SEN, J.

(1) IN the assessment year 1971-72, the corresponding accounting year ending on June 30, 1970, G. Atherton and Co. (P) Ltd. was assessed to income-tax. In the said year, the assessee was found to have suffered a business loss computed at Rs. 1,00,464. The assessee, however, received by way of interest on securities a gross amount of Rs. 180, interest from bank being Rs. 109 and earned income from dividend, Rs. 1,12,000.

(2) THE Income-tax Officer by deducting from the business loss, the three items of positive income computed the net profit of the assessee at Rs. 11,825 and then deducted Rs. 94,989 claimed in the return on account of depreciation. The total loss suffered by the assessee was thus computed to be Rs. 83,174.

(3) ON an appeal to the Appellate Assistant Commissioner against the assessment, the assessee contended that it was entitled to deduction under Section 80m of the Income-tax Act, 1961 ("the Act"), and that the Income-tax Officer was not justified in disallowing the same. The Appellate Assistant Commissioner held that as the income computed resulted in a net loss, there was no question of allowing any deduction under Section 80m.

(4) FROM the order of the Appellate Assistant Commissioner, there was a further appeal by the assessee to the Tribunal. It was contended by the assessee in the appeal that the computation of its income was erroneous inasmuch as depreciation has been set off by the Income-tax Officer against the balance of all the heads of income. The income of the assessee from business being a loss, a negative income, there could be no further deduction of depreciation, which had to be carried forward to subsequent years under Section 32 (2) of the Act.

(5) IT was contended further that the entire amount of Rs. 1,12,000 being dividend income could not be set off against the business loss. Under Section 80m, only 40 per cent. thereof was assessable and could be so set off. The balance 60 per cent. remained available for deduction under Section 80m.

(6) THE Tribunal rejected the contentions of the assessee holding, inter alia, that according to commercial principles, depreciation having been shown in the accounts should be included in the profit and loss of business. Section 32 (2) of the Act would only apply where the assessee had no other source of income. The Tribunal further held that under Section 71 of the Act, a business loss could be set off against income under any other head and in the instant case, it has been correctly set off against the dividend income.

(7) ON the application of the assessee under Section 256 (1) of the Act, the following question has been referred by the Tribunal, as a question of law arising out of its order, for the opinion of this court : "whether, on the facts and in the circumstances of the case, the assessee was entitled to a deduction under Section 80m of the Act in the instant assessment year "

(8) AT the hearing before us, the learned advocate for the assessee drew our attention to the relevant sections of the Income-tax Act, 1961, and the Indian Income-tax Act, 1922 ("the 1922 Act"), the material portions of which are set out as follows : the INCOME-TAX ACT, 1961

"section 2.--In this Act, unless the context otherwise requires,- -. . . (45) total income means the total amount of income referred to in Section 5, computed in the manner laid down in this Act ; section 29.--Income from profits and gains of business or profession, how computed.--The income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43a. Section 32.--Depreciation.-- (2) Where, in the assessment of the assessee. . . . . full effect cannot be given to any allowance under. . . . . Subsection (1) in any previous year owing to there being no profits or gains chargeable for that previous year,. . . . . then,. . . . . the allowance. . . . . to which effect has not been given,. . . . . shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance,. . . . . Section 71,--Set off of loss from one head against income from another.-- (1) Where in respect of any assessment year the net result of the computation under any head of income. . . . . is a loss. . . . . he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. Section 72.--Carry forward and set off of business losses.-- (1) Where for any assessment year, the net result of the computation under the head profits and gains of business or profession is a loss to the assessee,. . . . . and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off. . . . . . shall,. . . . . . . be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year :. . . . . (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on :. . . Section 80a.--Deductions to be made in computing total income.-- (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 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 income of the assessee. Section 80b.--Definitions.-- (5) gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. . . . . Section 80m.--Deduction in respect of certain inter corporate dividends.-- (1) Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to- -. . . (b) in respect of such income by way of sixty per cent. of dividends other than the dividends referred to such income. in Clause (a). THE INDIAN INCOME-TAX ACT, 1922 Section 24.--Set off of loss in computing aggregate income.-- (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year :. . . (2) Where any assessee sustains a loss of profits or gains in any year,. . . . . . in any business, profession or vocation, and the loss cannot be wholly set off under Sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year,. . . . . "

(9) CONSTRUING the said sections, the learned advocate for the assessee submitted that under Section 72 of the Act, the assessee was free to choose how much of his business loss he would set off in the relevant year and how much he would carry forward. The section entitles the assessee to have such loss set off which does not mean that the assessee was obliged to do so. The learned advocate also relied on a circular issued by the Central Board of Revenue being Circular No. 26 of 1955 dated July 7, 1965. In the said circular, the Central Board of Revenue reiterated the general principle that in fiscal enactments where the words used were neutral, the construction most beneficial to the assessee should be adopted in complying with the provisions.

(10) THE learned advocate further submitted that the entire dividend income, viz. , Rs. 1,12,000, could not be set off against the businesss loss. On a proper construction of Section 80m, only 60 per cent. was assessable under the head "dividend income in the relevant year". Therefore, the business loss could be set off only against 40 per cent. of such dividend income. In support of his contention, the learned advocate relied on the recent decision of the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 [LQ/SC/1985/208] , where the Supreme Court overruled its earlier decision in the case of Cloth Traders P. Ltd. v. Addl. CIT [1979] 118 ITR 243 [LQ/SC/1979/272] and laid down that the deduction under Section 80m was not from the gross total income but from income by way of dividends.

(11) THE learned advocate for the Revenue contended to the contrary and submitted that the assessees computation was erroneous inasmuch as the depreciation suffered by the assessee was not being added to the business loss to determine the net result of the business. It was submitted that the construction of Section 72 (1) as suggested on behalf of the assessee was not correct and there could not be a partial set off of the business loss from the other heads of income at the choice of the assessee.

(12) THE learned advocate contended further that the contention of the assessee that 60 per cent. of dividend income of the assessee was not assessable under the provisions of Section 80m was not correct. Section 80m did not lay down that any part of dividend income was not assessable. It provided a relief admissible on the total income after the gross total income of the assessee was computed in terms of the other provisions of the Act. The dividend in its entirety was assessable and was available for set off against the business loss. Only after the gross total income was computed would the question of relief under Section 80m arise. In support of the respective contentions of the parties, the following decisions were cited at the Bar :

(a)Aluminium Corporation of India Ltd. v. CIT [1958] 33 ITR 367 (Cal) : In this case, a Division Bench of this court held that under Section 10 (1) of the 1922 Act, depreciation allowance in respect of a business should first be set off against the profit of that business in that year and if it was not exhausted, it should be set off against the profits of other business carried on by the assessee. If the allowance was still not exhausted, it had to be set off under Section 24 (1) of the 1922 Act against the profits under other heads of income. (b) Seth Jamnadas Daga v. CIT : In this case, it was held by the Supreme Court that an assessees share in loss incurred by a registered firm where the assessee was a partner had to be set off against the assessees share of profits in an unregistered firm where the assessee was also a partner in order to determine the rate at which other income of the assessee would be taxed, though the assessees share of profit in the unregistered firm was exempt from tax in the hands of the assessee and though the assessee would be entitled to carry forward his share of the loss in the registered firm under Section 24 (2), (c) Indore Malwa United Mills Ltd. v. CIT [1962] 45 ITR 210 (SC) ; The assessee in this case had business income both inside and outside the taxable territory of India and prior to the relevant assessment year was taxed as a non-resident. In the relevant assessment years when the assessee was taxed as a resident, it claimed that it was entitled to carry forward and set off the loss in the earlier assessment years suffered outside the taxable territory against its business income. The Supreme Court held that the expression "profits or gains" in Section 24 referred to profits and gains assessable in the taxable territory. As the profits or gains of the assessee outside the taxable territory in the earlier assessment years was not liable to be assessed, the loss incurred in the said years outside the taxable territory could not be also carried forward and set off as claimed. (d) Bank of India Ltd. v. CIT [1969] 72 ITR 157 (Bom) : Thisdeci-sion was cited for the following observations of the Bombay High Court (at page 161) : ". . . . . when the question is of granting relief to the subject in the matter of taxation, there is no room for the application of the rule of strict construction, but, on the other hand, a liberal construction should be placed in favour of the subject on the relevant statutory provision. . . . . " (e) CIT v. Naga Hills Tea Co. Ltd. : This decision of the Supreme Court was cited for the following observations (at page 240) : ". . . If a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee, has got to be accepted. This is a well-accepted view of law. " (f) Mahalaxmi Sugar Mills Co. Ltd. v. CIT : In the relevant assessment year, the assessee in this case had incurred business loss in India and had also received dividend from shares held in Pakistan. The profits of the Pakistan company were wholly taxable in Pakistan under the Agreement for Avoidance of Double Taxation entered into between the two countries and the dividend had been taxed in Pakistan. It was held by the Delhi High Court that as the Pakistan dividend was not assessable to tax in India, the same was not assessable income in India and the assessees loss in India could not be set off against the Pakistan dividend, under Section 71. If the set off was allowed, the assessee would be deprived of the benefit of the exemption under the Avoidance of Double Taxation Agreement and would also be deprived of the benefit of carrying forward its business loss in India. (g) CIT v. Harprasad and Co. P. Ltd. : In this case, the assessee who had suffered a loss on sale of shares sought to include the loss in its return as a capital loss to be carried forward and set off against future capital gains. In the relevant assessment years, profits under the head "capital gains" were not taxable. The Supreme Court held that as capital gain was not taxable and did not form part of the assessees total income during the relevant assessment years or even in the subsequent assessment years, the same could not be carried forward. The Supreme Court observed as follows (at page 125) : ". . . . . if the loss is from a source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee is required to show the same in the return nor is the Income-tax Officer under any obligation to compute or assess it, much less for the purpose of carry forward . " (h) National Engineering Industries Ltd. v. CIT : In this case, a Division Bench of this court considered the question whether deduction under Section 80m could be claimed by an assessee where his total income was computed at a loss. It was observed as follows (at page 255) :". . . . . the statutory provisions referred to above conclude the controversy. Undoubtedly, the assessee is entitled to deduction under Section 80m but the amount of deductions cannot exceed its gross total income under Section 80a. Such gross total income means the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A or deductions in respect of annuity deposit paid under Section 280-O. In the instant case, such gross total income is found to be a net loss in the year concerned, because of the losses suffered during the year. Therefore, there is no question of any further deduction of 60 per cent. of the dividend earned under Section BOM. The said dividend is to be adjusted against the business loss and the net income of the assessee computed at a negative figure. " (i) Dasaprakash Bottling Co. v. CIT : In this case, it was held by the Division Bench of the Madras High Court that allowance of depreciation under Sections 32 and 34 of the Act was available to an assessee in all cases and even if an assessee had not furnished the particulars of such depreciation, it would be open to the Income-tax Officer to allow such depreciation in computing the taxable income. (j) CIT v. Malwa Sugar Mills Co. Ltd. : This decision of another Division Bench of this court was cited for the proposition that the losses carried forward from earlier years could not be set off before deducting the depreciation allowance for the current year. (k) Beco Engineering Co. Ltd. v. CIT : In this case, a Division Bench of the Punjab and Haryana High Court held that when the assessee did not claim depreciation and extra shift allowance, the Revenue was not entitled to compute the taxable, income allowing the same and if book profit resulted to the assessee without the depreciation, the assessee would be entitled to deduction provided in Section 80j of the Act to the extent of its gross total income. (l) Distributors (Baroda) P. M/s case; In this case, the Supreme Court overruled its earlier decision in Cloth Traders P. Ltd. s case [1979] 118 ITR 243 [LQ/SC/1979/272] and followed another of its earlier decisions in Cambay Electric Supply Industrial Co. Ltd. v. CIT. It was held that income by way of dividends from a domestic company to be included in the gross total income of the assessee within the meaning of Section 80b (5) of the Act would be income computed in accordance with the other provisions of the Act, viz. , after deduction of interest on moneys borrowed for earning such income. The assessee would be entitled to obtain relief under Section 80m only on the amount of dividend so computed as income and not on the gross dividend. In Cloth Traders P. Ltd. s case [1979] 118 ITR 243 [LQ/SC/1979/272] , it had been held by the Supreme Court that deduction under Section 80m can be made with reference to the full amount as dividend received by the assessee and not on the amount of dividend computed in accordance with the provisions of the Act. In Cambay Electric Supply Industrial Co. Ltd. s case [1978] 113 ITR 84 [LQ/SC/1978/133] , the Supreme Court had construed Section 80e of the Act and held that the deduction permissible under the said section in respect of profits and gains attributable to the business of generation or distribution of electricity would have to be given in respect of such profits and gains computed in accordance with the provisions of the Act taking into account unabsorbed depreciation and unabsorbed development rebate before arriving at the figure of such profits and gains for the purpose of further deduction under Section 80e of the Act.

(13) ON a consideration of the entire facts and circumstances, the respective submissions of the parties and the decisions cited, we are unable to accept the computation as suggested on behalf of the assessee. Under Section 71, the assessee is entitled to have the entirety of its business loss from one head set off against his income under any other head. The section does not permit the assessee to have only a part of the loss to be so set off against income from other heads and carry forward the balance. Such computation would be wholly artificial, contrary to the accepted principles of accountancy and will not reflect the correct income of the assessee in any particular year computed in accordance with commercial principles. The words "is not wholly set off" in Section 72 have to be understood in the context of the preceding words "cannot be". In our view, the assessee is not entitled to resort to partial set off thereby converting his actual negative income, i. e. , loss, in any particular year to a positive income, i. e. , profits, so as to claim relief under Section 80m.

(14) WE are also unable to accept the contention of the assessee that the relief available under Section 80m should be taken into account while computing the gross total income of the assessee and that in computing gross total income, only 40 per cent. of the dividend earned by the assessee should be taken into account. Such contention is totally contrary to Section 80b. The definition of gross total income in the said section means the total income of the assessee computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A of the Act which includes Section 80m. In Distributors (Baroda) P. Ltd. s case, all that the Supreme Court laid down was that where the gross total income of the assessee included dividend from a domestic company, the quantum of relief which would be available to the assessee under Section 80m would be computed not on the gross dividend but the amount of dividend income as computed under the said provisions of the Act. The Supreme Court did not lay down and the said decision is not an authority for the proposition that in computing gross total income of the assessee, the relief available under Section 80m should be taken into account and the quantum of relief allowed under the section should be deducted from dividend in such computation of gross total income.

(15) IN the instant case, the return filed by the assessee showed a net loss of Rs. 1,88,953. Assuming that such loss was computed taking into account the unabsorbed depreciation, there was no question of the assessee claiming any further relief under Section 80m. For computation of income from business, the provisions of Section 32 which provide for depreciation allowance have to be taken into account and if the net result comes to a negative figure, i. e. , loss, the same has to be set off from the other heads of income. The loss suffered in the business in the instant case (the depreciation also being taken into account) is sufficient to wipe off the positive income from the other heads.

(16) THE business loss of the assessee, as noted above, cannot be set off or adjusted in its entirety against the dividend income of the assessee in the said year and the unadjusted balance would be carried forward.

(17) ON the above ground alone, the reference can be disposed of without going into the further question as to the quantum of dividend income available for set off as suggested on behalf of the assessee. However, as the point has been canvassed before us in some detail, we propose to consider the same. The law is settled that the gross total income and also the dividend income of the assessee have lo be computed in accordance with the provisions of the Act without making any deduction under Section BOM contained in Chapter VI of the Act. It is not the case of the assessee that the dividend income has not been so computed. Therefore, the dividend as computed has to be taken into account in computing the gross total income of the assessee and only thereafter the question of relief under Section 80m would have to be considered. In the instant case, the gross total income having been computed to be a loss, no further relief is available to the assessee under Section 80m. This has been laid down by this court in National Industries Ltd. s case [1978] 113 ITR 252. [LQ/CalHC/1978/159]

(18) FOR the reasons given above, we answer the question referred in the negative and in favour of the Revenue. In the facts and circumstances, there will be no order as to costs.