 2 cr. 9. He submitted that in second year "A" would get deduction of Rs. .5 crore whereas, "B" gets deduction of Rs. 2 crores. would be at disadvantageous stage as compared to B despite fact that both "A" and "B" had similar eligible businesses earning similar profits/losses in first and second years and that s. 80-IA deduction is allowable to eligible business and not to assessees- or B . 10. It is further submitted that words in s. 80-IA(5) namely : "for assessment year immediately succeeding initial assessment year or in subsequent assessment year" would be construed as if benefit under s. 80- IA is intended to be given only to industrial undertaking or to eligible business and not to assessee as such. He placed reliance on certain judgments of High Courts and Tribunals, namely (i) CIT vs. Dewan Kraft System (P) Ltd. (2007) 210 CTR (Del) 124; (ii) Addl. CIT vs. Ashok Alco Chem Ltd. (supra); (iii) Prasad Productions (P) Ltd. vs. Dy. CIT (2006) 102 TTJ (Chennai) 456 : (2006) 98 ITD 212 (Chennai); and (iv) Sri Ramakrishna Mills (CBE) Ltd. vs. Dy. CIT (2006) 7 SOT 356 (Chennai). 11. He also submitted that CIT(A) has followed decision of Calcutta High Court as mentioned above which was rendered in connection with deduction under s. 80HH of IT Act, which does not have any provisions like s. 80-I(6) or s. 80-IA(5) of IT Act. He therefore submitted that reliance by CIT(A) on abovementioned decision is misplaced. According to him view taken by AO is correct law and is supported by various judgments of Tribunals and High Courts as mentioned above. 1 2 . contention of learned counsel of assessee Mr. S.N. Soparkar on other hand is that fiction is for that year alone because concept of initial year is dispensed with in new provision and in that connection he referred to s. 80-IA(1) of old provision and s. 80-IA(2)(iv)(b), sub-ss. (5), (6), and (7). He relied upon decision of Chennai Bench in case of Mohan Breweries & Distilleries Ltd. vs. Asstt. CIT (2008) 114 TTJ (Chennai) 532 and submitted that fiction of only source is not sacrosanct as it was not applied to all years of undertaking but only for years in which deduction was claimed. 13. He further submitted that object of this section was not that ss. 32(2), 70, 71 and 72 would not be applicable and consequently even if adjustment had been (made), it has to be assumed not so adjusted or set off, but it is to clarify that deduction is to be granted only with respect of profits of eligible business, if assessee was carrying many activities and having many sources of income. argument is that if losses incurred by assessee were set off and adjusted against profits of earlier year, there is no mandate in section to presume that it should be notionally carry forward and set off against profits of eligible business of subsequent year. 14. Had intention was to presume that other business or source was not in existence, then in that case ss. 80A(2) and 80B(5) would/should also be not applicable in restricting deduction to gross total income of assessee which has been held to be applicable by Bombay High Court in case of Synco Industries Ltd. vs. AO (2002) 173 CTR (Bom) 1 : (2002) 254 ITR 608 (Bom) upheld recently by Supreme Court vide judgment dt. 8th March, 2008. As these sections can be applicable only when there is other source(s) of income, there cannot be any reconciliation of this decision to restricting deduction of income from industrial undertaking to amount of income by set off of losses under head "Other heads of income". 15. We have heard parties and considered rival submissions of respondent assessee. deduction was originally provided under sub-s. (1) of s. 80-I at 20 per cent (25 per cent in case of company) of and from such profits and gains derived by industrial undertaking or ship or hotel etc. as are included in gross total income of assessee. It was on fulfilment of certain conditions. Notwithstanding anything contained in any other provision of this Act, fiction was created by sub-s. (6) for determining quantum of deduction to be allowed by deeming that profits and gains of industrial undertaking or ship or business of hotel or business of repair to ocean going vessels or other powered craft as if such industrial undertaking or ship or business of hotel or business of repair to ocean going vessels or other powered craft were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year upto and including assessment year for which determination is to be made. provisions of s. 80-I(6) are reproduced as under : "80-I(6) Notwithstanding anything contained in any other provision of this Act, profits and gains of industrial undertaking or ship or business of hotel or business of repair to ocean going vessels or other powered craft to which provisions of sub-s. (1) apply shall, for purposes of determining quantum of deduction under sub-s. (1) for assessment year immediately succeeding initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or business of hotel or business of repair to ocean going vessels or other powered craft were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year upto and including assessment year for which determination is to be made." 16. Notes on Clauses explaining scope of sub-s. (6), as appears in (1980) 17 CTR (St) 37 : (1980) 123 ITR (St) 126 reads as under : "Sub-s. (6) provides that for purpose of computing deduction at specified percentage for assessment year immediately succeeding initial assessment year and any subsequent assessment year, profits and gains will be computed as if such business were only source of income of assessee in all assessment years for which deduction at specified percentage under this section is available." 17. Memorandum Explaining Provisions dealing with s. 80-I, as contained in cl. 30, appeared at (1980) 17 CTR (St) 50 : (1980) 123 ITR (St) 154 clarifying legislative intention reads as under : "30. new tax holiday scheme differs from existing scheme in following respects, namely : (i) basis of computing tax holiday profits is being changed from capital employed to percentage of taxable income derived from new industrial unit, ship or approved hotel. In case of companies, 25 per cent of profits derived from new industrial undertaking etc., will be exempted from tax for period of seven years and in case of other taxable entities 20 per cent of such profits will be exempted for like period. In case of co-operative societies, however, exemption will be allowed for period of ten years instead of seven years. (ii) benefit of tax holiday under new scheme would be admissible to all small-scale industrial undertakings even if they are engaged in production of articles listed in Eleventh Schedule to IT Act. In case of other industrial undertakings, however, deduction will be available, as at present, where undertakings are engaged in production of articles other than articles listed in said Schedule. (iii) In computing quantum of tax holiday profits in all cases, taxable income derived from new industrial units, etc., will be determined as if such unit were independent unit owned by taxpayer who does not have any other source of income. In result, losses, depreciation and investment allowance of earlier years in respect of new industrial undertaking, ship or approved hotel will be taken into account in determining quantum of deduction admissible under new s. 80-I even though they may have been set off against profits of taxpayer from other sources." (emphasis, italicised in print, given) 18. On introduction of s. 80-I(6) by Finance (No. 2) Act, 1980 Board has also issued Circular No. 281 dt. 22nd Sept., 1980 on subject incorporating above "Explanatory Notes of Provisions Relating to Direct Taxes" explaining in identical language scope of s. 80-I(6) in para 19.4 thereof. 19. Sec. 80-IA(1) was thereafter inserted by Finance (No. 2) Act, 1991 w.e.f 1st April, 1991 similarly providing that where gross total income of assessee includes any profits and gains derived from any eligible business of industrial (undertaking), etc. there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction of amount equal to percentage mentioned in sub-s. (5) of profits and gains derived from such business for number of years specified in sub-s. (6). 20. Sub-s. (7) of s. 80-IA of Act reads as under : "(7) Notwithstanding anything contained in any other provision of this Act, profits and gains of eliqible business to which provisions of sub-s. (1) apply shall, for purposes of determining quantum of deduction under sub- s. (5) for assessment year immediately succeeding initial assessment year or any subsequent assessment year, be computed as if such eligible business were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year upto and including assessment year for which determination is to be made." 21. provisions of s. 80-IA were then divided in two parts by Finance Act, 1999 w.e.f. 1st April, 2000 one, by replaced s. 80-IA and other, by newly inserted s. 80-IB. For material purposes and in order to resolve controversy in these cases, we find new provisions as almost identically worded to those of aforesaid earlier provisions of ss. 80-I and 80-IA. Sec. 80- IA(1) similarly provides that "where gross total income of assessee includes any profits and gains derived by undertaking or enterprise from any business referred to in sub-s. (4) (such business being hereinafter referred to as eligible business), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction of amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years." Under this section deduction is to eligible business, as defined in sub-s. (4) thereof. 22. Sub-s. (5) of s. 80-IA of newly replaced and inserted provisions of Act reads as under : "(5) Notwithstanding anything contained in any other provision of this Act, profits and gains of eligible business to which provisions of sub-s. (1) apply shall, for purposes of determining quantum of deduction under that sub-section for assessment year immediately succeeding initial assessment year or any subsequent assessment year, be computed as if such eligible business were only source of income of assessee during previous year relevant to initial assessment year and to every subsequent assessment year upto and including assessment year for which determination is to be made." 2 3 . Apparently, this sub-s. (5) identically deems, for purposes of determining quantum of deduction, eligible business as only source of income of assessee during initial assessment year as well as subsequent years and has overriding effect on all other provisions of Act. 24. This ss. 80-IA(1), (5) and other like s. 80-IA(7)/80-I(6) can be studied in five broad sub-heads : (I) first, deduction under s. 80-IA(1) is of/from profits and gains included in gross total income ; (II) second, computation of deduction is made under non obstante s. 80-IA(7)/80-IA(5); (III) third, profits and gains are computed on fiction created to effect that eligible business is only source of income; (IV) fourth, fiction is created for purposes of determining quantum of deduction; and (V) fifth, fiction is for all years eligible for (deduction). 25. As regards first sub-head it may be noticed that s. 80-IA deduction is admissible in respect of profits and gains derived by eligible business which are included in gross total income. gross total income is defined in sub-s. (5) of s. 80B to mean total income computed in accordance with provisions of Act before making any deductions under Chapter VI-A of Act. It follows, therefore, as held by Supreme Court in case of Synco Industries Ltd. (supra), that deductions under Chapter VI-A can be given only if gross total income is positive and not negative. If gross total income of assessee is determined as "nil" then there is no question of any deduction being allowed under Chapter VI-A in computing total income. AO has to take into account provisions of s. 71 providing for set off of loss from one head against income from another and s. 72 providing for carry forward and set off of business losses. Sec. 32(2) makes provision for carry forward and set off of unabsorbed depreciation of particular year. effect of abovementioned provisions is that while computing total income, losses carried forward and deprecation have to be adjusted and thereafter AO has to work out gross total income of assessee. Sub-s. (2) of s. 80A specifically enacts that aggregate of deductions under Chapter VI-A should not exceed gross total income of assessee. If gross total income is found to be net loss on account of adjustment of losses of earlier years or "nil", no deduction under this chapter can be allowed. As noticed earlier sub-s. (5) of s. 80B defines expression "gross total income" to mean total income computed in accordance with provisions of Act without making any deductions under Chapter VI-A. effect of sub-s. (5) of s. 80B of Act is that gross total income will be arrived at after making computation as follows : (i) making deductions under appropriate computation provisions; (ii) including incomes, if any, under ss. 60 to 64 in total income of individual; (iii) adjusting intra-head and/or inter-head losses; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc. 26. Decision of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC) was also noticed in case of Synco Industries Ltd. (supra) wherein Supreme Court held that in view of express provision defining expression "gross total income" in sub-s. (5) of s. 80B, for purpose of Chapter VI-A, gross total income must be determined by setting off, against income, business losses of earlier years as required by s. 72, before allowing deduction under s. 80P. contention raised on behalf of assessee that deduction must first be allowed under s. 80-I and then only gross total income as computed under provisions of Act before allowing deductions under Chapter VI-A should be worked out, cannot b e accepted. It reiterated that s. 80A provides that deductions shall be allowed out of gross total income whereas sub-s. (2) restricts deductions of gross total income. It is, therefore, clear that gross total income of assessee has got to be computed in accordance with Act after adjusting losses etc., and if gross total income so determined is positive then question of allowing deductions under Chapter VI-A arises, but not otherwise. 2 7 . Referring to provisions of s. 80-I(6), Court observed that while computing quantum of deduction, AO no doubt has to treat profit derived from industrial undertaking as only source of income in order to arrive at deductions under Chapter VI-A. However, non obstante clause appearing in s. 80-I(6) of Act, is applicable only to quantum of deduction, whereas, gross total income under s. 80B(5) which is also referred to in s. 80-I(1) is required to be computed in manner provided under Act, which presupposes that gross total income shall be arrived at after adjusting loss of other division against profits derived from industrial undertaking. 28. second sub-head is emanating from provisions of s . 80-IA(7)/80-IA(5) which starts with non obstante clause reading as "Notwithstanding anything contained in any provisions of Act". It means it overrides all provisions of Act. Profits and gains of business are determined, as aforesaid, by allowing all deductions including under s. 32 and set off under provisions of ss. 70, 71 and 72. It is on balance deduction is allowed under Chapter VI-A. By this overriding provision these sections to extent provided otherwise in s. 80-IA(5) are not to be taken into consideration. Therefore whatever is stated in other provision is to be ignored. 29. third sub-head provides that profits and gains are computed on fiction created to effect that eligible business is only source of income. It is deeming provision and deeming provision is intended to enlarge/curtail meaning of particular word which includes or excludes matters which otherwise may or may not fall within provision; it should therefore, be extended to consequence and incidence which shall inevitably follow. following oft-quoted observations of Lord Asquith in East End Dwelling Co. Ltd. vs. Finsburry Borough Council (1952) AC 109, may appropriately be referred to : "If you are bidden to treat imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real consequences and incidents which, if putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from 1939 level of rents. statute says that you must imagine certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to inevitable corollaries of state of affairs." 30. Sec. 80-IA(5) bids one to treat eligible business as only source of income of undertaking as real, which is imaginary state of affairs. One must surely (imagine) as also real consequences and incidents which, if putative state of affairs had in fact existed, must inevitably have flown from or accompanied it i.e., there was no other source of income of assessee. statute says that you must imagine certain state of affairs (eligible business being only source); it does not say that having done so, you must cause or permit your imagination to boggle when it comes to inevitabie corollaries of state of affairs, that there are other sources and that against those sources unabsorbed depreciation or losses of eligible business were set off. 31. It is implicit from tenor and phraseology implied in s. 80-IA(5) that in substance, legal fiction is created by which eligible business has been treated as only source of income. In construing this legal fiction it will be proper and necessary to assume all those facts on which alone fiction can operate, so, necessarily, all provisions in Act in respect of source of income will apply. As consequence, other sources of income of assessee/undertaking would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, depreciation or loss of ineligible business which could not be set off against loss of eligible business itself has to be carried forward or set off of profits of very source of ineligible business in subsequent year. 32. contention on behalf of assessee that object of this section was not that ss. 32(2), 70, 71 and 72 would not be applicable, in our opinion, has also no force. It amounts to permit your imagination to boggle when it comes to inevitable corollaries of deemed state of affairs and also reading something which is prohibited by fiction as not there in provisions. Because of fiction, even if any set off of eligible business loss was made against other sources of income, it has to be assumed not so set off. fiction is to clarify position that deduction is to be granted only with respect to profits of eligible business, if assessee was carrying many activities and having many sources of income. "As if that were only source of income" means if there was no other source of income. If that be so depreciation and loss could not be absorbed and be set off against any other source or head of income. It is because by virtue of deeming fiction one has to assume that there is no other source of income and consequently it has to be carried forward and set off against income of this very source only for which deduction is being computed. argument that if losses incurred by assessee were set off and adjusted against profits of earlier year, there is no mandate in section to presume that it should be notionally carried forward and set off against profits of eligible business of subsequent year has effect of ignoring fiction created in provision and therefore has no force, hence, cannot be accepted. 33. words "as if such eligible business were only source of income of assessee" compel us to assume that assessee is not having any other source of income except that which is eligible to deduction under s. 80-IA which in this case is unit/undertaking, unit of mill generating electricity for assessee. As per wording of sub-s. (5) of s. 80-IA, for purposes of computation of deduction, it has to be assumed that only source of income of assessee is eligible business. income or loss of this business alone is to be considered as if that were only source. This means neither income of undertaking nor loss thereof can be set off or carried forward and set off or adjusted against any other source of income or loss. As corollary income or loss of other business or source cannot be considered or set off for determining quantum of deduction of eligible business. 3 4 . Neither income or loss of business other than eligible business of any year can be taken into consideration; nor earlier years losses of eligible business can be ignored in computing profits and gains to determine quantum of deduction under this section. Losses of eligible business are to be set off only against subsequent years income of eligible business, even though these were set off against other income of assessee in that earlier year. It is evident from and so understood and clarified by Notes on Clauses and Memorandum Explaining Provisions of Finance Bill as adopted by CBDT circular aforesaid. proposition is also recognized by various judgments. Delhi High Court in CIT vs. Dewan Kraft System (P) Ltd. (supra) held that in view of overriding provisions of sub-s. (7) of s. 80-IA, for purpose of determining quantum of deduction under s. 80-IA, profits and gains of eligible unit are to be computed as if such eligible business is only source of income of assessee and that AO adjusting profits of eligible unit against losses of other units of assessee and restricting deduction to extent of business income was held not justified. Tribunal, in Tolani Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 881 held that, as no profits were left after allowing deduction under s. 33AC, no deduction can be allowed under s. 80-I as by virtue of s. 80-I(6), as profits of ship have to be computed as if ship was only source of income. 35. In contrary situation Mumbai Bench of Tribunal in case of Addl. CIT vs. Ashok Alco Chem Ltd. (supra) similarly explained that for purpose of applying provisions contained in s. 80-IA, profits and gains of eligible business are to be computed as if eligible business were only business of assessee right from initial year and losses, depreciation or development rebate in respect of such eligible business for past assessment years were not set off against profits from other business; that there being no profit in respect of two units after set off of brought forward losses of these units, AO was therefore justified in denying deduction under s. 80-IA; wordings of s. 80-IA(7) are clear and unambiguous; and that therefore, there is no scope for conferring benefit upon assessee by ignoring or misinterpreting words of s. 80-IA(7). To quote, Bench held : "The legislature by introducing sub-s. (7) of s. 80-IA, has created legal fiction that for purpose of applying provisions contained in that sub- section, profits or gains of eligible business shall be computed as if eligible business were only business of assessee right from initial year and losses, depreciation allowance or development rebate in respect of such eligible business for past assessment years were not set off against profits from other business. language of s. 80-IA(7) is clear, according to which, taxable income of eligible business of industrial undertaking is to be ascertained as if such undertaking were independent unit owned by assessee and assessee had no other source of income. It is only consequential that unabsorbed losses, unabsorbed depreciation, etc. relating to eligible business are to be taken into account in determining quantum of deduction under s. 80-IA, even though these may have actually been set off against profits of assessee from other sources. In this view of situation, AO had rightly denied deduction under s. 80-IA in respect of these units, there being loss in respect of said unit as computed within meaning of s. 80-IA(7). CIT vs. Patiala Flour Mills Co. (P) Ltd. 1978 CTR (SC) 144 : (1978) 115 ITR 640 (SC) distinguished." 3 6 . Similarly in Prasad Productions (P) Ltd. vs. Dy. CIT (supra) Tribunal held that s. 80-I(6) is non obstante clause which creates legal fiction providing that profits and gains of new industrial undertaking are to be computed as if new industrial undertaking were only business of assessee from date of its establishment, and past years depreciation and losses are to be set off against income of assessee from that undertaking for determining its profits and gains; that therefore, new industrial undertaking is retrospectively quarantined or isolated from other income- producing activity of assessee for determining profits and gains for purpose of deduction under s. 80-I; and hence, order passed by AO allowing deduction under s. 80-I without setting off unabsorbed losses of earlier years against income of succeeding years was erroneous as well as prejudicial to interests of Revenue. 37. Again in Sri Ramakrishna Mills (CBE) Ltd. vs. Dy. CIT (supra) holding in any assessment year, if industrial undertaking suffers loss (both business and/or depreciation loss) but same has been absorbed by other income of assessee in subsequent year or years during tax holiday period, said loss will have to be adjusted against eligible profits and gains from industrial undertaking and tax holiday benefit under s. 80-I is to be computed only on balance. 38. Tribunal, Kolkata Benches, in case of ITO vs. Kanchan Oil Industries Ltd. (supra) discussed both situations of losses of other business and of business (sic-losses) of eligible business and concluded that in view of sub-s. (7) of s. 80-IA, for computing deduction under s. 80-IA, brought forward losses and unabsorbed depreciation of ineligible business cannot be deducted from income of eligible business and only unabsorbed depreciation/brought forward losses of eligible business can be so deducted. It held : "For purpose of determining quantum of deduction under sub-s. (5) of s. 80-IA, eligible business is to be treated as only source of income of assessee during relevant assessment year as provided under sub-s. (7) o f s. 80-IA. careful perusal of s. 80-IA(7) shows that s. 80-IA(7) enacts provisions of overriding nature. ......has been given overriding effect over any other provisions of IT Act....... All other provisions of Act would thus be applied subject to provisions of s. 80-IA(7) for purpose of determining quantum of deduction under sub-s. (5) of s. 80-IA. It is seen that s. 80-IA provides special mode for computation of profits and gains derived from eligible industrial undertaking under s. 80-IA............ Consequently, all deductions, allowances and losses relating to eligible business are only to be taken into account in determining amount of income of that nature which is derived or received by assessee from eligible business and which is included in his gross total income and then in determining quantum of deduction available under s. 80-IA, even though assessee may have other losses or allowances or deductions relating to some sources of income other than eligible business. language of s. 80-IA(7) itself showed that there was no scope for setting off or adjustment of expenses, deductions, losses, earlier years losses or unabsorbed depreciation, etc. arising out of other business activities or related to other sources of income of assessee against profits and gains of eligible business to which s. 80-IA applies before provisions of s. 80-IA were applied, .......Consequently, deductions, expenses and losses, etc., and unabsorbed losses, unabsorbed depreciation, etc., relating to other non-eligible business or any other source of income cannot be taken into account in computing gross total income for purpose of computing quantum of deduction admissible under s. 80-IA." 39. We concur and are in full agreement with these decisions and hold that, that is correct interpretation of s. 80-IA(5) of Act. 40. CIT(A) in our opinion erred in following decision of Calcutta High Court in case of Balmer Lawrie & Co. Ltd. (supra) which was rendered in connection with deduction under s. 80HH of IT Act which had no provisions like s. 80-I(6) or pre-amended s. 80-IA(7) or post-amended s. 80-IA(5) of IT Act. In case before Rajasthan High Court in CIT vs. Mewar Oil & General Mills Ltd. (supra), nobody pointed out existence of sub-s. (6) to s. 80-I nor was it noticed or discussed by Court though AO has sought to compute income of new undertaking for purpose of computing deductions permissible under that section by setting off loss carried forward from asst. yr. 1983-84 by treating new undertaking as only source of income against which such losses carried forward could be set off. He relied on decision in Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) and held that carried forward unabsorbed loss of priority industry was first to be reduced from total income and before computing income of assessee for purpose of deductions and it was not by reliance on and by forgetting existence of sub-s. (6) to s. 80-I. Further, it was case of rectification invoked by AO and not assessment. In aforesaid case, Tribunal confirmed order of CIT(A) on ground that aforesaid issue could not be subject-matter of rectification under s. 154 of Act and High Court upheld order of Tribunal. 41. second aspect of matter is that fiction is created for all years eligible for deduction i.e., initial year (the first year of deduction) and all subsequent and succeeding years. It is not only for particular year as evident from language used in s. 80-IA(5); it is "for initial assessment year and every subsequent assessment year upto and including assessment year for which determination is to be made". We do not find any merit in contention of Mr. Soparkar that fiction is for that year alone or that concept of initial year is dispensed with in new provision in view of s. 80-IA(1) of old provision and s. 80-IA(2)(iv)(b), sub-ss. (5), (6), and (7). Instead of defining concept separately by cl. (b) to sub-s. (12) of pre-amended s. 80-IA, sub-s. (2) itself has contained provisions of Explanation by providing period of deduction and year from which it is to start. Even otherwise plain meaning of words initial year means year in which manufacture or production or other activity begins. In decision of Chennai Bench in Mohan Breweries & Distilleries Ltd. (supra) what is decided is that deduction is allowed under s. 80-IA for 10 out of 15 years at option of assessee which means any ten years not necessarily beginning 10 years. This case has no relevance in deciding issue in this case of assessee because assessee itself had claimed deduction in returns starting from first year. It also does not throw any light in construing provision on ground that concept of initial year is dispensed with. It only could mean that operation of section starts from year deduction is first claimed and immediately succeeding initial assessment year or in subsequent assessment year. 4 2 . fourth sub-head for our consideration is that provision overrides all other provisions of Act only for computing profits and gains of eligible business for determining quantum of deduction under section. This restricts application of fiction to specified purpose and therefore it cannot be extended beyond object for which fiction is created. Once that purpose i.e., determination of quantum of deduction is over, one has to fall back to provisions of Act for computing total income as held by Bombay High Court in Synco Industries Ltd. vs. AO (supra) as upheld recently by Supreme Court in Synco Industries Ltd. vs. AO & Anr. (2008) 215 CTR (SC) 385 : (2008) 299 ITR 444 (SC). In this case assessee was engaged in business of oil and chemicals. It had unit for oil division in Sirohi and unit for chemical division in Jodhpur. For asst. yrs. 1990-91 and 1991-92 it had earned profits in both units. But in earlier years assessee had suffered losses in oil division. In relation to deductions under ss. 80HH and 80-I of IT Act, 1961, it claimed that each unit should be treated separately and losses suffered in earlier years by oil divisions were not adjustable against profits of chemical division. But since gross total income was nil AO held that assessee was not entitled to benefit of deductions under Chapter VI-A. Tribunal and High Court affirmed view of AO. On appeal to Supreme Court it is held affirming decision of High Court, that High Court was justified in holding that loss from oil division was required to be adjusted before determining gross total income and as gross total income was "nil" assessee was not entitled to claim deductions under Chapter VI-A which includes ss. 80HH and 80-I. Court held that effect of sub-s. (5) of s. 80B of IT Act, 1961, is that "gross total income" will be arrived at after making computation as follows : (i) making deductions under appropriate computation provisions; (ii) including incomes, if any, under ss. 60 to 64 in total income of individual; (iii) adjusting intra-head and/or inter-head losses; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc. Only if gross total income so determined is positive question of allowing deductions under Chapter VI-A would arise, not otherwise. It is observed that words "includes any profits" in s. 80-I(1) are important and indicate that gross total income of assessee shall include profits from priority undertaking. While computing quantum of deduction under s. 80-I(6), AO, no doubt, has to treat profits derived from industrial undertaking as only source of income in order to arrive at deduction under Chapter VI-A. However, non obstante clause in s. 80-I(6) is applicable only to quantum of deduction, whereas, gross total income under s. 80-IB(5) which is also referred to in s. 80-I(1) is required to be computed in manner provided under Act which presupposes that gross total income shall be arrived at after adjusting losses of other division against profits derived from industrial undertaking. To say that under s. 80-I(6) profits derived from one industrial undertaking cannot be set off against loss suffered from another and that profit is required to be computed as if profit making industrial undertaking was only source of income would almost render provisions of s. 80A(2) of Act nugatory. Secs. 80A(2) and 80B(5) are declaratory and apply to all sections falling in Chapter VI-A. They impose ceiling on total amount of deduction and therefore non obstante clause in s. 80-I(6) cannot restrict operation of ss. 80A(2) and 80B(5) which operate in different spheres. gross total income of assessee has first got to be determined after adjusting losses, etc., and if gross total income of assessee is "nil" assessee would not be entitled to deduction under Chapter VI-A of Act. 43. specific contention was raised in this case as to non obstante provisions of s. 80-I(6) as were applicable in that case to contend that fiction overrides all other provisions of Act and Court held : "13. contention that under s. 80-I(6) profits derived from one industrial undertaking cannot be set off against loss suffered from another and profit is required to be computed as if profit making industrial undertaking was only source of income, has no merit. Sec. 80-I(1) lays down that where gross total income of assessee includes any profits derived from priority undertaking/ unit/division, then in computing total income of assessee, deduction from such profits of amount equal to 20 per cent has t o be made. Sec. 80-I(1) lays down broad parameters indicating circumstances under which assessee would be entitled to claim deduction. On other hand, s. 80-I(6) deals with determination of quantum of deduction. Sec. 80-I(6) lays down manner in which quantum of deduction has to be worked out. After such computation of quantum of deduction, one has to go back to s. 80-I(1) which categorically states that where gross total income includes any profits and gains derived from industrial undertaking to which s. 80-I applies then there shall be deduction from such profits and gains of amount equal to 20 per cent. words includes any profits used by legislature in s. 80-I(1) are very important which indicate that gross total income of assessee shall include profits from priority undertaking. While computing quantum of deduction under s. 80-I(6), AO, no doubt, has to treat profits derived from industrial undertaking as only source of income in order to arrive at deductions under Chapter VI-A. However, this Court finds that non obstante clause appearing in s. 80-I(6) of Act, is applicable only to quantum of deduction, whereas, gross total income under s. 80B(5) which is also referred to in s. 80-I(1) is required to be computed in manner provided under Act which presupposes that gross total income shall be arrived at after adjusting losses of other division against profits derived from industrial undertaking. If interpretation as suggested by appellant is accepted it would almost render provisions of s. 80A(2) of Act nugatory and, therefore, interpretation canvassed on behalf of appellant cannot be accepted. It is true that under s. 80-I(6) for purpose of calculating deduction, loss sustained in one of units, cannot be taken into account because sub-s. (6) contemplates that only profits shall be taken into account as if it was only source of income. However, s. 80A(2) and s. 80B(5) are declaratory in nature. They apply to all sections falling in Chapter VI-A. They impose ceiling on total amount of deduction and, therefore, non obstante clause in s. 80-I(6) cannot restrict operation of ss. 80A(2) and 80B(5) which operate in different spheres. As observed earlier, s. 80-I(6) deals with actual computation of deduction whereas s. 80-I(1) deals with treatment to be given to such deductions in order to arrive at total income of assessee and, therefore, while interpreting s. 80- I(1), which also refers to gross total income one has to read expression gross total income as defined in s. 80B(5). Therefore, this Court is of opinion that High Court was justified in holding that loss from oil division was required to be adjusted before determining gross total income and as gross total income was nil assessee was not entitled to claim deduction under Chapter VI-A which includes s. 80-I also. 14. proposition of law, emerging from above discussion is that gross total income of assessee has first got to be determined after adjusting losses, etc., and if gross total income of assessee is nil assessee would not be entitled to deductions under Chapter VI-A of Act." 44. Therefore, submission that, had intention was to presume that other business or source has not to be in existence, then in that case ss. 80A(2) and 80B(5) also would/should be not applicable in restricting deduction to total income of assessee is to be rejected. contention that these sections can be applicable only when there is other source(s) of income, there cannot be any reconciliation to this decision of restricting deduction of income from industrial undertaking to amount of income as receipts by set off of losses under head "Other heads of income". We do not subscribe to view of counsel that in that case provisions of ss. 80A(2) and 80B(5) would and should not be applicable and therefore do not find any merit in this submission of assessee as well. 4 5 . Bombay High Court initially and thereafter Supreme Court ultimately have answered this question by holding that assumption under s. 80- IA(5) is only for purposes of determination of quantum of deduction under s. 80-IA and that once that computation is made, we have to come back to other provisions of Act for allowing deduction and computing income of assessee. We can better understand it by example given in High Court order. deduction under this section was assumed in Bombay case at Rs. 32 by taking assumption that there was no other source of income. Then for allowing deduction Court held that it is to be subjected to provisions of ss. 80A(2) and 80B(5) and allowed deduction only of that amount of Rs. 30 which is equivalent to gross total income of assessee. These ss. 80A(2) and 80B(5) are not provisions for determining quantum of deduction under s. 80-IA. They are for admissibility of deduction under Act after computation is made under respective sections. Court made it clear and observed : "However, non obstante clause is applicable only to quantum of deduction whereas gross total income under s. 80B(5), which is also referred to in s. 80-I(1), is required to be computed in manner provided under Act which presupposes that gross total income shall be arrived at by adjusting losses of oil division against profits of chemical division. ........ It may also be mentioned that under s. 80-I(6), for purposes of calculating deduction, loss of oil division cannot be taken into account because sub- s. (6) contemplates that only profits shall be taken into account as if it was only source of income. However, as held by us in case of CIT vs. Nima Specific Family Trust (2001) 165 CTR (Bom) 518 : (2001) 248 ITR 29 (Bom), s. 80A(2) and s. 80B(5) are declaratory in nature. They will apply to all sections falling in Chapter VI-A. They impose ceiling on total amount of deduction and, therefore, non obstante clause in s. 80-I(6) cannot restrict ss. 80A(2) and 80B(5). They operate in different spheres. Sec. 80-I(6) deals with actual computation of deduction whereas s. 80-I(1) deals with treatment to be given to such deductions in order to arrive at total income of assessee and, therefore, while interpreting s. 80-I(1), which refers to gross total income, one has to read expression gross total income in s. 80-I(1) as defined in s. 80B(5)." 46. Reliance on decision of Supreme Court in case of CIT vs. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) was also placed before Bombay High Court and it was held to be not applicable to in such situation. Court held that : "In our view judgment of Supreme Court, on facts, does not apply to present case. In that matter, assessee was public limited company engaged in manufacture of automobile spares. During asst. yr. 1966-67, assessee commenced another activity, viz., manufacture of alloy steels. Both Activities fell within Fifth Schedule to Act. assessee sustained loss in manufacture of alloy steel, whereas profits were earned from manufacture of automobile spares. assessee claimed relief under s. 80E, as it then stood. AO declined to grant relief on ground that assessee had ignored losses incurred in alloy steel industry. He held that assessee would be entitled to deduction under s. 80E on profits from manufacture of automobile spares only after setting off loss in alloy steel. He, accordingly, granted limited relief to assessee under s. 80E. Ultimately, matter reached Supreme Court. It was held by apex Court that legislature, under s. 80E, had clearly stipulated that while computing deduction, following conditions were required to be satisfied, viz., that it must be company to which s. 80E applied; that total income, as computed in accordance with Act, should include profits and gains attributable to business or industry mentioned in s. 80E without taking into account provisions of s. 80E and lastly, from profits and gains attributable to such business, deduction has to be allowed of amount equal to eight per cent, of profits and effect must be given to that deduction when computing total income of company. Supreme Court held further that object of s. 80E was properly served only by confining application of that section to profits of single industry. In our view, controversy before this Court in present case was not controversy before Supreme Court in case of CIT vs. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC). Under s. 80-I(6), profits of chemical division are required to be treated as if they were only source of income. That, losses from oil division are required to be ignored. That, while calculating quantum of deduction, profits of chemical division alone are to be taken. Upto this stage, there is no dispute. However, after calculating deduction on basis that profits from chemical division was only source of income, one has to give effect to computed deduction in order to arrive at total income of company and while giving effect, one has to consider provisions of s. 80-I(1), r/w ss. 80A(2) and 80B(5). In other words, in example given by us in CIT vs. Nima Specific Family Trust (2001) 165 CTR (Bom) 518 : (2001) 248 ITR 29 (Bom), even if total amount of deduction under ss. 80HH and 80-I is Rs. 32, but gross total income is Rs. 30, then to that extent, amount of deduction shall stand reduced. That, while calculating gross total income of company, one has to adjust losses from one priority unit against profits of other priority unit and if resultant gross total income is nil , then assessee cannot claim deduction under Chapter VI-A. In circumstances, judgment of Supreme Court in Canara Workshops (P) Ltd. s case (supra) has no application to facts of present case." 47. In decision of Tribunal, Bombay Benches, in case of M. Pallonji & Co. (P) Ltd. vs. Jt. CIT (supra) which is claimed to be in favour of assessee it was held as under : "The lower authorities have erred in setting off of unabsorbed depreciation of earlier assessment year against profit of wind mill unit pertaining to current assessment year and, thereby restricting benefit of s. 80-IA to assessee company. As matter of fact, it is to be seen that assessee company had income from various business sources including that of wind mill project. As assessee was entitled for 100 per cent depreciation on wind mills, same was claimed but profit of wind mill project by itself was not sufficient to absorb entire depreciation claimed by assessee. But depreciation not so absorbed exclusively by profit of wind mill project was concurrently absorbed by profits of assessee from other business also. So while computing income for immediately preceding asst. yr. 1996-97, 100 per cent depreciation claimed by assessee company on wind mills has been de facto absorbed and exhausted. Therefore, there remains nothing to be further carried forward to impugned asst. yr. 1997-98. In such circumstances, AO is not justified in again making notional concept of unabsorbed depreciation pertaining to wind mill project relating to earlier assessment year and notionally bring same to account of impugned assessment year and setting off against profit of wind mill project for impugned assessment year. Such notional adjustment is not called for and not contemplated in claim of deduction provided in s. 80-IA. As entire 100 per cent depreciation claimed by assessee for earlier asst. yr. 1996-97 has already been set off against income from business for said assessment year, there remains nothing to be brought forward to account of impugned asst. yr. 1997-98. Therefore, claim of assessee has to be allowed by assessing authority on basis of profit of wind mill project for impugned assessment year not fettered by any notional amount of unabsorbed depreciation pertaining to preceding assessment year. Indian Transformers Ltd. vs. CIT (1972) 86 ITR 192 (Ker) and CIT vs. L.M. Van Moppes Diamond Tools (India) Ltd. 1977 CTR (Mad) 168 : (1977) 107 ITR 386 (Mad) applied." 48. There is no discussion at all either in this case or cases relied therein of Kerala and Madras High Courts regarding fiction as created in s. 80-I(6)/80-IA(5) and therefore these cases cannot lead us anywhere. 49. Similarly Rajasthan High Court in case of CIT vs. Mewar Oil & General Mills Ltd. (2004) 186 CTR (Raj) 141 : (2004) 271 ITR 311 (Raj), though also held that losses which have been absorbed in earlier years income from other sources, same cannot be notionally carried forward and set off while computing deduction of eligible business, but this case has not noticed non obstante provisions of s. 80-I(6)/80-IA(5) and, therefore, there is no discussion on this point in that decision. It would similarly, therefore, be not of any help to us. 50. brief facts of Joyco India (P) Ltd., intervener before Special Bench, are that during asst. yr. 1999-2000, intervener was carrying on business in three different units, namely, (i) bubble gum unit, (ii) plain toffee unit and (iii) trading unit. It has profit in bubble gum unit of Rs. 6,84,51,624 and in plain toffee unit Rs. 61,07,791 but loss in trading unit Rs. 17,92,646; gross total income being Rs. 7,27,66,770. Since bubble gum and plain toffee units were eligible for full tax holiday under s. 80-IA of Act, assessee claimed full deduction but restricting it equivalent to gross total income amounting to Rs. 7,27,66,770. claim of intervener was that losses of plain toffee unit were set off against income of those very years, namely, profits of bubble gum unit and its claim for deduction under s. 80-IA of Act in respect of profits derived from bubble gum unit as reduced by such losses in asst. yrs. 1997-98 and 1998-99. AO denied deduction under s. 80-IA of Act for plain toffee unit on ground that losses of earlier years pertaining to said unit should first be set off against profits and since after adjusting losses of plain toffee unit relating to asst. yrs. 1997-98 and 1998-99 there was no resultant profit, no deduction under s. 80-IA of Act was admissible to plain toffee unit. 5 1 . submission of intervener is that AO erred in denying deduction under s. 80-IA in respect of profits of plain toffee unit by notionally adjusting absorbed losses relating to earlier assessment years by invoking provisions of sub-s. (5) of that section. (a) First ground is that s. 80-IA(5) provides that eligible unit claiming deduction under s. 80-IA of Act would be treated as separate source of income and deduction has to be allowed only vis-a-vis profits derived from eligible unit unaffected by profits/losses of other units owned by assessee. This ground on contrary, in our opinion warrants view we have taken, instead of holding that AO erred in denying deduction. (b) second ground is that Revenue has grossly misconstrued application of aforesaid provisions of sub-s. (5) of s. 80-IA of Act as it does not provide that losses/depreciation of eligible unit relating to any earlier assessment year(s) which are already absorbed against profits of other units/other incomes in respective year(s) should once again be notionally brought forward and adjusted against profits of current assessment year for computing deduction allowable under s. 80-IA of Act. We have already held above that when assumption is that assessee has that source as only source of income, one has to assume there could not be any set off of any depreciation or loss of eligible business against any other source which is deemed not in existence by fiction created in sub-s. (5) of s. 80-IA. (c) third ground is that effects of deeming fiction enacted in provisions of s. 80-IA(5) of Act pointed out by learned counsel of intervener, that it only seeks to set at rest long standing controversy, namely, whether for computing deduction losses incurred in one eligible unit are required to be set off against profits of other eligible undertaking or not; and that aforesaid controversy came up for consideration before apex Court in case of CIT vs. Canara Workshops (P) Ltd. (supra), wherein it is held that in computing profits for purpose of deduction under s. 80E of Act, losses incurred by assessee in priority industry could not be set off against profits of another priority industry, referring with approval decision of Calcutta High Court in case of CIT vs. Belliss & Morcom (I) Ltd. (1982) 26 CTR (Cal) 76 : (1982) 136 ITR 481 (Cal) delivered in context of s. 80-I of Act wherein it was held that it is not permissible to compute profits of priority industry respecting which relief is claimed by taking into account depreciation losses from other industries; and that provisions of sub-s. (5) of s. 80-IA merely give legislative sanction/statutory recognition to stand taken by assessee and subsequently approved by apex Court in case of Canara Workshops (supra) to avoid any unnecessary controversy/ debate on issue, is half true. other half, which is left out is that unabsorbed depreciation and losses of eligible unit are also not deemed to be set off against other income because of assumption of one source only to overcome situation and to give effect to following observations by Supreme Court in Patiala Floor Mills (supra) pointing out absence of fiction in following words while rejecting Revenue s similar claim for period when such fiction was not there in statute : "Sub-s. (1) of s. 80J does not create legal fiction that for purpose of applying provision contained in that sub-section, profits or gains of new industrial undertaking shall be computed as if new industrial undertaking were only business of assessee right from date of its establishment or losses, depreciation allowance or development rebate in respect of new industrial undertaking for past assessment years were not set off against profit from other business". It is so observed in decision of Mumbai Bench of Tribunal in case of Ashok Alco Chem Ltd. (supra) that in sub-s. (7) of s. 80-IA of Act, legislature has created legal fiction by observing "s. 80-IA was introduced in IT Act with retrospective effect from 1st April, 1990. Reading language of s. 80-IA(7) with underlined observations of Supreme Court, it will be clear that legislature by introducing sub-s. (7) of s. 80-IA, has created legal fiction that for purpose of applying provisions contained in that sub- section, profits or gains of eligible business shall be computed as if eligible business were only business of assessee right from initial year and losses, depreciation allowance or development rebate in respect of such eligible business for past assessment years were not set off against profits from other business. Thus, legislature has covered lacuna, as it was in s. 80J by creating legal fiction by introducing sub-s. (7) of s. 80-IA". (d) And fourth ground is that though it true that origin of unabsorbed losses/depreciation carried forward in hands of assessee to year in which deduction under s. 80-IA of Act is to be allowed, must be traced and if unabsorbed losses/depreciation relates to eligible undertaking, such unabsorbed losses/depreciation must be set off against profits of eligible undertaking for computing such deduction. This has to be done, irrespective of option available to assessee under s. 72/32 of Act to adjust unabsorbed losses/depreciation against profits of any other undertaking/other incomes and not against profit of eligible undertaking. Again it is half true and half is that even if losses of eligible business are set off against other sources income in earlier year, it is to carried forward and set off against profit of year of claim because of fiction that there was no other source existed in realty. 52. set off of unabsorbed losses and depreciation are governed by Chapter VI and s. 32(2) of Act. Once in accordance with said provisions unabsorbed losses/depreciation are set off against any income, under provisions of Act there was no provision for notionally carrying forward such absorbed losses. It was so held by decision of Supreme Court in Patiala Floor Mills (supra). But after insertion in 1980 of non obstante clause like sub-s. (6) in s. 80-I and subsequently in sub-s. (5) in s. 80-IA, it is to be assumed for purposes of determination of quantum of tax holiday deduction that eligible business was and is only source throughout and therefore question of intra heads or inter heads does not arise and consequently one has to assume unabsorbed depreciation or loss were not set off and have to be notionally brought forward for setting off same against profits of eligible undertaking for computing deduction under s. 80-IA of Act. 5 3 . Referring to case before Rajasthan High Court in CIT vs. Mewar Oil & General Mills Ltd. (supra), it is emphatically submitted by Mr Vora that aforesaid decision of Rajasthan High Court, being only High Court decision, directly on point, it is well-settled, is binding on Bench, as has been held in CIT vs. Abhay Kumar Jain (2005) 196 CTR (MP) 474 : (2006) 281 ITR 431 (MP); CIT vs. S.A.E. Head Office Monthly Paid Employees Welfare Trust (2004) 192 CTR (Del) 70 : (2004) 271 ITR 159 (Del); CIT vs. Sarabhai Sons Ltd. (1983) 33 CTR (Guj) 268 : (1983) 143 ITR 473 (Guj), 486; and that decision does not lose its binding force merely because sub-s. (6) of s. 80-I has not been specifically reproduced/incorporated in judgment since : (a) s. 80-I has been specifically referred and considered by Court; and (b) arguments based on language of sub-s. (6), similar to one addressed before this Bench, were also very much raised and considered by Court. Reference, in this regard, was made to Bailabhdas Mathuradas Lakhani AIR 1970 SC 1002, 1003 wherein their Lordships observed in context of binding effect of decision of Supreme Court on High Court that : "4.......... decision was binding on High Court and High Court could not ignore it because they thought that relevant provisions were not brought to notice of Court. Following aforesaid decision, Supreme Court in Director of Settlements, AP vs. M.R. Apparao AIR 2002 SC 1598, 1606 observed : "7............The decision in judgment of Supreme Court cannot be assailed on ground that certain aspect were not considered or relevant provisions were not brought to notice of Court (See AIR 1970 SC 1002 and AIR 1973 SC 794).........." 54. We do not find any merits in these submissions of Mr. Vora. Firstly, Supreme Court was dealing with binding nature of Supreme Court decision on High Court, whereas we are dealing with decision of High Court and that too of High Court having no jurisdiction over case arising from different State, which though has high persuasive value is not binding in other jurisdiction. Secondly, decision of Rajasthan High Court has not dealt with and was also not addressed to deal with controversy by noticing non obstante provisions of s. 80-I(6)/80-IA(5) aforesaid. Thirdly, in any case issue before Rajasthan High Court was whether AO could be said to be justified to invoke s. 154 to rectify mistake which on contentious matter is not permitted. Fourthly, decision without noticing existing provision of law governing very issue in dispute cannot shut doors of Tribunal in considering and applying provisions of law de hors contrary decision of High Court. This is because statutory provision supersedes contrary decision of any Court including that of High Court or even Supreme Court and has ultimate force of law having greater force. Fifthly, in first case it was not actual non-consideration of provision but as Supreme Court itself says in underlined (italicised) portion by intervener itself "because they thought that relevant provisions were not brought to notice of Court ". 55. It is true that in case of Director of Settlement, AP vs. M.R. Apparao (supra) Supreme Court observed in para 7 of its judgment that decision in judgment of Supreme Court cannot be assailed on ground that certain aspects are not considered or relevant provisions of Act is not brought to notice of Court, but these observations were based on decision of Supreme Court in case of Ballabhdas Mathuradas Lakhani (supra) wherein Supreme Court, as stated above, has made observation that High Court could not ignore decision of Supreme Court because, "they thought" that relevant provisions were not brought to notice of Court. There was actually no ignorance. We, however, find in para 12 of judgment of Supreme Court s observation in Apparao case (supra) as under : "Mr. Rao then placed reliance on yet another decision of this Court in case of A-One Granites vs. State of U.P. & Ors. (2001) 2 SCC 537 to which one of us (Pattanaik, J.) was party. In that particular case applicability of r. 72 of U.P. Minor Minerals (Concession) Rules, 1963 was one of bone of contention before this Court, and when earlier decision of Court in Prem Nath Sharma vs. State of U.P. (1997) 4 SCC 552, was pressed into service. It was found that in Prem Nath Sharma s case applicability of r. 72 had never been canvassed and only question that had been canvassed was violation of said Rules. It is in this context, it was held by this Court in Granite s case as question regarding applicability of r. 72 of Rues having not been even referred to, much less considered by Supreme Court in earlier appeals, it cannot be said that point is concluded by same and no longer res integra . This dictum will have no application to case in hand on question whether judgment of this Court in Civil Appeal No. 398 of 1972 can be held to be law declared under art. 141." 56. In view of above, it gets crystalised that when provision of statute is not considered, it cannot be said that point is concluded by Supreme Court decision and same was no longer res integra. These decisions, therefore, are of no help in resolving issue. decision of Rajasthan High Court wherein provisions of s. 80-I(6) were not specifically discussed nor brought to notice of High Court, cannot therefore be said to have concluded issue, and consequently same cannot be said to be binding decision. 5 7 . contention of Mr. Vora that to read legal fiction, namely, overriding ss. 32(2), 70, 71 and 72 is also covered by provisions of sub-s. (5) of s. 80-IA of Act would clearly tantamount to reading words into section at cost of doing violence to language of provision, is not based on correct interpretation of fiction created. statement of doing violence would, in our opinion, on contrary be more appropriate in vice versa situation i.e., by not assuming legal effect of fiction and holding that it does not override provisions of ss. 32(2), 70, 71 and 72 would be tantamount to doing violence to language used in fiction created by statute, which violence, we agree is not at all permissible in law. 5 8 . There is also no force in submission that plain and simple interpretation of sub-s. (5) of s. 80-IA of Act nowhere states that losses of eligible undertaking shall be notionally carried forward to subsequent year(s) and adjusted against profits in subsequent year(s) despite fact that losses in earlier years had actually been set off against profits of other unit/other income has no force and amounts to ignoring true import of fiction. When fiction is created one has to assume that putative state of affairs as real. deeming fiction in s. 80-IA(5) of Act, as stated earlier, not only provides that profits of eligible unit has to be considered on stand alone basis and it does not required to be adjusted against loss in other unit(s) but also that its own losses are to be assumed as not adjusted against other sources and are carried forward to set off against this source of income alone. Though we agree that origin of unabsorbed losses/depreciation carried forward in hands of assessee to year in which deduction under s. 80-IA of Act is to be allowed, must be traced and if unabsorbed losses/depreciation relates to eligible undertaking, such unabsorbed losses/depreciation must be set off against profits of eligible undertaking for computing such deduction, but such unabsorbed losses are to be found out on hypothesis that assessee had eligible source as only source of income and absorbed losses against other sources were not absorbed in absence of any other source assumed to be not in existence because of fiction. 59. We have no quarrel in proposition of law stated by Mr. Vora that CBDT Circular No. 281 explaining provisions of Finance (No. 2) Act, 1980 is not binding on Bench in view of UCO Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC), 896; Keshavji Ravji & Co. vs. CIT (1990) 82 CTR (SC) 123 : (1990) 183 ITR 1 (SC), 17; J.K. Synthetics Ltd. vs. CBDT 1972 CTR (SC) 252 : (1972) 83 ITR 335 (SC); Commr. of Customs vs. Indian Oil Corporation Ltd. (2004) 187 CTR (SC) 297 : (2004) 267 ITR 272 (SC), but it is just explaining law as we have discussed above. In any case it is not simple case of circular but explanation by Finance Minister in Memorandum explaining budget proposal later incorporated in circular. 60. It is true as contended by Mr. Vora that deeming fiction has to be strictly construed and cannot be extended beyond its legitimate field, but what is legitimate field ? When you are bidden to assume state of affairs you cannot boggle your mind and assume putative state of affairs as not real. Therefore, though losses were set off against other sources income, they are to assumed as not set off in absence of existence of another source and for computing profit and gains for purposes of determination of quantum of deduction one has to once again notionally bring back already set off losses, etc, and set off same against profits and gains in year in (which) deduction is claimed. Sec. 80-IA(5) of Act seeks to regard eligible unit as separate source of income so as to separately determine carry forward and set off of losses in hands of that unit. Such interpretation is not in our opinion contrary to scheme of Act whereby aggregate profits and losses of all units owned by assessee are pooled together and taxed in hands of assessee, if we keep in mind that object of fiction is only for determining quantum of deduction and nothing beyond and therefore one cannot decry assumption of multiple assessments for same assessee owning numerous eligible units, by treating each eligible unit as separate assessee. 61. mandate to carry forward of losses/depreciation notionally has to be read into sub-s. (5) of s. 80-IA of Act by very nature of language therein and same would not amount to reading words in provision or ignoring settled law that no words could be added or subtracted on ground of legislative intendment or otherwise : VVS Sugars vs. Government of AP 114 STC 47 (SC) (Constitution Bench); Vikrant Tyres Ltd. vs. ITO (2001) 166 CTR (SC) 1 : (2001) 247 ITR 821 (SC); CIT vs. Vadilal Lallubhai 1972 CTR (SC) 321 : (1972) 86 ITR 2 (SC), 9; CIT vs. TVS Lean Logistics Ltd. (2007) 212 CTR (Mad) 536 : (2007) 293 ITR 432 (Mad). 62. Mr Vora also referred to following decisions wherein it has been similarly held in favour of assessee; (i) M. Pallonji & Co. (P) Ltd. vs. Jt. CIT (supra); (ii) Samkrg Pistons & Rings Ltd., ITA Nos. 726 and 727/Hyd/ 2002. From these decisions also we do not get any assistance as these have not appreciated true import of fiction created by non obstante clause of sub-s. (6) of s. 80-I or sub-s. (5) of s. 80-IA aforesaid. 6 3 . In our opinion only harmonious construction of s. 80-IA(5), consistent with object in allowing deduction only to profits and gains of eligible business would be that (a) deduction under that section would be computed with reference to profits of eligible unit, unaffected by losses suffered in other units; (b) in case of loss suffered by eligible unit, such loss would not be set off against profits of other units/other business/other incomes in initial year of assessment or subsequent years of eligible years of assessments; (c) where losses of eligible unit remained to be adjusted against that very source they are to be carried forward to subsequent year(s), and set off in succeeding year(s), and on balance profit alone deduction admissible would be computed; (d) where there are no losses of eligible unit carried forward (in view of set off against profits of that very source), it is mandate of law that losses of earlier years, though already absorbed against other sources they are once again be notionally brought forward and set off against profits of eligible unit to compute eligible deduction. (e) deduction would be limited to gross total income; 64. Mr. Vora then advocated for liberal construction by citing decision of Supreme Court in case of Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC); Keshavji Ravji & Co. (supra); CIT vs. Strawboard Manufacturing Co. Ltd. (1989) 77 CTR (SC) 75 : (1989) 177 ITR 431 (SC); CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 104 CTR (SC) 243 : (1992) 196 ITR 149 (SC); CIT vs. Rajesh Kumar Jalan (2006) 206 CTR (Gau) 361 : (2006) 286 ITR 274 (Gau); P.R. Prabhakar vs. CIT (2006) 204 CTR (SC) 27 : (2006) 284 ITR 548 (SC); and for adopting in favour of assessee and against Revenue where two interpretations are possible as held in decisions : Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC); Asstt. CIT vs. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC); CIT vs. Orissa Cement Ltd. (2002) 173 CTR (Del) 317 : (2002) 254 ITR 24 (Del), 29; Dr. Prannoy Roy vs. CIT (2002) 172 CTR (Del) 465 : (2002) 254 ITR 755 (Del), 770, but we find that when there is clear provision of law one cannot resort to liberal or favourable interpretation by assumed doubt. It is trite law that when language of text is clear and unambiguous it has to adopt literal construction and one should not indulge in doing violence to, language and adopting theories of "liberal" or "favourable" construction of statutory provision. That is golden rule of interpretation recognized centuries over. 65. To conclude we answer question referred in affirmative, in favour of Revenue and against assessee, in terms that in view of specific provisions of s. 80-IA(5) of IT Act, 1961, profit from eligible business for purpose of determination of quantum of deduction under s. 80-IA of Act has to be computed after deduction of notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years. 6 6 . In result, Revenues appeals are allowed and point canvassed by respondent assessee and intervener is rejected. *** ASSISTANT COMMISSIONER OF INCOME TAX v. GOLDMINE SHARES & FINANCE (P) LTD.